„The future of commerce: the end to payment competition?“

Payment is not an end in itself


Payment is a growth market and exciting start-ups, new payment methods and interesting partnerships are emerging almost daily in 2020. Exorbitant sums are being paid by private equity firms and other market participants for payment companies, always in the hope of even greater growth and profits in the future. However, one should never forget that payment is not an end in itself. No one needs payment for the sake of payment. Payment is needed to enable trade. The exchange of goods and services for monetary value is the very purpose why payment services exist. It helps the many companies and people to sell their goods and services to other people and market participants. It is clear that customers and consumers like it when this is done as simple and smooth as possible. But probably no one would object if the annoying process of “payment” could be dispensed completely. Especially against the current background of the corona virus and the transmission of viruses via cash or payment terminals, many merchants point out the advantages of cashless and ideally even contactless payment. This leads us to a far-reaching thesis: the holy grail of payment would be to abolish itself – to make payment redundant. Well, maybe not redundant, but just to take a back seat and integrate seamlessly into the processes. That means completely silent. Without interaction.


Queuing up at the checkout is optimised


For some time now, the large supermarket chains EDEKA and REWE have been introducing services such as self-scanning for checkout as pilots in Germany, and much earlier abroad. If possible, the actual work should be outsourced to the end customer, with cashiers becoming increasingly redundant or reduced to a monitoring function. Unfortunately, one last process step is still left over – the customer still has to pay. The customer should also be relieved of the payment, and so concepts such as Amazon Go are currently being developed. Consumer electronics retailer Saturn is also experimenting with this type of easy and seamless checkout, and retailer chain Real is also piloting such tests. What they all have in common is that in one way or another they are trying to completely automate or eliminate the process of “putting goods on the conveyor belt and paying”. In some cases, customers have to use an app to scan the goods themselves and then pay for them in the app or at a payment terminal. Ideally, the customer simply walks out of the store with the goods in hand, smart technology recognises the customer and the goods and settles the purchase fully automatically, as for example with Amazon Go. The customers simply receive their receipt or invoice in the app or via email as soon as they leave the store. This payment process, which is very simple from the customer’s perspective, is already known from the Uber product. Everything the customer might notice is the debit on the bank account or he sees the debit on the credit card statement. For this purpose, the customer has usually registered somewhere beforehand, e.g. in an app, stored his desired payment method and authorised the payment once. The special thing about these processes is that they are remarkably similar to those used in e-commerce. The big difference to payment at the POS is that the customer no longer decides how to pay for each purchase, but rather only defines this once and authorises it accordingly for any payments in the future. Accordingly, this stored payment method is set forever or, in the case of credit cards, until the validity period expires. The competition of payment methods is over, the payment method is predefined and permanently stored. Amazon as the relevant player in eCommerce is increasingly transferring its expertise from the online world to the offline world. After the purchase of Whole Foods, Amazon is now experimenting with Amazon Go with its own physical stores and has already announced to offer this technology to other merchants.


IOT quickly becomes machine-to-machine payments


In 2020, more and more everyday devices are connected, will be smart and increasingly independent. This refers to widely used devices such as Google Home or Amazon Alexa, but also to the German’s favourite toy, the automobile. It won’t be long before the car can independently trigger payment at the gas station. The first initiatives such as Shell SmartPay or BPme are already moving in this direction. Paying without carrying out the actual payment process is already possible in voice commerce with Amazon Alexa. When ordering by voice, the shopping experience is reduced in extreme cases to a few words such as “Alexa, order new toilet paper!” In times of Corona, where toilet paper mutates into a status symbol, maybe not so bad. No more lenghty article selection with price comparisons and reading reviews. The decision on the choice of payment method? This has been done once during setup and will never be considered again. The payment is simply executed. Also at this point there is no more competition between payment methods.

