Magazine Article | June 1, 2017

Stay Ahead Of The Payments Curve

By The Business Solutions Network

ISVs face a multitude of challenges when it comes to payment integration and security. Three experts point to a light at the end of the tunnel.

Retail- and restaurant-focused ISVs have plenty to keep themselves busy. Not only must they create and maintain software that meets the demands of their customers, they must also attend to payment technology trends. If you’ve been in this business for even a couple years, you know this is a daunting challenge. Born-inthe- cloud competitors pop up every day, increasing competition, while payment technology and related regulations also shift at breakneck speeds. To help ISVs stay on top of the most important trends, I spoke with a few industry experts and got their take on what developers should be focusing on.

Address The Latest Consumer Trends
Justin Zeigler, director of product strategy for Datacap Systems, says consumers are becoming increasingly more engaged when it comes to making purchases and are now researching and price-shopping online before buying in-store to ensure they don’t overpay. “For products that require hands-on research, many consumers are now showrooming at brick-and-mortar locations, only to make their purchase online from an e-commerce retailer offering a better price,” he says. “Brick-and-mortar retail isn’t in danger of going the way of the dinosaurs anytime soon, but smart retailers will look for ways to engage their customers online as well as in-store.” Zeigler continues by explaining that an omni-channel payments approach coupled with a data-driven customer loyalty platform will lead to more informed customers that will be incentivized to make purchases with the added benefit of loyalty rewards and the freedom to purchase in-store, online, or to utilize a hybrid “buy online and pick up in-store” model.

Bill Lodes, EVP, business development and strategy for First American Payment Systems, adds that when you look at how people shop today, the mobile phone is a critical component. “Innovation for payments is certainly focused around mobile wallets and mobile purchases, such as order ahead for restaurants/cafes,” he says. “In addition, there are many consumers who want to purchase items directly within an app, so there is plenty of payment innovation that allows for in-app purchases and secure storage of credit cards to enable those in-app transactions.”

Lodes says businesses are also adapting to consumer shopping trends and the ease and speed with which they want to pay. “There has been significant payment innovation around the point of sale system and ensuring it’s easy to set up and use, it’s scalable, and it accepts the multiple ways that consumers want to pay, including cash, credit, EMV, mobile, etc.,” he says. “We will continue to see innovation at the point of sale as more businesses look to upgrade their payment terminals to a more robust system.” The question at that point is, will those retailers be using your software or that of your more innovative competitor?

Sid Singh, president of integrated solutions and vertical markets for Global Payments, underscores many of these thoughts. “The omni-channel payments environment is here,” he states. “Payments are moving off the checkout terminal and, instead, we see a world in which the consumer is in control of how they wish to pay — regardless of place, device, method, or platform.” In fact, Singh says nearly a quarter of all credit card transactions are card-not-present (e-commerce, mobile payments, online bill pay, over-the-phone, etc.). “The frequency of those transaction types will only increase; card-not-present transaction volume is growing at 15 percent year over year with millennials conducting 86 percent of their transactions on their smartphones,” he says. “This trend indicates that developers who align their plans to this new reality will reap the rewards.”

Singh continues by pointing out that technologies supporting the new consumer reality will be perceived valuable in the market. What is that reality? According to Singh, it includes the expectation of immediacy (I can buy what I want now), shopping flexibility (I’ll buy it online or at the store with my device), relevancy and context (offers and sales which match my preferences), and submerged payments (the payment is submerged within a broader, multifunctional app).

“Developers who create solutions with seamless payment functions can expect an easier sales cycle, greater market share, and loyal customers who use the solution more often and for longer periods of time,” he adds.

“Payments are moving off the checkout terminal and, instead, we see a world in which the consumer is in control of how they wish to pay — regardless of place, device, method, or platform.”
Sid Singh, Global Payments

Leverage Value-Adds
While ISVs clearly have a lot to deal with, luckily, there are many payments innovations that can be leveraged to add value to their software. Zeigler points to turnkey payments ecosystems offered by third-party payments providers that create an ideal path for software developers to not only keep pace with evolving payments standards, but also to be viewed as a technology leader by their merchant customers. “New payments features like EMV, omni-channel, mobility, data-driven loyalty, etc., add new sales opportunities for ISVs who can, in turn, generate new business while simultaneously upselling their installed base on new functionality,” he says. “Because the payments development is handled almost entirely by a dedicated third party, developers are then free to spend development resources on POS innovation that can further differentiate their offering in their particular market.”

Why Are We Still Talking About EMV?
Many developers are sick of hearing about EMV. Unfortunately, there’s still work to be done. Indeed, Lodes says there is still a great amount of opportunity to deploy EMV technology in markets or verticals that haven’t done so yet. “For the verticals that are big targets by fraudsters, developers are making strides to enable the technology to protect their business and their customers’ business,” he explains. “This can’t be said for other vertical markets where the fraud risk might be lower, and that is where the challenge still exists.”

In the U.S. currently, Singh says about 20 percent of SMBs using an integrated POS have embraced the new technology. ISVs will need to examine their customers’ markets to evaluate the need for EMV. “Segments at high risk for fraud [like retail and restaurant] are implementing EMV faster than low-risk industries such as healthcare or membership models,” he explains. “And, yet, EMV will become the payment standard sooner or later, and ISVs will need to nudge businesses in that direction.”

Zeigler points out that we’re coming up on year two for the EMV liability shift, and many payments providers are still in the midst of their first round of EMV certifications. “This can be chalked up to a variety of circumstances: host functionality delays, device limitations, certification bottlenecks, internal resource allocation issues, etc.,” he says. “Some ISVs are integrating directly to select processors and are facing the same challenges as the payments providers that are working through these certs, but most have opted to utilize a third-party payment provider, via a semi-integrated approach, that takes the certification requirements off of their plate.”

Indeed, Singh says EMV Level 3 certifications — brand-specific requirements for each hardware device — are cumbersome. “For example, a merchant with three hardware devices and processing payments for the four major card brands requires 12 individual certifications [3 devices x 4 card brands],” he explains. “When the transaction process changes [such as a hardware swap, application upgrade, new processor, or new kernel], recertification is necessary. It’s painfully clear how quickly this affects a developer’s workflow.”

Zeigler also points out that EMV functionality (often accompanied by security updates like P2PE [point-to-point encryption] and tokens) is inherently different from what merchants have grown accustomed to with standard mag-stripe transactions. “ISVs have to plan for issues like slower transaction times, new flows for gratuity, hardware requirements, etc., and manage expectations appropriately for their merchant customers,” he adds.

Concerning the slower transaction times, Singh points out that this continues to be a common complaint, and is being addressed with new Quick Chip services allowing consumers to remove cards from terminals before the transaction amount is finalized or the authorization response is received. As Quick Chip technologies spread, this will speed up the checkout process and reduce that complaint.

Overall, it appears that one effective way to deal with payment security issues and potentially add value to your software is by integrating your software with a third party focused on those things. Doing so will allow you to spend less time on payment components and more time enhancing your software.