These days, everyone is buying online. How can processors make it simpler, faster, and more secure?

Volume Seventeen, Number Twelve • DigitalTransactions.net • December 2020

ALSO IN THIS ISSUE: Visa, Plaid, and the DoJ Why POS Lending Is Taking O Is the Era of Square II Coming? Doing Remote Payments Right INJECT, NOT INTERRUPT

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DECEMBER 2020 • VOLUME 17, NUMBER 12

The E-Commerce Boom 20 Ecommerce has been setting records during the coronavirus pandemic, but processors should be thinking about ways to innovate. For example: how to make transactions simpler, faster, and more secure?

THE GIMLET EYE The Network of Networks 4

TRENDS & TACTICS 6 Visa Hits Back PayPal’s Crypto Comes to Checking Meets The Department of ‘Fundamental Overhaul’ Mass Payouts Same-Day Funding Justice’s antitrust suit to stop Visa’s acquisition The company’s on a roll, and Need to pay gig workers all Using its WePay technology, of Plaid Inc. is based on to keep it going it’s adding across the world? BitPay Chase is mating a business a big misunderstanding features from crypto to QR lets you do it an instant— account with same-day of what Plaid does, the codes to installment lending with Bitcoin. funding on mobile network argues. to its PayPal and Venmo apps. card payments. Plus, Security Notes explains a  x for RSA; and Payments 3.0 looks ahead at which changes wrought by the pandemic will last.

ACQUIRING 13 STRATEGIES 26 It’s Now for Buy Now, Pay Later How To Shift To This new point-of-sale option is Remote Payments growing fast. Is it threatening credit Payment at a distance has become and debit card traŽ c? a priority as a result of the Covid-19 pandemic. Here are š ve ways to make that shift go smoothly. COMPONENTS 16 Smart Phones Go Contactless ENDPOINT 30 Software-based options are Time to Go Big(ger) proliferating for merchants who want A burgeoning opportunity awaits to use their own mobile phones for payments š rms that can integrate payment card acceptance. Are we with software houses to serve entering the era of Square II? mid-market clients.

Cover Illustration: Jason Smith, 123RF.com

Digital Transactions (USPS 024-247) is published monthly by Boland Hill Media LLC, 800 Roosevelt Road, Building B, Suite 212, Glen Ellyn, IL, 60137. Periodicals Postage Paid at Glen Ellyn, IL, and at additional mailing oŽ ces. POSTMASTER: Send address changes to Digital Transactions, P.O. Box 493, Northbrook, IL 60065-3553.

2 DIGITAL TRANSACTIONS | DECEMBER 2020 CONTENTS

DECEMBER 2020 • VOL. 17, NO. 12

THE NETWORK OF NETWORKS PUBLISHER Robert A. Jenisch EDITORINCHIEF John Stewart SENIOR EDITOR, DIGITAL HAVE YOU NOTICED LATELY that the so-called card networks are talking Kevin Woodward less and less about cards? This seems especially true of what we used to call CORRESPONDENTS the two big bank card networks, Visa and Mastercard. They ceased formally Jim Daly, Peter Lucas being “bank” card networks when they went public a decade ago, and now the ART DIRECTOR/PRODUCTION EDITOR “card” descriptor seems to be fading as the networks eye new opportunities Jason Smith in money movement with or without a plastic token. EDITORIAL ADVISORY BOARD Last month, we asked the two big networks about this. Here’s how Ansar Eula L. Adams Ansari, senior vice president of digital solutions and platform products at John Elliott Visa, describes the overriding strategy at his company: “The focus of our Alex W. “Pete” Hart Former Chief Executive O cer, business … remains our network of networks, which is about moving money Mastercard International from all endpoints to all form factors. This network of networks allows us to William F. Keenan provide end-to-end money movement solutions with best-in-class capabil- President, De Novo Corp. ities, using all available networks to optimize speed, security and price of a Dr. Gideon Samid Chief Technology O cer, transaction for consumers, businesses, and governments around the world.” AGS Encryptions Ltd. Mastercard’s Ron Schultz, executive vice president for new payment „ ows, DIRECTOR OF ADVERTISING didn’t speak of a “network of networks” but Mastercard’s expression, “multirail,” Robert A. Jenisch, 877-658-0418 is an intriguing descriptor for where that company is going strategically. With [email protected] its acquisitions over the past few years along with internally developed tech- ADVERTISING SALES REPRESENTATIVES nology, Shultz said Mastercard can support card, automated clearing house, Robert Mitchell, 877-658-0418, x7 and real-time transfers (through Vocalink), not to mention bill payments. [email protected] Both companies have bulked up through acquisitions in increasingly crucial Rob Akert, 877-658-0418, x6 [email protected] markets like cross-border payments (Visa-Earthport, Mastercard-Transfast). Plus Mastercard a few months ago added account-to-account transfers through Digital Transactions, Digital Transactions News, and DigitalTransactions.net are publications of its acquisition of that part of the Nets business. Boland Hill Media LLC, 800 Roosevelt Road, On top of that, both companies have made bids for data networks that con- Suite B212, Glen Ellyn, IL 60137 John Stewart, Managing Director nect fintechs like Square and Venmo with customers’ bank accounts for such Robert A. Jenisch, Managing Director functions as account verification and money movement. Mastercard will likely For advertising information, call close soon on its $825-million deal for Finicity Inc. (if it hasn’t already done so 877-658-0418. To subscribe or give us a change of address, go to by the time you read this) while Visa’s $5.3-billion proposal to buy Plaid Inc. has www.digitaltransactions.net and click on been stymied by the Justice Department on antitrust grounds. “Subscriber Care” or call 847-559-7599. The views expressed in this publication are The DoJ’s theory is that Visa fears Plaid, if left to its own devices, could ulti- not necessarily those of the editors or of the mately challenge Visa’s dominant position in debit networking, so it bought members of the Editorial Advisory Board. The publisher makes reasonable e™ orts to the company to forestall that potential threat. Visa denies the allegation, and ensure the timeliness and accuracy of its content, but is not engaged in any way in we’ll all have to wait to see how the case sorts out. But the interesting facet to o™ ering professional services related to the case is how even the U.S. government sees the potential for account deb- š nancial, legal, accounting, tax, or other matters. Readers should seek professional iting and crediting via direct connections rather than plastic tokens. counsel regarding such matters. All content Whether the approach is multirail or network-of-networks, Mastercard and herein is copyright © 2020 Boland Hill Media LLC. No part may be reproduced without the Visa clearly aren’t the card networks they once were. What they’re becoming express written permission of the publisher. Subscription prices: $59/year for subscribers is something far more interesting. in the United States; $69/year for Canadian subscribers. All other subscribers, $119/year, John Stewart, Editor | [email protected] payable in U.S. currency.

