Ready Or Not – Here Comes Digital Payments

Innovation in the payments ecosystem is at an all-time high, but are consumers really ready to embrace all the digital payment goodness that innovators are heaping on them?

Kim Ohlrogge, Group Executive of Global Product at TSYS, sat down with MPD CEO Karen Webster to talk through what will drive the consumer adoption of digital payments and how merchants and banks are plowing through the roadblocks.

This is the first installment in the TSYS Digital Engagement Series. In this series we will explore the digital enablement that is taking place, prompted by the move to mobile and the payments environment that is available now to support it.

Ohlrogge and Webster discuss the many strategies being used to promote new payments technologies — what’s working and what is not? From Apple Pay to PayPal, the approaches to digital enablement vary drastically; in order to ensure consumer adoption, payments stakeholders may need to look beyond the payment method alone.

KW: What is your perspective on how consumers are taking this all in? Is digital enablement something consumers are ready for or are they just observing and saying, “Come back to me when you have something more compelling?”

KO: No, but I would have said maybe a year and a half to two years ago, consumers were saying “come back to me when you have something more compelling,” mainly because at the time, a lot of companies, other than PayPal, were coming out with mobile wallets that were applications that consumers needed to download to their phone; they weren’t inherent within the operating system of the mobile device.

This resulted in a much larger barrier to entry into the market, causing increased friction. During that time, and really even up until this year, there was an issue with being able to pay at the point of sale (POS) as well. It just was not really ubiquitous; it was hard to find a POS device that actually accepted NFC payments – there just weren’t that many of them out there.

All of that has played into the idea of consumer adoption. Frankly, I believe consumers are ready for it now; they’re excited about it – especially the younger age group. Interestingly, though, studies we’ve seen indicate the 30 to 44 age group trust mobile devices with their credit card information even more so than the younger age group. Although the younger age group really likes the idea of being able to take off and not have to carry around a plastic card with them.

Don’t get me wrong, I don’t think plastic cards are going away any time soon, I think we will continue to see plastic for quite some time. I do think that consumers are ready and willing to make the switch.

KW: When it comes to the switch you mentioned, is it a switch in form factor, simply substituting a plastic card for a mobile phone? Or, is it a switch to the different experience that a mobile device can enable?

KO: That’s a great question. We’ve talked about and debated this a lot at TSYS. For right now, because we do not see a lot of additional features in the mobile wallets that are being offered, it really is a form factor switch. Before we see absolute ubiquity or significantly high percentages of adoption, an experience adjustment will have to take place.

The idea of just putting all of your shopping items into a cart, walking by some type of POS device and having the system add up and process the payment easily is not as far in the future as we might think — but we are not there today. Before we can see higher levels of adoption we will have to get to that experience shift.

KW: That sounds like a great experience, but it does beg the question of what kind of user experiences will push us forward? But I want to talk about something that may hold it back.

There’s been a lot of research recently suggesting a lot of consumers are nervous about the security of their financial account information on mobile devices. Based on what you’re hearing from issuers and merchants, are consumers concerned about security with their phones?

KO: Frankly, consumers are concerned about the security of their payments details period. We’ve seen many breaches in the last year to year and half and it has impacted many consumers directly. I think people see identity theft and credit card fraud happening to them personally more than ever before, so there are serious concerns.

In the U.S. especially, at least for right now, there is a little bit of a question mark in people’s minds about EMV. What it’s going to do for them, how much security is it going to provide and how EMV fits into the whole ecosystem with regards to mobile wallets and impacts to the mobile wallet experience?

There’s just so much happening in the payments space right now, it’s not an easy time to be a consumer who’s not involved in the payments world if you will. They just don’t have as much information as the rest of us do.

[bctt tweet=”Frankly, consumers are concerned about the security of their payments details period.”]

KW: Do you have a sense of whether all the ways in which the industry talks about securing data, such as tokenization and encryption, actually means anything to consumers? Or, do they just assume their issuer and the networks have their back and are figuring it all out?

KO: I really believe the layperson assumes their financial institution, the merchant and the payment brands are going to all work together to ensure things are as secure as they can possibly be. While there are certainly tech-savvy consumers out there who have informed themselves about what tokenization is, what can it do and how it helps, for the most part, consumers are going to leave it to the brand and their financial institution to ensure their details are safe.

As long as that reassurance exists, meaning the consumer knows they are not liable for 100 percent of a fraudulent charge, they will continue to assume that between the issuer, the brand and the merchant, it will be taken care of.

KW: Let’s talk about this whole idea of the move to digital wallets pushing the financial institution and payments brands to the back. In talking about replicating the payment experience you described earlier, of the possibility the consumer will not have to do anything, and the transaction happening in the background. This of course could mean the brand becomes invisible as the payment becomes invisible.

What are your thoughts on how that is reshaping how players in the ecosystem think about their relationship with the consumer? What are they doing about it?

KO: As we talk to the players in this ecosystem right now, the most important thing that everyone is focused on is removing friction and improving the customer experience. At the end of the day, having a mobile wallet on an iPhone or Android device requires the consumer to load the payment card. The payment card has the financial institution name or logo as well as a Visa^®, American Express^® or MasterCard^® logo; it may not be front and center every time they use the device or payment method, but it still is there for them.

The focus has gone very much to how to improve the experience of a consumer and by so doing elevating the thought process about what the brand is providing from a service perspective. Even if it’s not seen every single time a consumer uses a payment method, it still can result in that consumer saying, “my bank is really helping me by making my life easier,” or “I bank with so-and-so because they made it very smooth and easy for me to be able to pay.”

KW: In a digital world, we need to understand that the consumer experience drives the relationship; it’s more than just looking at a logo on a plastic card. How ready is the ecosystem to deliver on that and are there some players who are more ready than others?

KO: The ecosystem has advanced significantly over the course of the last year and half or so. We have an unprecedented level of collaboration because we all have to work together to make this ecosystem actually function properly; there are new relationships that have had to be built in order to improve customer experiences. I do agree with you though that there are some members of the ecosystem who are more prepared than others to advance.

For small retailers it’s hard because there is obviously an investment required in real hardware. At the same time, institutions that are slower to adopt the technology could face adoption issues or some lag in what’s going on. As digital enablement becomes more ubiquitous, consumers are going to demand it from all of the places they want to shop – financial institutions, device manufacturers, and really everyone will need to embrace this as the norm.

TSYS recently published a white paper that explores the current state of mobile payments in European markets and the steps issuers can take now to gain a competitive edge you might find interesting.

KW: Years ago there was still a hesitation that this mobile thing was going to be a big game changer. Merchants were just watching to see what happened and some were experimenting, but not many. Today, hopefully, zero people see mobile as irrelevant and now digital is being embraced as a clear game changer.

How is that changing the conversations you’re having with the stakeholders in the part of the payments ecosystem you touch?

KO: What ends up being discussed more and more, and it sounds like I’m repeating myself but it’s very true, is the customer or cardholder experience. What does that look like? How can we make payments more frictionless? How can we make things easier?

We spend a great deal of time talking about that and a lot of investment dollars trying to understand consumer behavior. What is considered for the consumer to be easy? What does that look like? How can we make sure the consumer can utilize their new payment method very easily?

It really has adjusted that focus. You might think, well OK, we’ve always been focused on the consumer and the cardholder, but the drive into the digital space has really adjusted that focus and made it even clearer than ever before.