Merger of POS and eCommerce leads to standardisation of payment methods

Omni-Channel is another important trend in retail. As a big buzzword driven through the village by the payment industry, this trend is slowly making its way into reality. Customers expect and demand a uniform shopping experience and the dissolution of the boundaries between stationary trading and online commerce. For customers of various retailers, it is now a matter of course to exchange goods purchased on the Internet or mobile in the next shop and vice versa. If a desired article is not available in the store, it can be delivered to the customer’s home without any problems. The customer expects a consistent experience, the stored shipping address should be as known to the stationary shop as to the online shop. The same applies to the payment methods. Seamless transitions, refunds and payment options. All a matter of course from the customer’s perspective. For companies, merchants and payment service providers, this means ample conversion measures, standardisation and harmonisation of legacy IT infrastructures, adaptation of ERP systems and processes and, above all, for service providers, of course, that they have to offer a one-stop solution. The retailer needs everything the customer demands for his business. All major payment providers have now adapted to this more or less well and optimised their systems, services and solutions. This shows that the two worlds not only converge, but that there can even be overlapping, integrated and interactive retail management processes. It is clear that this will also lead to the standardisation of payment alternatives and this is already being perceived as such.


The future of payment is the background


Handing over your hard-earned money is rarely fun. Agonizingly slow processes, tedious input of security features and remembering all those 3DS passwords… nobody really wants that. And a merchant only wants to make sales, i.e. conversion. The only ones who seem to like the complexity are the regulators that have just raised the bar a bit higher with the PSD2 and will make it a bit harder for the consumer to pay. Enough reasons for customers to mature their wish to banish this unpleasant process from their field of vision to the background. Paying with a quick look at the mobile phone (FaceID & ApplePay or Google Pay), a short button click (PayPal OneTouch) or simply walking out of the store (Amazon Go) – the actual payment process moves into the background and will be best if made almost invisible. Those who are able to place themselves first in this big trend and which the customer saves as his preferred payment method will be the winners of the next big era of payment. The less the customer has to do actively to participate in the payment process, the better customers will find it in the context of a value-added shopping experience. And then nothing will change for a long time. Why should the customer change his payment method when everything works quietly in the background? What incentive would he have? I mean… probably none or the payment provider has to buy the preference at a high price…


Making something appear simple is usually the biggest challenge


Apple invests millions, if not billions, in the development and design of its products. It is no coincidence that iPhones are so easy to use and have a very simple design. Anyone who has ever tried to paint a picture or design a website knows that it is incredibly difficult to make things look elegant and chic or to make an end-user process feel natural. The same is true when you’re trying to move payment in the background and make everything look easy. In depth, payment is incredibly fragmented and complicated. There are a multitude of protocols, regulations and market participants involved. The recent regulations on Strong Customer Authentication with the Payment Service Directive 2 and the new standard 3DS 2.0 that comes with it alone are dizzyingly complicated. Looking at Germany, the very decentralised and inhomogeneous POS infrastructure in particular is a major challenge. In order to achieve the necessary degree of standardisation and harmonisation here, which will be necessary to make the world of payments virtually invisible to the end customer, major challenges will arise for payment service providers, network operators, acquirers, merchants, schemes and regulators alike.

Just how challenging standardisation can be if it is to be achieved in an international context can be seen impressively in recent years in the attempt to introduce a uniform plug standard for charging mobile phones. The EU has been trying to push this forward for years and manufacturers, above all Apple, are becoming increasingly creative in circumventing EU regulations. The payment world will face similar challenges. None of the providers in the value chain will have any great interest in making themselves redundant and hiding in invisibility. The race of the payment providers to become the “all-rounder-Omni-Channel-one-stop-shop-payment-service-provider ” will continue in 2020, because everyone wants to be able to offer exactly that to their customers. Everything from a single source, seamlessly integrated, largely in the background and yet still earning good money as a company itself.

We are very excited to see which payment provider will be able to solve all these challenges of his business in the best possible way. It is clear that the distinction between online and offline is becoming increasingly blurred and representatives of both milieus are trying to cover this seamlessly…