RETAIL SOLUTIONS BRIEF By ADAM BLAIR

Omni-Channel Payments on the Move Retailers see mobile devices as digital-store link

recent survey con- firms that non-linear shopping, with cus- tomers “touching” at least two channels on their way to a productA purchase, has become the norm for a majority (54 percent) of consum- ers. It’s a figure that seems almost cer- tain to rise, meaning retailers who want to effectively serve these customers will need to provide payment solutions that operate seamlessly in, and across, mul- tiple channels and touchpoints. That can be easier said than done – and other results of the survey, con- ducted by Oracle, point out some of the challenges retailers face as they estab- lish their omni-channel payment strat- egies. For one thing, consumers them- selves seem to be of two minds about newer payment methods, particularly those involving mobile devices. One Customers’ fast-growing embrace of mobility has quarter of the 2,169 U.S. and Canadi- an consumers surveyed in Q4 of 2011 retailers striving to catch up in the payment area say they fear security breaches on their mobile phone. Despite these fears, 44 percent of those aged 25 to 34, and 30 percent of those aged 18 to 24, said they are jittery about a transaction’s safety, retail trends that mobility will be playing already are, or soon will be, using these even a small slip could scare them away a big role in the development of omni- phones as payment devices within a re- from using a retailer’s new sales chan- channel payments. Payment options in- tail store. nel, no matter how convenient and cus- volving consumers’ own mobile devices Consumer discomfort with mobile tomer-friendly it is. are expanding, with competing pro- payment security (whether justified or grams from powerful players (Google not) raises the stakes for retailers to get Mobile Pay Multiplies and eBay-owned PayPal) involving pi- things right as they expand their port- It will come as no surprise to anyone lots and deployments at major retailers folio of payment offerings. If customers who has been paying attention to recent (Home Depot, Office Depot, Gap and

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14.rsb_0312_v5.indd 1 2/23/12 2:35 PM INDUSTRY PERSPECTIVE ADVERTORIAL

Where do your customers shop? Connecting data in the cloud can simplify your business

Charlie McCarter, Regional Sales Director, SMB Retail Solutions, Dell Inc

What are some of the key pressures that the move to security, network management, and integration. Without Qomni-channel, multi-touchpoint shopping has put on the proper “know-how” about these concepts, your omni- retailers’ payment/transaction functions? channel strategy likely could spiral out of control. Choose I believe the first thing to do is rephrase this industry a partner who can help you develop a consolidated & stra- terminology of “omni-channel” to reflect what it really tegic plan to manage the growth of those systems, the means, which is “CUSTOMER preference,” since that’s data involved, and who can help you smartly scale your the gist of this engagement change. With customers hav- infrastructure as your business grows. ing so many options at the touch of their fingers, the real chal- lenges are delivering a unique experience or a “best-in-class” What are the most important security issues retailers will need experience to shoppers. That means considering how you will to address as their payment goes omni-channel? link your online experience to your brick & mortar experience, Complexity is the enemy of security, and being compliant isn’t how you will handle inventory on both fronts, how you market the same as being secure. With more potential entry points, it real-time to your clientele, and the differentiators your experi- is easier for criminals to find ways to compromise data and net- ence offers (think in-store wireless, loyalty, specific marcom, works. Mobile security in particular is expected to become a big- etc.). Also factor in the amount of data you can now gather ger problem for retailers, particularly those that haven’t invested about your customers. That becomes a near full-time job of not the resources to ensure applications are secure. only managing those channels (Facebook, Twitter, your online Consistency is another issue. It is difficult to develop a scal- site, etc.) but also deciphering & using that data for productive able, flexible and proactive security program that works across & strategic moves within the company. all these channels, purchase points and locations. In addition, there is increased pressure to make data ac- Will the ability to seamlessly suspend and resume transactions cessible to both multiple internal users and legitimate external across multiple channels become ‘table stakes’ for omni-chan- channels. This potentially opens the floodgates to people with nel retailers? authorized access as well as to those who have bad intentions. It may not be full table-stakes but it can be one of the differen- tiators mentioned above. Keep in mind that customers don’t What roles can cloud/SaaS solutions play in simplifying the understand nor care about the backend infrastructure to make move to an omni-channel approach to payments? these things happen. They only know that one store offers it & One of the most significant challenges with supporting an omni- another doesn’t, and that can make the difference of where they channel approach to payments is coordinating the data flow—or spend their time & money. real-time data integration—between different channel end-point applications (e.g. ecommerce web application, POS registers, What kinds of back-end system changes are most critical for application) and supply chain applications be- retailers to enable an effective omni-channel payment strategy? cause the applications are geographically dispersed running in As alluded to above, the infrastructure piece is important. What’s the cloud, data centers, and retail stores. A true cloud integra- even more important than that is choosing a partner who under- tion platform, such as Dell Boomi, greatly simplifies this chal- stands the key concepts of modern IT, beyond just retail con- lenge by being built to integrate business applications—regard- cepts, such as de-duplicated data storage, virtualization & cloud, less of their locations—quickly and cost-effectively.