4 DIGITAL TRANSACTIONS | DECEMBER 2020 DigitalTransactions.net The payments market, Breaking news from the all in one place. payments market, posted daily

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VISA HITS BACK Visa Inc. isn’t taking it lying down. of this innovative alternative to Visa One of the biggest players in open The card network last month deliv- and increase entry barriers for future banking, Plaid has connections to ered a rebuke to the Department of innovators.” 200 million consumer bank accounts Justice over the government’s anti- Visa announced in January it had and 11,000 U.S. banks, according to trust lawsuit attempting to block struck a deal to acquire Plaid, an the DoJ. Visa’s $5.3-billion acquisition of Plaid 8-year-old company that connects In its response to the lawsuit, Visa Inc., calling the lawsuit “legally ‰ awed nonbank payments providers such as argues the government misunder- and contradicted by the facts.” Stripe and Venmo with consumers’ stands both Plaid’s business and the The Department of Justice, which bank accounts. The links, which are ultra-competitive landscape in which had filed the suit hours earlier, opened with consumers’ permission, it operates. charges that Visa’s deal for Plaid is are used to aggregate spending data, “The combination of Visa and Plaid an eŠ ort to sti‰ e competition in debit look up balances, and verify other will deliver substantial benefits for networking by acquiring an entity personal financial information. consumers seeking access to a broader whose technology could enable it to These connections, also known as range of financial-related services, and challenge what the DoJ sees as Visa’s open banking, are vital links for fin- Visa intends to defend the transaction dominance in that market. techs seeking to enable such services vigorously,” Visa says in its statement. “American consumers and busi- as peer-to-peer payments, online “As we explained to the DoJ, Plaid is ness owners increasingly buy and sell banking, and digital investing (“Open not a payments company. Visa’s busi- goods and services online, and Visa—a Banking And Its Friends,” September). ness faces intense competition from monopolist in online debit services— has extracted billions of dollars from those transactions,” assistant attorney Visa is a general Makan Delrahim of the Jus- tice Department’s Antitrust Division ‘monopolist in says in a prepared statement. “Now, Visa is attempting to acquire online debit Plaid, a nascent competitor develop- ing a disruptive, lower-cost option services.’ for online debit payments,” the state- MAKAN DELRAHIM, ASSISTANT ATTORNEY ment continues. “If allowed to pro- GENERAL OF THE JUSTICE DEPARTMENT’S ceed, the acquisition would deprive ANTITRUST DIVISION American merchants and consumers

6 DIGITAL TRANSACTIONS | DECEMBER 2020 TRENDS & TACTICS a variety of players—but Plaid is not Despite Visa’s claims, Plaid’s size entities to bank accounts and other one of them,” the statement goes on. and reach are most likely what gave authentication services. The acquisi- “Plaid is a data network that enables rise to the DoJ’s theory that an acqui- tion of Plaid by Visa could lock out a individuals to connect their financial sition by Visa would violate antitrust lot of competition in open banking.” accounts to the apps and services law, says Patricia Hewitt, principal “Visa has always been an aggres- they use to manage their financial at PG Research & Advisory Services, sive competitor and it looks for con- lives, and its capabilities comple- a Savannah, Ga.-based consultancy. tractual exclusivity in its business ment Visa’s.” good for competition.” “There is increasing value in arrangements,” she adds. “The DoJ is Far from being anticompetitive, organizations to get to depository obviously looking hard at the anti- the merger will be “good for competi- accounts and a›ect transactions in trust implications of Visa’s planned tion,” Visa argues. The company could those accounts,” Hewitt says. “What acquisition of Plaid.” not be reached for further comment. Plaid does is connect disparate —Peter Lucas PAYPAL’S ‘FUNDAMENTAL OVERHAUL’ PayPal Holdings Inc.’s top execu- tives last month laid out what chief TRANSACTIONS TAKE OFF executive Dan Schulman called “a (Transactions in billions, with year-over-year growth rate) fundamental overhaul” of the com- 4.0 pany’s PayPal and Venmo apps that will include a new cryptocurrency feature. Also on the docket are bill- payment and QR code capability on 3.7 top of near-field communication technology and PayPal’s Pay in 4 installment-lending option. 3.5 The timetable for the new fea- tures started in November with the bill-pay feature, and will progress 3.3 toward “everything in place” by the end of next year, Schulman told equity 3.1 analysts during a conference call to discuss PayPal’s third-quarter results. 3.0 The makeover comes as PayPal is adding net new accounts by the boat- Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 load and as a new Venmo-branded 28% 25% 21% 15% 26% 30% credit card is helping the peer-to-peer Source: PayPal payment app head toward profitability. “We expect Venmo to make a positive chains for its QR code technology for and Beyond, Schulman said, adding contribution in 2021,” Schulman said, contactless point-of-sale transactions that more than 500,000 small and with revenue around $900 million. (“PayPal Plots a New POS Course,” Sep- micro merchants will be accepting “Venmo is clearly turning the corner.” tember). Ten “major merchants” are them by the end of the year. The San Jose, Calif.-based pay- now signed to process the barcodes, Another thrust into the physical ments giant is adding more retail including CVS, Nike, and Bed, Bath point of sale involves a feature that

TRENDS & TACTICS DIGITAL TRANSACTIONS | DECEMBER 2020 7 will allow PayPal users—and, later, merchants have been forced by the Venmo wallet holders—to buy, hold, pandemic to beef up e-commerce CRYPTO COMES and sell cryptocurrency and spend it at capabilities, long-time e-commerce stores by converting it into fiat money. processor PayPal has plotted a course TO MASS PAYOUTS Some hints about the feature, in the other direction. Already, Schul- As firms look for ways to speed up which will embrace Bitcoin, Ethe- man said, “we’re seeing nice adop- and secure simultaneous payments to reum, Bitcoin Cash, and Litecoin, first tion in what we’re doing in the o” ine multiple workers or contractors, cryp- emerged in June. The capability will space. We want to capture what is a tocurrency has entered the picture. be available in the U.S. market first, huge in-store opportunity.” BitPay Inc., an Atlanta-based pro- with the spend capability to come Another factor in that strategy is cessor that o ers crypto e-wallets, next year at all 28 million merchants Pay in 4, launched at the end of August last month added a mass-payout accepting PayPal and Venmo. as PayPal’s entry in a rapidly growing service that will let companies pay in There will be no fees to merchants market for no-interest installment digital currency gig workers, contrac- beyond ordinary PayPal rates, the credit o ered at the point of sale. tors, and other workers worldwide. company says, since the transactions “Demand is tremendous,” Schulman The service, dubbed BitPay Send, will simply be additional payments said. “It’s going to be one of our big is particularly positioned for inter- settled in dollars. “There’s no ques- growth drivers.” national payouts, the company says, tion digital currencies are going to But Covid-related restrictions have as Bitcoin and other digital currencies be rising in importance. Our digital also helped PayPal as stay-at-home aren’t dependent on local exchange wallets can help shape the utility of consumers turned to e-commerce. rates and transactions can be com- those currencies,” Schulman said. At the rate that consumers are sign- pleted in minutes, “Blockchain pay- The crypto capability has been ing up, PayPal now expects to add ment adoption is growing because it rolled out to 10% of the wallets so 70 million net new active accounts by o ers an easy way to send and receive far, he added, with “demand” build- year’s end, with 15.2 million having payments on a global scale,” said Ste- ing for wider distribution. been signed up in the quarter. The phen Pair, BitPay’s chief executive, in PayPal has worked for years to gain total at quarter’s end was 361 million a statement. By contrast, he said, “tra- a higher profile at the physical point (including the 28 million merchant ditional international payment meth- of sale, an ambition that now appears accounts), up 22% year-over-year. ods are cumbersome, costly, and slow.” with ironic overtones. While physical —John Stewart Further, the new service does not require companies to buy or manage cryptocurrency and reduces the cost of distributing the payouts, BitPay says. MONTHLY MERCHANT METRIC Mass payouts are typically used when Total Gross Processing Revenue, in Percent firms need to send earnings to con- Sum of total discount, total transaction fee revenue, and total other fee revenue divided by total volume tractors, such as ride-share drivers, in various geographies and at one time. Q  .% BitPay Send represents a new ave- Q  .% nue in cryptocurrency services for Q  .% the company. “Historically, BitPay Q  . % has focused on allowing companies Q  . % to receive crypto, but they also have a need to send crypto,” says Merrick Note: This is sourced from The Strawhecker Group’s merchant data Theobald, vice president of marketing. warehouse of over 3 million merchants in the U.S. market. The ability to understand this data is important as small and medium-size Many BitPay clients, he adds, work businesses (SMBs) and the payments providers that serve them are key drivers of the economy. through a iliates in various parts of All data are for SMB merchants de„ ned as merchants with less than $5 million in annual card volume. the world. “They were looking for a Source: The Strawhecker Group © Copyright 2020. The Strawhecker Group. All Rights Reserved. All information as available. faster way to pay, and the a iliates

