Over the last few years, the payment industry has experienced great changes motivated by new business models and growing customer needs. To get a better idea of what exactly has contributed to the transformation of payment lately, we turned to one of our local experts here at optile and asked him to share his insight on these topics. According to our Sales Manager, Jan-Patrick Mainka, the following aspects drive the change in the payments industry: international growth of businesses, shifting to a platform strategy, aggregation, and omni-channel. Parameters that have brought these aspects to the forefront include the technological shift to mobile, the complex customer registration process, and growing customer expectations.
Aspect #1: International Growth
Increasing cross-border e-commerce has been one of the most visible aspects of the current payment landscape. “The major underlying aspect of all this change is international growth”, says Jan-Patrick. “It is highly unlikely that a merchant with the ambition to expand would offer his goods or services in only one or two countries. Ideally, he wants to offer those goods or services in as many countries as possible.”
Such internationalization affects both businesses and payment services alike. Yet businesses had to transform themselves the most. “Once you decided to go global, you need to have a system in place that matches the local requirements, not only in payment, but also in logistics, etc. You have to change the way you were building your infrastructure.”
Aspect #2: Shifting to a Platform Strategy
As an online business with the desire to expand, you want customers to have access to your goods and services from as many locations as possible. However, challenges in payment processing in various currencies and offering payment methods for each region have led to a change in the way payment infrastructures are now being built. This brings us to the second aspect of transformation in payments: the shift to a platform strategy.
“Businesses had to move from an empirical, step-by-step technology to more platform strategies, offering more flexibility. The main examples coming to mind are Amazon, Alibaba, and eBay. Smaller merchants try to follow the example of these bigger ones because you can exchange aspects of the platform without having to change it entirely for different countries”, Jan-Patrick explains.
Aspect #3: Aggregation
Payment services need to cover all kinds of payment methods for every market and offer multiple services at the same time. For these tasks to be managed successfully, a high level of payment aggregation makes all the difference. This is a service that one single payment provider alone often finds hard to deliver to its business customer. This need for aggregation to cover emerging sectors of the payments industry has opened many opportunities for FinTech firms and third-party providers to step in and fill the gaps.
“The biggest PSPs started to breach international markets in the early 2000’s, but now we see that PSPs are struggling to cover all kinds of verticals, payment methods, and markets”, adds Jan-Patrick. “So, the level of aggregation and the flexibility to offer multiple services at the same time has become a real challenge not only for the payment industry, but also for the merchants – they have to find a solution that fits their needs.”
Aspect #4: Omni-Channel
The overall societal shift to mobile use has had a profound impact on the market. Alone in 2017, over 2 billion mobile phone users will have made some form of mobile transaction. People who do spend on their mobile devices tend to spend twice as much as those buying via other digital channels. Jan-Patrick comments: “People do want to buy things via their mobile or tablet. And since any channel is relevant for sales, services have to be equally aligned across all channels and devices.”
Along with the optimization of websites for mobile use, businesses now have the task of connecting their online presence with in-store offerings. Omni-channel can potentially solve issues that arise with stocking inventory at physical stores while also encouraging shoppers, who may have not done so otherwise, to buy online.
“In a future scenario”, elaborates Jan-Patrick, “a customer goes into a shop and wants to purchase something. They might not have it in stock, so they will want to buy it online. But is the shop employee doing that separately? Or will customers be able to do that themselves, for example with a tablet provided in-store and their saved customer data that is already online, to have it delivered to their home? This second option is what will become a big trend, as it brings simplicity while also increasing customer retention and reducing transaction costs for the business, since POS transactions are much cheaper than online ones.”
Another option for retailers seeking to integrate channels is stocking just enough inventory in physical stores to allow for customers try out the product, thereby increasing the likelihood of the purchase. This is an example of “pop-up shops”, a growing trend where online retailers set up a temporary storefront to attract new customers by allowing them to experience products first-hand. After trying out the product in person, they can order it online from the store and have it quickly delivered to their home. “Then the customer is happy, and the merchant saves costs by not needing to ship large amounts of product to the stores”, says Jan-Patrick. In fact, studies show that customers who buy both in-store and online provide a 30% greater lifetime value for the business than those who only shop on one channel.
Triggers for Change in Payments
Jan-Patrick Mainka identifies two main triggers responsible for these changes: higher customer expectations and competition on the market. “These two somehow go hand in hand, because high expectations don’t come out of nowhere, right?”, he comments, as high customer expectations are generally created by businesses that raise the bar.
“For example, Amazon spoiled us”, continues Jan-Patrick. “They make life very simple for us. This creates very strong expectations on the customer side. Now, if the customer wants to purchase an item and he doesn’t find the same setup or he has a bad experience, they’re more likely to switch to the old one.“
Customer expectations regarding e-commerce practices have indeed become more demanding over the last year. Recent surveys show that 86% of consumers will pay more for a better customer experience and that by 2020, the customer experience will supersede price as the key decision factor in a purchase.
What the Future of Payments Beholds
Now that we’ve identified some of the main drivers of changes in payments from the past year, what can we expect to see in the future? Jan-Patrick predicts, “a variety of payment-related services will be outsourced so that they can be easily exchanged and benchmarked without any additional effort”. This puts third-party providers in a powerful position as more businesses seek ways to pass highly technical or time-consuming processes to expert firms.
Furthermore, using big data to analyze and optimize performance will likely become commonplace in the future of payments. In Jan-Patrick’s words, “computers simply do some things much faster than we do. And when it comes to risk and fraud scoring, these will be designed on a computer basis as they can analyze problems much more quickly and efficiently than we can. I think these deep algorithms for payments will change a lot in the future of the industry.”
With the increased interconnections between e-commerce companies, customer journeys become more complicated. Allowing for customer data to be passed between linked merchants would make payment process much more efficient for both the business and the customer. “This would enable cross-serving between businesses that are existing in the same ecosystem”, says Jan-Patrick. “One example of these lengthy, multi-step customer journeys is how consumers make purchases for traveling, such as train or plane tickets. Along the way, customers interact with many different businesses that they could potentially purchase from. Until now, such purchases have always been managed by using cash or digital transactions. In the future, however, digital wallets or even tokens may prove to be a more effective means of managing such transactions. Looking into the future of customer registration from the token perspective makes it much simpler because we don’t even need a wallet, we just need to pass tokens on to the next merchant.”
How to Stay Relevant: Ideas for Businesses
So, what should online businesses keep in mind to stay up-to-date with the latest trends and innovations in payment? Adapting to new technologies is the first key in staying relevant in the face of change. “Get rid of your legacy technology as soon as possible”, advises Jan-Patrick. “Don’t find excuses to postpone it, because the faster you can solve this issue, the quicker you’ll be ready to open up your system to third party services that will help you reduce costs.”
A second consideration for businesses is to join the shift to using platforms for payment solutions, which can increase customer satisfaction and conversion due to its availability of options and customization to different markets. “They definitely should rely on flexible, modular platform solutions”, says Jan-Patrick.
Additionally, businesses must ensure that, regardless of which platform they choose, they have the ability to stay independent and flexible in their chosen payment solution. Having the option to add on tools later on or to change the operation of their solution as their business model changes, is essential to adapting quickly in the ever-changing payments environment.
In order to take advantage of these coming changes, businesses must invest in a better payment technology, perfect the customer experience they offer, and choose to collaborate with third-party providers and systems that can help their business run more efficiently and on an integrated, global scale.