For more than 26 years, Dell has played a critical role in transforming computing, enabling more affordable and more pervasive access to technology around the world. The company’s technology solutions improve customers’ productivity, enhances their lives and meets their distinct needs. Headquartered in Round Rock, Texas, Dell serves customers ranging from the world’s largest and most demanding businesses and public-sector organizations, to small and medium businesses, and consumers worldwide. From the storefront to the back office, Dell Retail Solutions works with retailers to design, implement, and support comprehensive solutions that ease business pain points and draw greater value from technology to help them effectively reach the connected consumer. Dell Solutions for retailers include world-class information security and compliance services through Dell SecureWorks, POS solutions, systems management, mobility solutions, digital signage, digital surveillance and analytics, storage and virtualization, disaster recovery, secure wireless, Boomi data and application integration and technical support services. For more information go to http://www.dell.com/retail.

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RETAIL SOLUTIONS BRIEF

Macy’s, to name a few). tifying the desire to take advantage of Group. “The 31 percent figure for adop- “Even though m-payments are a re- customers’ mobile phone or digital af- tion within the 12-month time frame cent technology innovation, they are finity. lines up well with other research IHL expected to grow briskly as a consumer Retailers surveyed for the January recently completed.” payment form factor within the next 2012 RIS/IHL Group Store Systems three years, due to the mobile/digital af- Study are also enthused about mobility, Dueling Mobile Wallets finity of consumers,” writes retail ana- in this case using their own mobile de- Last year saw the introduction of not lyst Sahir Anand in the January 2012 vices for point-of-sale and transactional one but two variations on the mobile Aberdeen Group report The Mobile functions. “Mobile POS with tender” wallet concept, each with a major cor- Payment Opportunity: Get Paid Anytime was the top choice for store associate porate entity behind it. Mobile wallets Anywhere. The report notes that 56 per- mobility plans, with 31 percent saying are similar to the online wallets that cent of retailers surveyed in December they plan a deployment within the next shoppers use to pay for e-commerce 2011 possess an m-payments initiative 12 months, and an additional 31 per- purchases. On mobile phones they are at some stage of deployment or consid- cent planning a deployment in the next powered by native applications eration. two years. or downloadable apps, and they provide The biggest reason retailers are fo- Even though only 10 percent of re- consumers with the option of choos- cusing resources on mobile payments spondents currently claim to be using ing from a number of payment options, involves their customers: 61 percent this technology, “we believe it to repre- including credit, debit, gift and loyalty cite the need for greater consumer con- sent a springboard,” says study author cards. (See sidebar for detailed defini- venience, followed by 33 percent iden- Lee Holman, lead retail analyst at IHL tions.) The Google Wallet was the first to make a splash in the retail industry, with a May 2011 announcement that trum- peted the participation of retailers in- Defining Consumer Mobile Payment Types cluding American Eagle Outfitters, Ma- cy’s, The Container Store, Foot Locker, Mobile payments are broadly defined as a consumer’s ability to use a smartphone or tablet Guess, Toys “R” Us and Walgreens. to complete the payment part of a transaction, whether at a staffed retail point-of-sale, a The Google Wallet uses NFC technol- self-checkout station or an unmanned device such as a vending machine. ogy and operates with the MasterCard PayPass network, which itself operates There are several variations among m-payment types: at nearly 125,000 merchant locations Mobile Contactless: This type of transaction is provisioned with a payment application across the country. In November, Gap (i.e. credit or debit card) issued by the consumer’s financial institution or bank. The ap- deployed the Google Wallet acceptance plication and payment account information are encrypted and loaded into a secure area in capability in 65 of its stores in the San the phone, which uses built-in smart-card NFC (Near Field Communications) technology to Francisco Bay area, following a 100- communicate with the retailer’s contactless payment-capable POS system. These are simi- plus store deployment by OfficeMax in lar to the contactless payment technologies in use today, such as PayPass. NFC-enabled major U.S. markets. phones can also support additional applications such as coupons, ads and loyalty/rewards The Google Wallet app not only programs. stores payment card data, but also cou- Mobile Wallet: These transactions can be enabled using a native software application on pons and offers (it automatically syncs the consumer’s mobile phone device or a downloaded app. Consumers register by providing with Google Offers), as well as loyalty/ their phone number and other information; then the payment provider sends them a PIN via rewards card information from partici- SMS text message. Like an online wallet, a mobile wallet allows consumers to choose from pating retailers. At the moment, its key among a wide range of payment options, including debit, credit, pre-paid or loyalty card ac- limitation relates to mobile device hard- counts. These mobile wallets can be enabled with or without NFC technology. Google Wallet ware and networks; it’s available on the is an example of an NFC-enabled mobile wallet. Sprint Nexus S 4G smartphone, but not Other models in the m-payment ecosystem include direct mobile billing, which allows on Apple products or networks such as consumers to charge online and mobile purchases to their mobile phone account, mobile AT&T. pre-paid cards and mobile gift cards. Later in 2011, eBay division PayPal Source: Aberdeen Group

