Merchant payments are racing toward a digital paradise.
It’ll be a world in which most financial transactions are not only cashless, but also increasingly cardless as payment innovations that accelerated during the pandemic continue to pick up steam as we enter the post-pandemic era.
That’s the view of ACI Worldwide Executive Vice President of Merchant Solutions Debbie Guerra, who told PYMNTS in an interview that the payment experience will be increasingly shaped by consumer preferences.
“There’s a resurgence in consumer preferences for shopping in-store, online and with mobile, leveraging the Internet of Things,” Guerra said. “Merchants will have to address consumer preferences for payments and ensure that the same shopping experience is available across channels.”
The rapid emergence of newer, touchless payment methods was at first due to necessity amid the pandemic, but nowadays, consumers view many of the innovations that have appeared as superior ways of transacting. As Guerra pointed out, concepts such as buy online, pick up in store (BOPIS) are much more convenient. Meanwhile, the airline industry has recently pushed the idea of “pay when you fly,” allowing travelers to put down a small deposit when they book a flight and then pay the remainder as they’re boarding. With flight schedules still somewhat erratic, that’s proven to be a big hit. Consumers will want to keep transacting that way, she predicted, and the onus will be on merchants to enable it.
Businesses Also Want Real-Time Payments
At the same time, Guerra said she believes merchants themselves are pushing for greater adoption of real-time payments, too. The advantages are simply too big for them to not want to go that route.
“It’s an opportunity for merchants to have more rapid settlements and receipt of their funds,” she said. “It could be more secure, and it means not spending as much on interchange as they do today.”
For consumers, real-time payments can be advantageous, too, serving as a kind of cash replacement, Guerra said, potentially also acting as a digital payment tool for unbanked and underbanked consumers. However, it will take some convincing to get the majority of consumers to throw away their plastic in favor of these new real-time payment rails.
“Merchants are going to have to figure out how to fix the tether of credit card loyalty,” Guerra said. “The challenge will be how to overcome that with their own rewards and loyalty programs that can incentivize the use of real-time payments.”
Real Life Use Cases for Real-Time Payments
Guerra said she sees a big opportunity in the concept of the connected car enabling superior in-car experiences, too, and that will include more seamless payments. She described her vision of a future where connected cars will be able to communicate with the gas station forecourt before it arrives, so the driver can order whatever items they want from the convenience store and be directed to an appropriate fuel pump.
“You’ll be able to turn on the fuel [pump] from your mobile device and pay directly; that’s going to be a reality very soon,” she insisted. “We’re really at a crossroads with an opportunity for continued payments innovation across so many areas.”
That growth opportunity also extends to buy now, pay later (BNPL) payment solutions, which have surged in popularity over the past couple of years. Guerra shared her thoughts on where that’s going, given that it really seems like a win-win-win for merchants, consumers and payment providers alike.
On Guard for Challenges
Guerra said the appeal of BNPL is clear, but she believes the ongoing viability of the model will be tested in the coming years, and that we could still see some greater controls or limits on accessibility being applied. Agencies like the Consumer Financial Protection Bureau (CFPB), for instance, will no doubt be wary of BNPL leading to “alternate credit challenges” for people who previously found it more difficult to access finance.
“The dark side of buy now, pay later is making sure that on the consumer side, it doesn’t create more debt that becomes unmanageable,” Guerra said. “So, I think we have to make sure that many of the new FinTechs and providers coming into the alternate lending space operate with the same credibility, compliance and adherence to regulations as the broader card issuers and banks.”
Another challenge for the evolving payments space will be dealing with the growing prevalence of fraud, which has increased over the past 18 months as more transactions are done digitally.
According to Guerra, the problem that payments providers have is that most fraud these days is concentrated in “card-not-present” transactions because it’s easier to commit fraud there. So, with the pandemic-induced increase in digital payments and eCommerce, fraudulent activity has also become more widespread.
Guerra also noted that fraudsters have generally shifted to smaller-ticket items, with increased fraud attempts seen in the gaming and mobile spaces.
“What it tells us is that fraud can’t be a secondary thought or an afterthought,” Guerra said. “It must be an integral component of how we address this shift to digital.”
Combating fraud will involve working out how to profile customers in a positive manner, so merchants know who they are and can support the rapid authorization of activity and prevent chargebacks and declines, Guerra said. As transaction volumes grow exponentially, the solution will inevitably lie in technologies such as artificial intelligence (AI), machine learning (ML) and rich data sets that can enable providers to make smart decisions very quickly.
“It’s an area where the payments industry must focus a lot of attention,” she said. “Consumers want to be sure merchants can keep their personal information safe, so they have the confidence to do business with them.”