8 DIGITAL TRANSACTIONS | DECEMBER 2020 TRENDS & TACTICS were looking for a faster way to otherwise spend the funds they their crypto holdings into dollars or receive [payment].” received,” says Sarah Grotta, direc- other fiat currency and spend it at BitPay positions the service as a tor of the debit advisory service at the stores. The card, issued by New York way for companies to pay contrac- consultancy Mercator Advisory Group. City-based Metropolitan Commercial tors or a” iliates in crypto without The mass-payout service follows Bank, comes with an EMV chip and assuming the risk brought on by BitPay’s launch in June of a prepaid contactless capability. the currencies’ volatility. “One of Mastercard that lets users convert —John Stewart our biggest challenges is that we did not want to buy and hold crypto, and having BitPay manage that risk was an important factor in choosing CHECKING MEETS SAMEDAY FUNDING BitPay Send,” said Dan Sapozhnikov, president of AdGate, in a statement. With its new Business Complete AdGate, which Theobald says has Banking account, banking giant Freeman: been trying out the new service “for JPMorgan Chase & Co. has paired “We’re a few months,” links digital advertis- the old, a business checking account, going ers with users of Web sites that o” er with the new, same-day funding on all-in.” rewards for engagement. mobile card payments. Firms can “jump in lightly” with Aimed at small businesses, Business the new service, Theobald says, by Complete Banking includes a service sending a small percentage of each called QuickAccept, which enables payout via crypto. “The company sellers to accept payment cards with a would handle the fiat portion with contactless card reader for their mobile any existing service they use,” he says. phone or by manually entering card- acquiring operation, in direct compe- “We’ll handle the crypto portion.” He holder data through the Chase mobile tition with fintechs such as Square adds the integration work for BitPay app (for more on card acceptance on Inc. as well as other banks for small Send is “very light,” with companies mobile phones, see “Smart Phones Go merchants, which can generate higher enabling the service “in a week or two.” Contactless,” page 16). margins on card services than big ones. BitPay Send levies a fee of 1% for Key-entered transactions cost the Unlike some competing services, both domestic and cross-border pay- merchant 3.5% of the sale plus 10 cents Chase isn’t charging extra for same- outs. The company says transactions compared with 2.6% plus a dime for day funding. Business Complete are entered on the blockchain within tapped, dipped, or swiped transactions Banking also rewards users with fee seconds and confirmed in minutes. using the reader, which costs $49.95. waivers when they use more Chase With cryptocurrency, recipients don’t WePay, a software developer and products. Patrick Freeman, general need a bank account but, in the case of payment facilitator Chase bought in manager for small-business deposits, BitPay Send, they do need an e-wallet 2017, handles digital onboarding of claims no other big bank brings so and a BitPay ID. new businesses and risk underwriting, many services for small businesses Observers say the new service according to John Frerichs, WePay’s together in a seamless product. could be useful for companies con- chief product o” icer for small and “Business Complete is really our tending with unstable banking ser- mid-size businesses. Transaction first integrated deposit account,” says vices or local currencies in other routing comes from JPMorgan Chase’s Freeman. “The value proposition is countries. But workers and a” iliates wholesale payments unit and o” ers very simple.” will need certain assurances, they add. same-day funding six days a week, Chase plans to enroll 3 million “They are going to want to know with Saturdays excepted. of its small-business customers for that they will be able to easily and The service puts Chase, the nation’s the service. “We’re going all-in,” says inexpensively exchange their crypto largest bank by assets and proprietor Freeman. for a fiat currency to pay taxes and of the biggest bank-owned merchant- —Jim Daly

TRENDS & TACTICS DIGITAL TRANSACTIONS | DECEMBER 2020 9 EMVEMV GOESGOES ECCECC THIS CRYPTIC HEADLINE is quite from the former. It has apparently telling, and it deserves proper atten- held up so far. The method is harder tion from the payment community. to compromise when larger keys are Payment people know that EMV [email protected] used, so we keep the keys growing, and replaced magnetic-stripe technol- plan to keep doing so. This requires ogy, and that it sometimes takes changes to the standard, but we have uncomfortably long seconds to get the merchant to send the customer no choice. the transaction approved. But few its encryption key so the customer Technology, though, keeps moving. appreciate its big, innovative step can use it to encrypt his payment Some dark clouds are gathering from in e-commerce. information and send it over. The the corners of technology where quan- Instead of repeated exposure of merchant will then decrypt it with tum computers are being built. It has payment card content, the EMV card its decryption key. been shown that these new computers engages its authenticator in a dia- Without possession of the decryp- will crack RSA, rendering it useless. logue, a conversation that leads to tion key, eavesdroppers can’t compro- The proposed solution is called Elliptic the authentication. This dialogue mise the payment information. This Curve Cryptography (ECC), a di erent is based on dramatic cryptographic simple two-keys approach opened mathematical construct in which the advances introduced almost 50 years the door to e-commerce as we know private key, we hope, cannot be easily ago. Shows you how long it takes to it today. deduced from the public key. get science to the storefront. For this idea to work, two condi- The math behind ECC is more com- For thousands of years, cryptogra- tions must be met. First, it should be plicated and has a better chance to phy worked as follows: Transmitter impossible to decrypt the message withstand a quantum-computing and recipient shared a secret key used with the encryption key, which is in attack, while using smaller, more to encrypt the communicated secret the public domain. Second, it should convenient keys. But the change from and to decrypt it. It was applied in be impossible to deduce the secret RSA to ECC is quite involved and war and espionage, won battles, and decryption key from the public encryp- will require a great deal of planning shaped history. Alas, when payment tion key in time to harm the parties. and design. went digital late in the last century, The first condition is mathemati- Society is maintained through pay- this mode became impractical. A cus- cally secured. The second condition is ments, so a collapse of the underly- tomer spotting a new store on the Web mathematically suggested—but not ing cryptography would be a social has no shared key with this merchant. guaranteed. A faster-than-expected disaster. How long will RSA stand up? No shared key, no secure payment. computer and/or a smarter-than- Would ECC hold up for long? Fortunately, in the 1970s, three expected mathematician could com- Trying to outrun the quantum innovators at the Massachusetts Insti- promise all e-commerce transactions predator is not sustainable. Payment tute of Technology (Rivest, Shamir, and jeopardize online trade. requires a new vision. We at BitMint Adleman) made a radical proposal: For decades, that MIT method, are proud to take part in the search for Use one key to encrypt a message known as RSA, has been used to gen- a more secure, sustainable payment and a di erent key to decrypt it. Why erate pairs of public and private keys climate. As EMV goes ECC, we go DCC: is this so revolutionary? It allows such that the latter can’t be extractable Durability – Consensus – Courage.

10 DIGITAL TRANSACTIONS | DECEMBER 2020 TRENDS & TACTICS ONLY ONE OF THESE BIRDS CAN GIVE YOU THE LATEST NEWS IMPACTING THE PAYMENTS MARKET