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INDUSTRY PERSPECTIVE ADVERTORIAL

Unification Strategy: Connecting Channels and Payments How unifying payments systems can enhance and simplify security

What are some of the most important ways the trend toward will find it difficult to enable a seamless shopping experience to Qomni-channel, multi-touchpoint shopping has affected retailers’ consumers, and even more difficult to analyze purchase data payment strategies? across channels in a secure way. A unified payments solution Savvy retailers are unifying their payment systems to provide can enable retailers to present consumers with personalized consumers with a consistent shopping experience, regardless recommendations and offers across channels. A single view of of the channel. This unification can also provide the retailer all orders in a single system makes financial reporting, inventory with a total picture of a customer’s interests, preferences control, and sales reporting considerably simpler. and buying history across all channels. Many are optimizing their web and mobile ecommerce shopping and checkout What are the key data/transaction security questions retailers environments and investing in payment terminals that bring all need to answer in today’s environment? the advantages of the web into the store. This includes cross- The key question is, “How do I get out of the sells, customer reviews, product information, and inventory processing and data security business?” In other words, availability. By unifying all channels to interface to one payment retailers should keep focused on their business and outsource gateway, retailers can minimize payment data sharing needs their payment data security concerns to a trusted third party. and gain access to multiple security solutions, tender types and In today’s environment, this means implementing point-to-point processors. encryption solutions to protect data in-flight and tokenization solutions to protect data at rest. When evaluating these solutions, What issues do retailers need to address in order to offer understand how they will integrate with your infrastructure and seamless suspension and resumption of customer transactions business processes. Understand if you are getting locked into a across multiple channels? particular device, technology or processor. Find out if the tokens Retailers should strive to ensure consumers have a consistent can be card-based or transaction-based. Obtain the vendor’s shopping experience across their website, mobile, kiosk and definition of “format preserving” to understand how the tokens consumer-facing point-of-sale applications. This means retaining will affect reporting and analytics. and synchronizing shopping carts, wish lists and stored payment methods across shopping channels and offering the same tender What are some best practices for retailers to follow as payment types when possible. Order history should be centralized in a technologies continue to evolve? (e.g. contactless payment, single repository so that both retailers and consumers can track PayPal, Square, etc.) orders regardless of channel origin. Retailers can streamline Move all sensitive payment data out of your systems to a transaction processing and minimize PCI scope using unified trusted third party that is technologically and financially sound. tokenization and point-to-point encryption solutions. Implement P2PE and tokenization solutions that minimize the impact on your legacy systems and allow you the flexibility to What are the benefits of an integrated payments infrastructure change processors as payments evolve. Start thinking about in an increasingly omni-channel world? EMV, contactless, and accepting online payment methods like An integrated payments infrastructure makes it easier to track PayPal in your brick and mortar locations. Lay the groundwork and store data related to customers’ purchasing patterns across for enabling a secure, flexible and extensible payments solution all channels without compromising data security. Retailers that today, but wait and see what the consumers start to adopt before use one processor for ecommerce and another for brick and mortar investing too heavily in one technology.

