“Innovations in convenience” driving payments

Buying habits don’t remain stationary. The way businesses and the markets they inhabit sell and trade with one another is constantly evolving – and so it only makes sense that the payment processing systems facilitating those business transactions continue to evolve, too. That’s why there has been rapid change in the global payments space over the last two decades, and there are plenty of innovative new trends looming on the horizon.

Yet in order to fully understand the context surrounding those new payment processing trends and the critical role they have to play in business development, it’s worth revisiting what a basic payment processing system looks and how its associated value chain actually works.

What is a payment processing system?

The payment processing value chain that facilitates transactions is relatively straightforward. It begins with an issuer that approves transactions, a customer who initiates a purchase using a bank-issued card or another type of payment technology and a merchant who submits a transaction authorisation request to an independent sales organisation or acquirer. The chain also includes payments providers that govern payment methods, monitor processing and manage clearing and settlement – as well as processors that often partner with acquirers to open merchant accounts and handle transactions.

Those parties then work in tandem to facilitate purchases through four key stages: authorisation, batching, clearing and funding. Yet because there are so many processes involved within each key stage, and because merchants and consumers are constantly searching for quicker and simpler transactional methods, payment processing systems have come to play a critical role in connecting each stage and streamlining the various subtasks involved to create increasingly frictionless payment journeys.

Payments processing systems are primarily deployed to pass authorisation from merchants to issuing banks, facilitate payment through networks from issuers and settle with merchants. Thanks to recent software developments, the vast majority of consumers now expect that process to be virtually instant and incredibly convenient – which is why business owners have subsequently generated universal demand for holistic payments solutions that include an increasingly large list of basic services and functions.

Those expectations stem largely from a series of milestone developments ambitious fintechs and legacy providers have helped the sector to achieve in recent years, beginning with the UK’s initial trials of Chip and PIN technology in across Northampton in 2003. Those trials more or less outlined the working, contemporary definition of frictionless transactions, which was totally redefined just four years later when providers introduced contactless technology.

In 2008, Faster Payments took that concept a step further after launching and enabling one-click online and phone payments. Then by 2014, mobile payments technology was brought to market by the likes of Apple, reshaping the global payments landscape forever.

That’s why there has been a serious paradigm shift in the way in which traditional payments systems function. New open APIs, a huge spike in digital payments across key jurisdictions and a surge in demand for smooth cross-border payments have created huge opportunities for incumbent payments providers to change tact and tackle new market segments. According to research by Capgemini, global trade flows are forecasted to hit $85trn by 2025, and that rise will be driven largely by emerging economies.

Meanwhile, start-ups are beginning to find ways to workaround traditional high barriers to entry in order to offer customers unprecedented levels of choice in terms of software solutions. As a result of that newfound variety, customer and business expectations of what payment processing solutions look like have increased dramatically.

What should businesses expect from payment processing solutions?

In 2018, it’s generally taken for granted that an effective payments processing system will incorporate an integrated POS system or a series of terminals with which to process payments, alongside a software or API that can connect a corresponding POS system to a payment processor’s transaction processing network. Most systems available on the market today now come with a direct connection to a given authorisation network as standard or a connection to a payment gateway, as well as the ability to carry out ACH transfers.

Beyond this core functionality, there’s an expectation that payment processing solutions will be armed to the teeth with intensive data security precautions. Thanks to sweeping new legislature such as the EU’s General Data Protection Regulation and PSD2, the sensitive data included within each transaction and the way in which it’s used has become a top concern for regulators, businesses and consumers.

In constantly evolving business climates, payment processing solutions must also include real-time reporting capabilities in order to provide business owners with a bird’s eye view of transactional history to eliminate errors, prevent unnecessary chargebacks and maximise returns. More important still, payments solutions need to be flexible so that businesses can evolve to accept new payment types and choose to connect with various back-end systems. Scalability and customer support inherently rank high on every organisation’s wish list, too.

So, bearing in mind the wide range of core functionality payment processing software solutions are expected to include in this day and age, which providers have excelled at keeping up with the pace of change in order to offer businesses added value solutions?

After almost two decades of trading, PayPal is undeniably one of the oldest online payment processing solutions available on the market. Yet because of its reliable service, incredibly flexibility and freemium model for cash-strapped SMEs, PayPal continues to offer a superior service without asking small business owners for a whole lot in return. PayPal’s transaction fees are based on overall sales volume, and the reason many merchants continue to flock to PayPal is its wide range of integrations with popular ecommerce software and webhosts.