Today and every day follow DIGITAL TRANSACTIONS @DTPAYMENTNEWS on Twitter WE ARE ALL LIVING DIGITALLY pandemic has subsided. One area where INFUSED LIVES as a result of the retailers and mobile-payments provid- pandemic, and as the promise of a ers have an opportunity lies in bringing [email protected] vaccine suggests that this may end payments together with other tools in in the coming year, the question is: a single app. Perhaps the most suc- will the changes stick? country (“The Sudden Ascent of QR cessful exemplar of this approach is One area of keen interest to retail- Codes,” October). PayPal also struck Starbucks, which combines loyalty, ers and the payments industry is a deal with InComm to bring the ordering, and payments into one app. mobile payments, specifically, pay- technology to other retailers. In an October earnings call, the com- ments made at the point of sale with However, the growth and invest- pany said mobile-ordering transactions a mobile device. This is diŽ erent from ment in these tools are no guarantee increased from 18% of the total to 24% mobile ordering or shopping, because that they will last beyond the present from the second to the fourth quarter. in those cases, the payment is still circumstances. As Claire Greene, a Because people are being forced to made with a credit, debit, or prepaid payments-risk expert at the Atlanta Fed, adapt to new ways of shopping and card. (There are cases where they con- told Digital Transactions News in July, making payments, now may be the verge, and we’ll come back to that.) it is too soon to declare a permanent time for retailers and issuers to try Mobile payments have seen a boost shift while we are still dealing with the new tools and programs. since the pandemic, though the data pandemic. Old habits and merchant- For example, the growth of con- remain a little fuzzy because mobile acceptance costs could change how tactless and mobile payments might transactions are often seen as “con- both individuals and merchants view give wearables new momentum. Pre- tactless transactions,” and it is not mobile payments in the future. vious attempts to embed payments always clear if they involved a phone Another headwind may come from into wearable devices delivered mixed or card. For example, in April Visa the growth of options. Shoppers using results. Perhaps the most successful reported that “31 million Americans their phones for communicating, navi- has been Disney’s Magic Band, which tapped a Visa contactless card or gating, or photographing may not want gives wearers the ability to complete digital wallet in March 2020, up from to sort through multiple payment payments as they tour the parks. But 25 million in November, with overall options and may decide instead to wearables—watches most likely, but contactless usage in the U.S. growing reach for their cards. Also, uncertainty perhaps even rings or other jewelry— 150% since March 2019.” over whether a particular payment tool could gain traction as contactless There are some specific signs is accepted could make shoppers shy acceptance rises and people begin pointing to investment and growth away from the potential embarrass- to grow accustomed to form factors in mobile payments. In July, PayPal ment of using the wrong one. other than cards. Context will be criti- announced that it had launched a QR Nonetheless, once the habit of cal, but there is room for innovation. code app to allow people to use their using the phone to pay is ingrained, However the disruptions play out, PayPal and Venmo balances for mobile many people will continue to make it we will see a new American wallet payments in 8,200 stores across the their default even after the Covid-19 after Covid-19.

12 DIGITAL TRANSACTIONS | DECEMBER 2020 TRENDS & TACTICS This versatile MANY MERCHANTS CAN’T SAY NO Indeed, the rapid growth of POS to buy now, pay later (BNPL) options, lending is expanding the “overall point-of-sale which are arriving in force as retailers pie, presenting an opportunity for and consumers gear up for a holiday both incumbent and new entrants,” option is shopping season that may be busier the KBW research note says, adding than usual. KBW expects the product to ”surpass growing fast. Though BNPL programs have been private-label cards by 2021.” around for years—think BillMeLater, Global BNPL volume is forecasted Is it threatening which started in 2000 and later became to increase to more than $680 billion PayPal Credit—a slew of recent entrants in transaction value by 2025, up from credit and debit has propelled it to the forefront. $285 billion in 2018, according to Point-of-sale lending is projected Kaleido Intelligence Ltd., a London- card tra c? to account for 11% of total unsecured based research firm. “This rise is credit in 2021, up from 5% in 2015, fueled not only by changing shopper according to Keefe, Bruyette & Woods, habits among younger demographics, an investment firm owned by St. Louis- but also by the overall shift to digital BY KEVIN WOODWARD based Stifel Financial Corp. spending as a result of the Covid- 19 pandemic,” the firm noted in its “Digital BNPL & EPOS Financing: Market Outlook 2020” report. ‘THREE YEARS OVERNIGHT’ A number of companies are boosting BNPL, including A• irm Inc., Klarna AB, Splitit Ltd., Afterpay Ltd., Sezzle, and Quadpay Inc. Broader payments companies are also getting involved— think PayPal Holdings Inc. with its Pay in 4 service, Visa Inc. and its installment API, Mastercard Inc., and American Express Co.—and o• er- ing similar interest-free short-term repayment plans.

ACQUIRING DIGITAL TRANSACTIONS | DECEMBER 2020 13 POS financing is better integrated standard fee, which, for U.S. online At Afterpay, Katz views the pay- into the purchase process these days transactions, is 2.9% plus a fixed fee. ment option as a budgeting tool for and o’ ers better application expe- Katz says Afterpay settles imme- consumers. “We think that’s part of riences, KBW says. Newer business diately with the merchant. “We’re what makes it so attractive, particu- models are also fanning the growing taking on the risk,” he says. “We’re larly to Millennials, who have shown interest. bringing them a higher average order some resistance to revolving debt and One major factor, however, is the value and a higher conversion rate.” traditional credit products,” he says. growth in e-commerce, something Quadpay’s Ezra says in some Indeed, card powerhouse Visa said that already was organically increas- instances the impact on conversion its debit volume was up 22.7% for the ing but received a major boost during rates and average order value is such quarter ended Sept. 30 compared to the Covid-19 pandemic. that they can be as much as 20% and the same quarter last year, while its credit volume dropped 8.7%. Credit union service organization PSCU, in its first Tracking Transaction Trends Millennials and GenZ ‘are looking for report for Nov. 1, said debit card spend was up 16.8% compared to the corre- transparent payment alternatives.’ sponding week in 2019, while credit ANA BRASKAMP, SPOKESPERSON, AFFIRM card use increased 4.7% for the same period. Afterpay says 90% of its trans- actions are made with debit cards. “While [e-commerce] was expected 60% higher, respectively. “It’s about That view is echoed by A’ irm’s to happen gradually, I would say it driving new customers and new busi- Braskamp, who says Millennials— has essentially jumped ahead three ness,” he says. those born between 1981 and 1996— years overnight,” says Ana Braskamp, That’s a big driver for merchants, and Generation Z—born from 1997 an A’ irm spokesperson. “This has says David Sykes, head of Klarna’s U.S. onward—are a’ ecting the payment forced merchants to embrace the business. Stockholm-based Klarna options merchants provide. increase in online spending by o’ er- was founded in 2005 and entered the “These two generations, which ing modern payment options.” U.S. market a decade later. Its origins together make up more than half POS financing o’ ers, meanwhile, stem from consumer reluctance to of A’ irm’s consumer network, are ride on the digital experience and the enter bank card data online, espe- increasingly skeptical of traditional way it’s able to be optimized online, cially when debit cards dominated a credit cards and banking services says Adam Ezra, chief executive of market such as Sweden’s, Sykes says. and are looking for transparent pay- New York City-based Quadpay. “By and large, the reason retailers ment alternatives,” Braskamp says. Retailers like this payment option, are adding BNPL is [it] creates new “Additionally, because they grew up though it typically costs a little more customers,” Sykes says. with monthly subscription models than traditional credit and debit card like Net— ix and Rent the Runway, acceptance, because they are funded ‘INCREASINGLY SKEPTICAL’ Millennials and GenZ often prefer much more quickly and it can attract predictable monthly payments ver- new customers. For consumers, there is a psychologi- sus payments that vary month-to- Typically, Afterpay assesses a fee cal impact from splitting a large pur- month like credit cards.” ranging from 4% to 6%, says David chase. “$50 sounds more accessible While much of the action has Katz, chief product o’ icer. That’s in than $200,” Sykes says. “The simple been online, BNPL options have been line with estimates for Klarna’s costs. act of breaking that payment down moving into physical stores, too. Quadpay charges a 5.9% fee plus 30 increases someone’s propensity to Afterpay launched its in-store ser- cents as a sticker rate, says Ezra, buy.” The average order value for a vice in October. In Australia, where though larger volume merchants may Klarna installment purchase is $150, Afterpay has approximately 40,000 pay less. PayPal merchants pay their which is similar to that for Afterpay. storefronts, 40% of its customers

