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The Future of Card Payments

There has been much recent speculation about whether the card payments landscape will survive as we know it today. The advent of technology such as MPOS combined with the Omni-Channel model and new participants such as PayPal are combining to make it difficult to predict which horses to back in the ever-changing race. Meanwhile, the increasing competition has accelerated the “race to the bottom” of merchant fees, requiring acquirers to reduce their costs and increase revenues by providing value added services at the point of sale.

The issue then is, without an Omni-Channel payments model, and there are few acquirers today that are genuinely able to provide this, how can acquirers offer compelling services to their merchants across all service points, including e-commerce, m-commerce, and physical POS devices, MPOS, self-service payment points and other kiosks and, potentially, ATMs? Equally, how can value added services be deployed in the retail environment cost effectively and, most importantly, quickly.

These are two separate issues. The first requires a multi-channel payment system, capable of providing payment services irrespective of the channel and which can cope today with whatever tomorrow may throw at it. Some of the latest, new technology payment systems have this capability, but very few, while, those acquirers with the “old warhorse” systems such as BASE24 are likely to struggle. A seldom explored option is to combine the two and play off each other’s strengths, for example, leave BASE24 doing what it does well, i.e. processing the business as usual transactions using message protocols that are well established and settled, and use new technology to handle the newer, wackier transactions using message protocols which can be quickly configured. These transactions can then be fed through BASE24 in an existing message standard which allows existing payment pathways to be exploited and uses the investment in back office systems, so that, for example, merchant statement systems do not need to change.

An example is shown in the diagram below:


In the above illustration, the existing infrastructure (devices and payment networks) are driven by the legacy system, while the new devices, payment networks and value added services are managed by a new system which is closely coupled with the existing system.

The next logical step is to add the existing payment networks to the new system, which would allow new payment streams to connect directly into the appropriate payment networks while removing the need to maintain network interfaces that may well be “out of maintenance”. This would significantly reduce the cost and time for complying with network mandate changes.

So, how can value added services be applied across all channels?

In the above model, we have complicated the picture as value added services will need to be driven through two platforms, the old and the new. Access to the providers of those services can be achieved through the new platform and supplied to the terminals either directly (via split dialling for BAU transactions and value added transactions), or the devices being driven by the new platform. There are, however, significant issues, particularly around provision of the application within the POS device or other payment channel.

Aviso’s vision

The move to a browser based POS terminal solves many of the issues, as the applications can be developed and managed centrally and provided as browser sessions across all the channels. We have already seen this with MPOS devices and the technology is heading for conventional POS devices as well. Suddenly the issues around managing the applications on the device disappear, as the payment switch becomes an application server for the value added applications. It can also provide the various media files necessary for retailer staff training in the value added applications and other compliance related information.

Now, the applications can be developed and deployed centrally, in as many languages or formats as is needed, allowing retailers to add their own flavour of the service. It will also allow the service to be customised to the delivery channel, i.e. different screens for mobile, tablets, POS terminals and laptops. Suddenly, new services can be quickly deployed in the retailer’s own look and feel and accessed from every payment channel that needs it.

The payment message protocols, which are currently quite restrictive, will be replaced with a different dialogue that will allow more data to pass between the POS device (irrespective of channel) and the application. Now, information about the customer, location, basket, retailer and payment channel can be used to determine which services are most appropriate for this customer and also to drive one-to- one offers. This will allow acquirers and merchants to improve the payment services they provide and to deploy a more attractive and diverse range of value added services which can be personalised to the shopper, the channel, the location and even the basket if necessary.

The technology

So what is needed? Well, clearly, this isn’t really going to work well over PSTN connected POS devices, so it will require a shift to IP connected terminals. That, in turn, will require point-to-point encryption to remove the retailer’s IP network from the PCI scope. It will also require a migration from conventional POS devices to the new generation of browser based dumb POS terminals which are already shipping. The largest investment, however, will be in the infrastructure to support and bill for the value added services and to use the additional data which will be harvested from the customer payment interactions. Much of this exists today, but it will need an overhaul and the analytics used to understand customer behaviour and to select the appropriate offers and services will need to be created from scratch for most acquirers. In other areas, existing payment pathways can be reused to minimise the infrastructure overhaul.

Aviso is already working with acquirers to enable them to move along this exciting path. The winners will be the organisations that are able to combine the service provision with the range of services and intelligence to get the one to one propositions optimised. The next five years will be interesting.