Merchant Link is a leading provider of cloud-based payment gateaway and data security solutions, removing the risk and hassle from credit card acceptance for more than 150,000 retailers, restaurants and hotels. TransactionVaultTM, our tokenization solution, and TransactionShieldTM, our point-to-point encryption solution, mitigate risk while lowering the ongoing cost and effort of PCI compliance.

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Payment Technology Plans piloted its mobile payment solution, ini- tially in five Home Depot locations, then expanding to 51 of its stores. Transac- End-to-End Encryption 38% 18% 18% 2% tions are charged to the consumer’s Pay- Pal account; if there are not sufficient Card Transaction Tokenization 21% 21% 25% 3% funds in the account to cover a purchase, PayPal draws on alternate (pre-arranged) EMV/Chip & PIN 25% 8% 14% 14% payment sources. Payment Application 27% 12% PayPal’s omni-channel play is the ad- on Separate Network 18% 3% dition of this mobile in-store payment option to its online payments business, Mobile Phone NFC Payment 2%17% 28% 10% with the added attraction that the in- store payment process can be done with- Currently Using Within 12 months 12 - 24 months 24 - 36 months out an actual mobile device. At partici-

pating Home Depot stores, consumers Source: RIS/IHL Group 2012 Store Systems Study can simply type in their mobile phone number and PIN at a payment terminal. NFC-enabled mobile phone payment acceptance technology is still relatively scarce, but retailers have significant plans for future deployments PayPal also offers a mag stripe card. eBay CEO John Donahoe, speak- ing during a January 2012 conference transactions is not to suggest that card- sive proposition when a retailer oper- call, said he anticipates the solution based transactions will disappear from ates thousands, or tens of thousands, of “will give consumers better shopping the retail space. In fact, card technolo- checkout lanes. experiences and more flexible payment gies are also adapting to the omni-chan- Last month, Visa introduced an in- choices. And for retailers, we believe nel nature of today’s retailing. centive to retailers to invest in chip- this will give them opportunities to not “We’re moving toward a world beyond enabled terminals. The Visa Technol- only engage consumers at checkout, but plastic, where consumers will shop and ogy Innovation Program eliminates the also throughout their entire multichan- pay in a way that best fits their needs requirement that merchants validate nel shopping experience.” PayPal plans and lifestyles with a simple tap, click their PCI DSS compliance for any year to expand the program to as many as 20 or touch in-store, online or on a mobile in which at least 75 percent of their Visa major retailers by the end of 2012, but device,” said MasterCard’s president of transactions originate from chip-enabled has not yet identified them by name, and U.S. markets Chris McWilton in a Janu- terminals. Qualifying terminals must be also plans to add coupons, promotions ary statement announcing the introduc- enabled for contact, dual contact and and loyalty program connections. tion of MasterCard’s roadmap to enable contactless interface chip acceptance. PayPal’s no-card, no-phone payment next-generation payments. Retailers seem to be betting on the process offers consumers a lot of con- A cornerstone of this roadmap is growth of NFC-enabled mobile pay- venience (assuming they can remember EMV, a global standard based on chip- ments. (See chart.) It’s true that 25 per- this particular PIN along with the doz- based payment cards, also known as cent of retailers surveyed for the 2012 ens needed to navigate modern life), but smart cards. These cards have an em- RIS/IHL Store Systems Study say they it also raises some security concerns. bedded microprocessor chip containing are already using EMV/Chip & PIN pay- Conceivably, the next person on line the information needed to use the card ment technology – but only 22 percent could read and memorize both the mo- for payment, and they are protected by plan to add the technology within the bile phone number and the PIN over a variety of security features including next two years. the paying customer’s shoulder, then use dynamic data authentication. Current installations of mobile phone both to access the first customer’s PayPal The issue for retailers around smart NFC payments are much lower, at 2 per- account. cards as well as other emerging pay- cent, but 17 percent of respondents are ment technologies has been the need to planning a deployment within the com- EMV Incentives replace or upgrade their POS and pay- ing 12 months, with 28 percent planning All this attention to mobile and card-free ment acceptance hardware – an expen- one within the next two years. RIS

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