14 DIGITAL TRANSACTIONS | DECEMBER 2020 ACQUIRING made in-store Afterpay purchases, Quadpay may do a so-called soft methods for the installment pay- Katz says. Quadpay o ers the same credit check, which doesn’t a ect credit ments. Between 80% and 85% of Klar- service, as do Klarna and A irm. scores, and that information feeds into na’s transactions are made with debit its risk model, Ezra says. Other data cards, Sykes says. A irm customers ‘IMMEDIATE VALUE’ may include consumers’ activity at can pay directly from a checking merchants, digital footprint data, such account, but other options are avail- Whether used in-store or online, the as the device type, and email addresses. able. A irm distinguishes itself from transaction risk is minimal. Afterpay A irm underwrites each transac- the pack with loans o ering varying says its gross loss as a percentage of tion individually, Braskamp says, and interest rates over longer repayment underlying sales for fiscal 2020 is uses machine learning to continuously periods. 0.9%, a record low for the firm. “Our refine its underwriting. “This enables Quadpay’s Ezra views BNPL as ability to keep losses very low is the us to support consumers by never additive to the merchant’s mix. secret sauce to Afterpay,” Katz says. extending loans that we don’t believe Remove the conversion lift from the Afterpay uses proprietary risk can and will be repaid,” she says. BNPL equation, and in a majority of analytics to assess new customers. But does BNPL cannibalize credit cases merchants will still see a high Like many other BNPL providers, it and debit transactions? The KBW lift in average order value, he says. eschews traditional credit checks. “We report suggests the growth in POS “There aren’t many things that keep the first transaction very low,” lending is expanding the overall pie, e-commerce merchants can do that Katz says. And because consumers “presenting an opportunity for both have a dramatic and immediate tend to be repeat users, they strive incumbents and new entrants.” impact,” says Katz. “Buy now, pay to meet their payment schedules, lest In fact, BNPL methods rely on credit later is one of those that has imme- they lose access to Afterpay’s service. and debit cards as the underlying diate value.”

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16 DIGITAL TRANSACTIONS | DECEMBER 2020 COMPONENTS transactions via a near-field commu- nication link between a contactless card and the device. And in October, banking behemoth Tap to Phone ‘extends what JPMorgan Chase & Co. rolled out a new checking account for small businesses we’ve been talking about for that includes a feature called Quick- Accept, which enables a merchant to decades—expanding acceptance.’ take contactless or contact payments MARY KAY BOWMAN, SENIOR VICE PRESIDENT OF BUYER AND SELLER PRODUCTS, VISA on smart phones through the Chase mobile app (Trends & Tactics, page 9). in a funding round that included Adds Peterson: “MagicCube is essen- ‘A VIRTUAL CHIP’ other participants. “But it was a range tially a virtual secure element. It frees designed to take us to deployment,” up the transaction from the device.” Combined, these developments could says Shawki, Visa’s former head of be dubbed “Square II.” They’re grow- global remote payments. He adds THE PAYOFF ing in part because of new contactless that MagicCube has attracted a total specifications for commercial o‹ -the- of nearly $20 million in investments MagicCube thus becomes another shelf mobile devices from EMVCo, the from Visa and its other backers since component in Visa’s Tap to Phone ini- standards body of the major payment its founding, and another funding tiative, which aims to deploy contact- card networks, and rules for software- round is planned for early 2021. less technology on millions of Android based entry of personal identification MagicCube, which says its tech- devices throughout the world. The numbers from the network-sponsored nology works on the Visa, Master- program includes investments in PCI Security Standards Council. card, Discover, and American Express tech firms as well as partnerships “It is the logical evolution of the networks, in mid-2019 announced with merchant acquirers, financial- dongle plugged into the iPhone to a venture with Japanese tech firm technology companies, and even some have the payment capability built NTT Data Corp. to bring its so-called POS terminal makers. Visa announced into the iPhone,” is how payments PIN-on-glass technology for entering 35 new ones in late October. researcher Thad Peterson, a senior PINs on o‹ -the-shelf smart phones “After many investments, we’re analyst at Boston-based Aite Group to merchants in Japan. up and live in more than 15 countries LLC, assesses MagicCube’s technology. The NTT initiative hasn’t rolled out globally,” says Bowman, who worked MagicCube founder and chief exec- yet, however. But MagicCube already at Square until leaving for Visa in utive Sam Shawki calls his Santa Clara, has achieved “live transactions in the 2019. Visa expects Tap to Phone to Calif.-based firm “a device-replace- field” in the United Kingdom, a project arrive in the U.S. next year. ment company,” and its i-Accept prod- for which Shawki won’t reveal details. The payo‹ for Visa: More non-cash ucts are “the software equivalent of Next up are undisclosed countries payment options that produce more an EMV chip.” the Middle East, Spain, and the U.S. transactions on Visa’s network. “This I-Accept uses NFC for contact- “What MagicCube has done is cre- extends what we’ve talking about for less communication between the ate a unique security technology that decades—expanding acceptance,” merchant’s phone or tablet and the creates a virtual chip,” says Mary says Bowman. customer’s EMV chip card or NFC- Kay Bowman, senior vice president The payo‹ iPhone maker Apple equipped mobile phone with a payment of buyer and seller products at Visa. expects from Mobeewave wasn’t wallet. The software can prompt for “It’s not specifically dependent on immediately clear. Neither company a PIN, to be entered by the customer, any hardware components, propri- responded to requests for comment when the card or phone is tapped. etary hardware, or ancillary devices. from Digital Transactions. The quiet Neither MagicCube nor Visa would It does enable the mobile phone to be acquisition didn’t become publicly reveal the size of Visa’s investment turned into a software point of sale.” known until late August, though it

COMPONENTS DIGITAL TRANSACTIONS | DECEMBER 2020 17 ‘Oftentimes, phone-based payment options such as Apple Pay, Samsung Pay, and Google Pay o er higher levels of security than card-based payment options.’ —Ellen Linardi, head of product, Clover Photo: Apple Inc. may have closed six months ear- Mark Bunney, director of go-to Clover unit, which serves small and lier, according to Digital Transac- market strategy, North America, at mid-size merchants, provides a long tions News. The unconfirmed price Ingenico’s Atlanta headquarters for line of payment software and POS Apple reportedly paid was between the U.S. and Canada, sees merchants’ hardware. Ellen Linardi, Clover’s $120 million and $150 million. smart phones as a complement, not a head of product, isn’t worried about After launching its contactless mortal threat, to his company’s many displacement. In fact, she admires payment system with Samsung in hardware and software o erings. the level of security leading mobile- October 2019, Mobeewave in January “We want the customer to be able payment services provide. followed up with a service that speeds to choose what the optimal path “Oftentimes, phone-based payment up onboarding for merchants looking is,” says Bunney, whose company options such as Apple Pay, Samsung to exploit the capability. Now, how- was acquired in October by French Pay, and Google Pay o er higher levels ever, tech observers expect Mobee- payments firm Worldline S.A. He of security than card-based payment wave will switch from the Android notes, however, that Ingenico in options,” Linardi says in an email mobile operating system on which recent years has expanded its roster message. Samsung’s phones rely to Apple’s of processing and software-based A spokesperson for San Jose, proprietary iOS operating system. products. Calif.-based Verifone, the largest “Apple has clearly built a wall,” “That’s the path Ingenico has been U.S.-based POS terminal maker, did says Peterson. “They’re not letting going down, o ering more software not respond to a request for comment. Android users play in it.” and services,” Bunney says. “It’s a very logical evolution.” ‘A REARGUARD ACTION’ ‘THE OPTIMAL PATH’ But payments-accepting hard- ware, for example in unattended While the use of mobile phones as Meanwhile, payments companies that merchant locations, will always be contactless-payment acceptance ter- include Square and mega-processor needed, according to Bunney. “You minals is growing, it’s still uncertain Fiserv Inc. are working on their own still need those points of interaction. how much share merchants’ phones smart-phone contactless projects. Mobile in particular is really chal- will grab from providers of purpose- So where might all these initiatives lenging because there isn’t a single built POS hardware. leave dominant POS terminal makers solution that meets all the use cases The providers “can go either way,” such as France-based Ingenico and and customer types,” he says. says Aite’s Peterson. “If they view it as Verifone Inc.? Brookfield, Wis.-based Fiserv’s a threat they’re going to be fighting a rear-guard action for the foresee- able future.” He notes a conversation he had with an executive of fast-growing payment processor Stripe Inc., who ‘You still need those asserted the data from payment transactions has become more impor- points of interaction.’ tant than the machinery. “It’s that MARK BUNNEY, DIRECTOR OF GO TO MARKET value from [the] POS system that STRATEGY, NORTH AMERICA, INGENICO really matters,” says Peterson.