From a user point-of-view, PayPal is totally on-trend. Its one-touch login, mobile optimisation and card synchronisation functionality tick all of the boxes in terms of frictionless payments and convenience. Meanwhile, PayPal clients are able to leverage global demand and accept cross border payments through PayPal’s new Global Sellers programme – which offers SMEs free translation tools, payment localisation and enables businesses to manage international payments from customers, financial institutions or digital wallets from more than 200 countries.

Stripe is another cloud-based online payment processing solution that uses advanced APIs to manage all the core functions of a traditional payment processing chain, while also giving clients the opportunity to manage full-stack payments, take instant payments and collect transaction fees using a sleek, mobile interface. Stripe also fulfils market demand for flexibility thanks to integrations with leading accounting software – while regulatory hurdles are easily overcome thanks to Stripe’s synchronising financial reporting process.

Finally, the solution’s payment flow system ensures businesses are remaining PSD2 compliant by allowing them to use Stripe’s e-money license.

Another key market player ticking all the boxes for businesses is Worldpay. Processing more than 31m transactions every day, Worldpay is one of the biggest payment processing solutions on the planet for a reason. Its cloud-based product suite offers business owners a proverbial one-stop shop for each aspect of the payment processing chain, giving merchants and companies incredible convenience for pretty reasonable rates.

Worldpay’s iOS and Android POS apps allow SMEs to collect cash, Chip and PIN, contactless, credit card, Apple Pay, Google Pay or Samsung payments from anywhere in the world. Integrations with PayPal’s ecommerce solution and Oracle products make it easy to marry with existing systems, and its intuitive inventory cataloguing system and automated cashing-up functions provide merchants with real-time reporting analytics that can help them make better informed decisions.

What trends are going to drive payments in 2019?

Worldpay and PayPal might be two of the top payment processing software solutions servicing the market, but emerging trends and the start-ups facilitating market shifts could ultimately provide opportunity for a dizzying range of emerging market participants.

A key disruption in the payment processing ecosystem in the months to come will be the mainstreaming of so-called social payments. Chatbots have been around for decades, but payments providers have only just begun to figure out how the historically useless programmes can actually be redeployed as real-time payment processing tools. The race to establish market dominance in the social payments space has already started in earnest.

In June 2018, social media giant Facebook filed for a patent on a new messenger chatbot that will be designed to process in-app transactions between social media users and merchants using just a few short text messages. Payments incumbent Mastercard has been piloting a similar chatbot scheme in Africa, and several recent cohorts of the FCA’s regulatory sandbox in the UK have included AI-powered payment processing chatbots.

The payment processing landscape is also on the cusp of a revolution in terms of biometric payments – and according to Ciaran O’Malley, Head of Commercial Strategy at Trustly, that revolution is driven by an ever-increasing demand for convenience.

“Convenience is king, and a lot of innovations in convenience have come at the expense of security,” he says.

“But once you bring in biometrics, you actually get high convenience and high security. So in many ways, it’s kind of a holy grail for payments. I’ll be interested to see how those biometric authentication methods start to improve.”

Many mobile wallet apps such as Apple Pay already require fingerprint authentication – and according to Juniper Research, there will be around 770m biometric authentication apps on the market by next year. In California, POS provider NEC has even teamed up with a local burger chain to enable face-based payments.

Finally, blockchain will continue to push payment processing solutions providers to leverage open APIs in order to create quicker and more efficient cross-border payments processes. Various payment systems providers have taken blockchain applications in very different directions – from Mastercard’s new crypto account feature, to Visa’s new enterprise blockchain infrastructure. Last year, the World Intellectual Property Organisation tallied up more than 400 blockchain patents, and the vast majority of those products have yet to go to market.

That means businesses and consumers can anticipate a proverbial influx of blockchain-powered payment processing systems across 2019 and beyond.

At the end of the day, it’s worth pointing out these new trends won’t exactly redefine payments as we understand them – developments like blockchain and biometrics will merely streamline and better connect the payment processing chains that businesses have been utilising for decades.

Yet as software solutions begin to incorporate new technologies and bring these offerings to market, organisations can expect to see a diverse range of payment processing solutions that fulfil their needs and offer a plethora of opportunity with which to scale and grow business through new payment functions.

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