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Subscribe today at Bolandhill.omeda.com/dtr/ or email publisher Bob Jenisch at [email protected] Ecommerce has been setting records during the coronavirus pandemic, but processors should be thinking about ways to innovate. For example: how to make transactions simpler, faster, and more secure?

BY PETER LUCAS

PRIOR TO THE CORONAVIRUS PANDEMIC, e-commerce or year on record, according to Digital Commerce 360—Retail. was big business for merchants and processors. But since Nor is there any slowdown for the the pandemic struck in March, online business has been holiday shopping season. ACI World- on steroids and shows no signs of slowing down. wide Inc. predicts a minimum 20% to 30% increase in holiday e-commerce During the second quarter of That’s with travel and ticketing— sales this year compared to 2019. 2020, e-commerce sales in the United two big-ticket categories—su‘ering No wonder. With merchants roll- States totaled $211.5 billion, or 16.1% substantial drops in volume. ing out holiday shopping deals ear- of total retail sales, according to the More telling is that the data shows lier than ever, e-commerce volume Department of Commerce—up from more than $1 in every $5 was spent rose 23% year-over-year in October. $138.9 billion, or 10.8% of total sales, online in Q2 2020—the highest pene- In September, ACI predicted that in the same period a year earlier. tration for e-commerce of any quarter global e-commerce sales would rise

20 DIGITAL TRANSACTIONS | DECEMBER 2020 THE ECOMMERCE BOOM 27% in the fourth quarter compared to 2019. The big reasons mer- chants began promoting holi- day shopping so early were concerns about inventory shortages closer to Christ- mas and longer than usual shipping times, says Erika Diet- rich, vice president for global risk services at Naples, Fla.-based ACI. On the consumer side of the coin, she says, e-commerce surged because of two main factors: online shop- pers are purchasing with greater frequency, including setting up sub- scriptions to automatically order household staples; and numerous first-time buyers are † ocking to the channel. If a merchant didn’t have an e-commerce channel prior to the pandemic, payment experts say, they immediately set one up. Meantime, mer- chants that already had a digi- tal sales channel began pouring more resources into it to enhance the user experience—such as by adding digi- tal-wallet acceptance—to grow sales and keep customers coming back. For many small and mid-size mer- chants, e-commerce has been the lifeline that has kept them a† oat in the midst of a worsening pandemic that cut instore traŒ ic to a fraction of pre-pandemic volumes. That’s good news for payment processors, because even when a coronavirus vaccine becomes widely available and life returns to so-called normal, most of the gains in e-com- merce volume will be retained, pay- ment experts say. The reason: many new online shoppers have become hooked on

THE ECOMMERCE BOOM DIGITAL TRANSACTIONS | DECEMBER 2020 21 HOW ONLINE COMMERCE HAS EXPLODED ECOMMERCE RETAIL SALES IN BILLIONS ECOMMERCE RETAIL SALES AS A PERCENTAGE OF TOTAL RETAIL SALES $211.5 16.1%

$146.4 $153.3 $156.6 $160.4 10.8% 11.2% 11.3% 11.8%

Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Source: U.S. Census Bureau the convenience and safety of the To reduce friction, she says, mer- credentials, i.e. card number, expira- digital channel for everything from chants need to be thinking about tion date, card-verification value code, groceries, clothing, and bedding to oering payment capabilities that and billing address. Upon completion electronics, camping supplies, and oer customers’ preferred methods of the profile, a six-digit verification home-gym equipment. and that also oer a quick and easy code is generated. “We expect a lot of this volume to checkout. To make a purchase, a consumer stick once Covid subsides, especially “Having a seamless checkout pro- enters her click to pay user ID, thereby with many first-time buyers becoming cess is part of the greater shopping eliminating the need to enter pay- recurring customers through sub- experience,” Madhani adds. “It’s why ment card data and billing address scriptions,” Dietrich says. providing familiar and quick options information. Adopting click to pay to access credit card details via vault will enable merchants running trans- tokenization services has exploded. actions on the card brands’ respec- Additionally, digital wallets such as tive networks to oer a one-click STREAMLINING CHECKOUT Secure Remote Commerce have the checkout experience similar to that But there’s some groundwork to be ability to provide merchants with the of PayPal or Amazon. done before processors can begin cash- desired user experience by enabling “The convenience of cards on file ing in, experts say. They will need to Apple Pay, Google Pay, Masterpass, has been a massive game-changer push the boundaries of their technology Visa Checkout, [among others].” for the merchants’ ability to com- to enhance the customer experience, Developed by the four major card pete against legacy players (Amazon, secure the data around all those new networks, Secure Remote Commerce is eBay, etc.) that used that as their dif- transactions, and keep a lid on fraud. a technology standard that streamlines ferentiation,” says Madhani. “For e-commerce purchases, cus- online purchases, whether through a Streamlining the payment experi- tomers expect a direct and quick mobile device or a laptop, by mimick- ence can also help reduce shopping- payment experience,” says Suneera ing the in-store experience of a single cart abandonment as consumers don’t Madhani, chief executive and founder payment terminal that accepts mul- have to fill out multiple data fields of Orlando, Fla.-based processor Fatt- tiple card brands. to complete a transaction. In May, merchant Inc., by email. “In response, To use SRC, which has since been Visa said it found that without SRC many merchants are looking to pro- renamed “click to pay,” consumers in place, a consumer must negotiate vide a simple shopping experience to must create a profile through mer- an average of 23 fields to complete their customers. This is paramount chants oering the service. Profile an online purchase. in a time when conversion metrics data includes the consumer’s email Experts have warned for years really matter due to the decreased address, which serves as her click to that having to enter too much pay- demand and/or limited availability pay ID, and mobile phone number. ment data can cause a consumer to of in-store purchasing options.” Next, the consumer enters her payment walk away in a heartbeat.

22 DIGITAL TRANSACTIONS | DECEMBER 2020 THE ECOMMERCE BOOM In addition to one-click conve- shopping experience for the con- world situations. It can allow a con- nience, click to pay limits exposure of a sumer to experience a deviation from sumer to voice-activate a gas pump consumer’s card data by not requiring expectations,” Madhani says. and pay for the purchase using an app it to be manually entered and secures on her mobile phone in the comfort the transaction through cardholder of her car, says Sheth, who adds that authentication and tokenization. Fiserv has partnered with a third- “Click to pay enables security and BEYOND BOUNDARIES party to develop such a technology. convenience that can give consumers While reducing friction at check- “We are seeing augmented reality more confidence to transact with mer- out can help improve the customer in e-commerce that enables a con- chants that did not have the resources experience, payments experts say sumer to virtually try on a pair of to develop a one-click payment option processors and merchants need to glasses through their phone or com- on their own,” says Andrew Hopkins, think beyond the traditional bound- puter, and voice-enabled commerce senior vice president of global prod- aries of shopping at a Web store. In as a natural extension,” Sheth says. ucts for Discover, which rolled out other words, they need to be thinking “The aim is to enable a digital wallet click to pay in October. about technology outside traditional beyond payment and provide ways to “Small merchants are realizing e-commerce channels. create a richer user experience in an they need to move into e-commerce One technology getting a good look omnichannel environment.” and need tools to create a better user is voice activation. The technology is One way for e-commerce merchants experience that helps them compete already gaining attention in physical- to increase customer engagement is with larger players,” Hopkins adds. Although all four card networks have rolled out click to pay, the tech- nology has yet to scale in a meaning- ‘Providing options to access credit card details ful way, making it di„icult to gauge via vault tokenization services has exploded’ its impact on the customer experi- ence, says Nandan Sheth, head of our SUNEERA MADHANI, CHIEF EXECUTIVE AND FOUNDER, FATTMERCHANT global digital commerce for Brook- field, Wis.-based processor Fiserv Inc., which gained considerable heft in e-commerce via its $22-billion acquisition of First Data Corp. in 2019. But the technology appears to pick- ing up steam. In May, Visa revealed it had added more than 10,000 U.S. merchants to click-to-pay since Janu- REIMAGINE ary. The service also claims 37 million THE OF active Visa users. Visa did not make ART executives available for an interview. TRANSACTION While payment experts are confi- dent click to pay will achieve main- stream adoption, Madhani cautions that any competitive advantage it o„ers may be short-lived as more stores offer similar experiences. “Increased competition with a sim- ilar look and feel means there must RETAIL E-COMMERCE MOBILE be … value added to the checkout/ USAEPAY.COM 866-740-2496

THE ECOMMERCE BOOM 23 COVID’S CURVE Average monthly visits to retail e-commerce sites worldwide, in billions 21.96 21.28 20.08 18.35 18.55 17.64 16.07

December 2019 January 2020 February 2020 March 2020 April 2020 May 2020 June 2020 Source: Statista through the aggregation of credit and The technology is also being lev- the pandemic, it makes sense to use debit cards’ primary account numbers eraged by manufacturers and B2B their brick and mortar stores as ware- (PANs) to identify an online shopper, suppliers, says Ralph Dangelmaier, houses. “We are seeing small mer- at least by number. each time the PAN Blue Snap’s chief executive. BlueSnap chants adopt BOPIS and chains that is used. Armed with this information, recently signed a deal with motor- o
ered it pre-pandemic dedicate more merchants can create a customer oil manufacturer Valvoline Inc. to lanes for it,” Dietrich says. profile based on the PAN. digitize invoices for –eet operators As with any dynamic payment Merchants can then serve up pro- it services. The embedded payments option, the need to secure e-commerce motional o
ers or requests to enroll link supports a variety of payment transaction data and prevent fraud in their loyalty program. “Unless a options, from major card brands to is paramount as criminals follow the shopper is enrolled in a loyalty pro- ACH payment and foreign payment money. Unsurprisingly, online mer- gram, the transaction is essentially options, such as Alipay. chants’ interest in tokenization, which anonymous,” says Sheth, who adds “We’ve been offering digital replaces card data with non-sensitive 7 million new buyers over the age invoices for a couple of years, but it data, has risen, payment experts say. of 40 will begin purchasing online started to catch a lot of people’s atten- The same is true for 3D Secure, by the end of 2020. tion when the pandemic hit, because another network-sponsored technol- Fiserv says that digital adoption a lot of workers are not going into the ogy that provides an additional security is occurring across multiple gen- o
ice and remain hesitant to open layer for online credit and debit card erations from the Baby Boomers mail right away,” Dangelmaier says. transactions by enabling merchants on down “It’s a more e
icient way to invoice and card issuers to authenticate the Another way to enhance e-commerce and receive payment.” consumers making the transactions. is to digitize invoices and embed pay- While many consumers are buy- The protocol has been adopted by Dis- ment links. Waltham, Mass.-based ing online and having items shipped cover, Mastercard, and Visa. “We are BlueSnap Inc., which provides online to them, a significant portion are seeing issuers get a lot more sophis- payment solutions for e-commerce, using buy online, pick up in store ticated with their use of 3D Secure, business-to-business, and software- (BOPIS) options as a way to receive especially outside the U.S.,” says Sheth. as-a-service companies, has seen a items sooner, as many merchants are Use of artificial intelligence to rise in digital invoicing since the experiencing delays fulfilling orders identify suspect transactions—and pandemic hit. Small merchants, such from their warehouse or with ship- prevent false positives for suspected as landscapers or tradesmen, are ping carriers, ACI’s Dietrich says. ACI fraudulent transactions—is another using digital invoices to bill custom- predicts a 40% jump in BOPIS trans- technology attracting interest among ers and collect payment as face-to- actions during this holiday season. merchants. E-commerce payment face transactions for these services Given the decrease in foot tra
ic platform provider Adyen, for example, become less common. merchants are experiencing during is urging e-commerce merchants to

24 DIGITAL TRANSACTIONS | DECEMBER 2020 THE ECOMMERCE BOOM adopt its Revenue Protect applica- tion. Revenue Protect uses transac- tion data gathered by Adyen to build ‘There is a strong emphasis on fraud prevention intelligent risk profiles that detect and data security in the online channel.’ fraud and lower false positives. BRIAN DAMMIER, PRESIDENT, NORTH AMERICA, ADYEN “There is a strong emphasis on fraud prevention and data security in the online channel, which is why we are seeing more investment in merchants to reassess their digital continue despite the circumstances,” artificial intelligence and 3D Secure,” channels and invest more in them. Madhani says. “Now they are looking says Brian Dammier, president, North Indeed, many merchants unprepared for new ways to convert and capture America, for Adyen. “Version two to oer in-store contactless payment walk-in traic in a digital landscape.” of the 3D Secure protocol is a more options found they were able to shift Looking ahead, payment experts mature fraud-prevention tool and touch-wary consumers to their online recommend e-commerce merchants lessens friction at checkout.” channel when the pandemic struck. seek ways to leverage customers’ Many merchants were not prepared changing purchasing behaviors over to make changes to support contact- the last nine months to dierentiate less in a timely manner, causing many their businesses. “With more mer- ‘A DIGITAL LANDSCAPE’ of them to struggle. “Many were for- chants oering digital payment chan- If nothing else, the explosive growth tunate, however, to have access to nels, and more consumers responding, in e-commerce volume during the online payment solutions and online enhancing e-commerce and digital coronavirus pandemic is pushing shopping carts where sales could channels is vital,” says Madhani.

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It’s really that easy! To get started, contact Publisher Bob Jenisch today: 877-658-0418 [email protected] Payment at a THE COVID-19 PANDEMIC has trans- how they prefer. Businesses, in turn, formed the way we live and work in win through saving the time, risk, distance has countless ways, and that includes how and labor costs associated with in- become a priority we pay our bills. Consider a recent person payments. MasterCard survey in which more Yet, if you’re feeling ill-equipped as a result of the than 51% of U.S. consumers said they and overwhelmed at the breathless Covid-19 pandemic. were using some sort of contactless pace of this remote-payment trend, payment. Some 30% started doing you’re not alone. We’re seeing years Here are ve ways this due to Covid-19. of adoption trends taking place in a Remote payments are on the rise span of months. That means com- to make that shift as businesses seek contactless pay- panies must act quickly to sharpen go smoothly. ments, as well as ways to enable pay- their game, moving from a short-term ments to be made from a distance, survival mode to a comprehensive to protect customers and employees long-term strategy. As you do, here BY JOHN MINOR alike. Remote payments are a win- are five strategies for a successful John Minor is chief product ocer at win. Customers win through greater transition to remote payments: PayNearMe Inc., Santa Clara, Calif. exibility to pay when, where, and 1. Give customers as many self-serve options as possible, including osite cash payments Seventy-eight percent of cash-preferred customers still want or need to make bill payments using cash, even dur- ing Covid-19, according to PayNearMe user data. But that doesn’t mean they have to pay with cash at your branch location. Lenders are enabling custom- ers to pay their bills with cash at the neighborhood retail locations where they regularly shop, like 7-Eleven and CVS Pharmacy stores. They simply use a reusable bar code sent by the lender via text message.

26 DIGITAL TRANSACTIONS | DECEMBER 2020 STRATEGIES Another growing group of cus- tomers prefers paying bills using a digital wallet such as Google Pay or Apple Pay, or by transferring money 74% via the automated clearing house network. Of course, credit and debit 74% of mobile cards remain very popular forms of payments users payment. Your system will need to are Generation X accommodate all of these payment or younger types if you hope to shift to a remote- pay environment. Finally, make sure your payments platform is compatible with all digital channels, including phones, tablets, and computers, and even interactive voice response for phone-in pay- ments. Your customers will likely 62% have di erent comfort levels with the di erent channels used for making remote payments, based on their age, 62% of credit education, and experience. card users are In a survey by the Pew Charitable Baby Boomers Trusts, 56% of respondents said they or older had paid a bill by mobile phone in the Source: Pew Charitable Trusts past year. Yet 74% of those who used mobile payments were members of that they o er online and automatic a service representative can o er to Generation X or younger (born after bill payment options, and that mobile push a text or email to the customer 1964), while 62% of those who used payment and autopay are beneficial. with a link to register for autopay. credit cards to pay were Baby Boomers Put that suggestion on every bill, The agent should stay on the line or older (born between 1946 and 1964). every email, and every push notifi- while the customer completes and By o ering all available options, cation. Have customer-service rep- verifies the process to make sure it you’re more likely to boost adoption of resentatives mention it every time goes smoothly. remote payments from all segments they interact with a customer: “May As customers build trust in remote of your customer base and improve I help you set up automatic payment payments and feel empowered to com- customer satisfaction in the process. for your convenience?” or “Did you plete their own transactions when, know you can add this payment to where, and how they prefer, they will 2. Walk customers through your Apple or Google wallet?” come to appreciate the freedom and If the customer shows interest convenience. Your task is simply to the transition in remote payments, make sure the convince them of that truth and get Some consumers have adopted remote process is easy, with as few steps as them started in that new practice. payments on their own, but most are necessary. Many lenders have taken creatures of habit and so are averse to printing a QR code on every bill, 3. Engage with your customers to change. That means shifting their which allows the customer to scan payment habits will require two things: the code with their phone and pay in the ways they prefer suggestion and support. immediately with a few simple clicks. Consumers are bombarded with mes- First, businesses should take every For customers accustomed to call- sages and marketing every day, on opportunity to tell their customers ing your business to pay by phone, email, television, and social media.

STRATEGIES DIGITAL TRANSACTIONS | DECEMBER 2020 27 Stand out by providing communica- tions selectively and in the manner they prefer. Do they want to receive communications by email, text, or We’re seeing years mail? Do they find push notifica- tions helpful? Make it easy for them of adoption trends to choose their preferences. Then, tailor communications taking place in a to di erent scenarios, using the appropriate messaging and tone. Minor span of months. For instance, one reminder alert 15 days before payment is due, another if payment is overdue, and so on. smallest number of fields necessary self-pay for willing customers. Translate communications into the to complete the tasks, and provide A well-developed IVR can help customer’s native language as appro- them with easy-to-follow decision customers complete a payment priate. This is par for the course in trees. The workŒow should drive by phone without talking to a today’s multicultural society. your employees through the process live representative. Again, in every communication, in a smooth and logical way. „ Have customers authorize autopay o er options for self-service and make By making your employees’ jobs as registration via email or text. If that process easy. When customers easy as possible, you’ll reduce their the agent walks the customer know your communications apply to stress and equip them to do their through autopay setup and then them and make their transactions best work with customers. sends the customer an electronic easier, they will pay attention when message to authorize indepen- your messages arrive. 5. Consider remote-specic dently, the agent does not have compliance issues to record the call. This protects 4. Help remote workers your company from violating Staying PCI- and Nacha-compliant Nacha operating rules required remain productive in a remote-pay environment o ers for ACH payments. If your customer-care centers have some new challenges, especially when moved partially or completely to your sta is no longer in a single, Implementing a comprehensive home-based operations, you must supervised call center. Here are a few remote payment system o ers many consider how to support your cus- ways to reduce your compliance scope: opportunities to streamline opera- tomer-service representatives along „ Have agents encourage self- tions, reduce overhead, and improve with your customers. pay so they don’t need to take customer satisfaction, all while pre- Make sure your workers have all payment information over the paring for what may be continued the tools and training they need to phone. They can o er to send a Covid-19 uncertainties. excel and remain productive, even link in an email or text, and stay Remember that your payment- from the safety of their home o ices. on the phone while the customer platform vendor is an excellent That includes a payment system completes the transaction. This resource to help you adapt your robust and smart enough to accom- avoids the challenge of protect- systems and procedures. With their modate di erent scenarios (missed ing customer information in a help, you can build long-term, posi- payments, insu icient funds, partial highly dispersed work environ- tive relationships with your cus- payments, and so on). ment, ensuring agents never tomers using the best technology The interface should walk agents touch sensitive customer pay- available. It’s a necessary strategy in through solutions without delay or ment information. today’s increasingly self-serve mar- confusion. Clean up the user inter- „ Establish an interactive voice ketplace, and a worthy investment face so your sta works with the response system to prompt in the future of your company.

28 DIGITAL TRANSACTIONS | DECEMBER 2020 STRATEGIES THE ONLY MAGAZINE COVERING THE TOTAL PAYMENTS MARKET In 2015, there were 131.2 billion digital transactions in North America. Digital Transactions magazine covered them all. It is the only publication addressing the total market. Financial institutions, independent sales organizations (credit and debit ISOs, ATM deployers and value added resellers), processors, along with the top tier retailers all turn to Digital Transactions for the trends affecting the payments market and, more importantly, their livelihoods.

Covering the electronic payments business for 13 years, Digital Transactions magazine is your independent source for changes affecting the payments market.Digital Transactions is also available in a digital edition on our web site, DigitalTransactions.net

Subscribe today by going to Bolandhill.omeda.com/dtr/ to start tackling the ever-changing payments market. A green eld market beyond SMBs

A burgeoning MID-MARKET BUSINESSES are This brings a number of tangible increasingly faced with the need to benefits, including the potential for opportunity execute on multiple priorities at once, increased revenue, shorter accounts from enhancing customer experi- receivable cycles, and enhanced awaits payments ence to increasing back-o ice e i- decision-making from transaction ciency to finding ways to drive addi- data and business analytics.  rms that tional revenue. As a result, they need Additionally, on the payor side, a comprehensive and di erentiated integrated payments significantly can integrate approach to commerce, particularly enhance  exibility and convenience. amid a critical stage of growth for They do this by giving business and with software their organization. consumer payors the ability to pay Integrated payment functionality invoices directly from an email or houses to serve within the core software of the busi- portal, o ering more choices both ness has emerged as the preferred in terms of payment method (e.g., way to accomplish these goals in credit card, debit card, virtual card, mid-market a dynamic and increasingly online automated clearing house, etc.) and business climate. medium (e.g., computer, phone, clients. One of the most important deci- tablet, etc.). sions that a business makes after graduating from the small-and- BY GROWTH TAILWIND BEN WEINER medium-size-business category Ben Weiner is chief is the software it will use to man- For software providers, the middle strategy o cer at Paya. age operations and fuel continued market represents a massive green- growth. The payments module, and field opportunity to o er and mon- how it enables revenue collection and etize payment solutions. A number work ow, is a critical component of of high-growth industries—such as this strategic decision. health care, local governments and The integration of payment func- municipalities, nonprofit, manufac- tionality into software allows a busi- turing and distribution, and educa- ness to invoice customers electroni- tion—have been slow to adopt elec- cally (either business-to-consumer tronic payments due to the level of or business-to-business), populated complexity involved in serving these with data directly from the soft- verticals. ware; accept multiple and diversify- Because these verticals have tradi- ing methods of payment; and reduce tionally been underserved, software the overall complexity of revenue providers that o er a di erentiated collection and accounting. bundle with integrated payments are

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