Key Trends in Payment Processing1 Jul, 2014 By: Bridget McCrea Response
What’s new in the payment processing industry and how these trends impact direct marketers.
When DISH Network announced that, later this year, it would begin accepting bitcoin payments, the satellite-TV network became the largest organization thus far to accept the digital currency in exchange for its subscription-based services. In June, commerce-as-a-service solutions provider Digital River — which processed more than $30 billion in online transactions last year — followed suit by announcing that it had also added bitcoin as a payment option for its online merchants.
Bitcoin, which is slowly gaining acceptance in the U.S. as an alternative to online credit card payments — despite the negative publicity surrounding the digital currency earlier this year — is already used by large online merchants like Overstock.com, which started accepting such payments in January. “We always want to deliver choice and convenience for our customers and that includes the method they use to pay their bills,” said Bernie Han, DISH’s COO, in a company press release. “Bitcoin is becoming a preferred way for some people to transact, and we want to accommodate those individuals.”
As U.S. regulators work to formulate rules and recommendations around the use of bitcoin, the virtual currency is becoming more relevant for direct marketers. “Bitcoin is definitely here to stay,” says Leonard Garcia, head of business development for Eureka, Calif.-based Humboldt Merchant Services. “Anytime you see news that the U.S. government is regulating something new, that pretty much spells acceptance.”
Michael Orlando, senior vice president of sales at Jumio in Palo Alto, Calif., says the company recently introduced the BISON Bitcoin Identity Security Open Network as a way to “bring authenticity to bitcoin users and exchanges.” The network allows exchanges to share data on authenticated users within their own systems. “As we authenticate a user within one bitcoin exchange,” Orlando explains, “that same user gets the thumbs up and an authenticated check mark from us when they go to another bitcoin provider in our network.”
Acknowledging that the unique demographic of early bitcoin adopters is growing and expanding, Orlando sees potential ahead for direct marketers who fold the digital currency under their own payment processing umbrellas. “It’s definitely gaining traction,” he says.
Virtual currencies like bitcoin aren’t the only entities that are shaking up the payment processing industry right now. Fraud detection, protection of consumer data, PCI compliance, and related topics have also come to the forefront as major breaches involving retailers like Target continue to populate the news headlines.
“These data breaches and the increased attention being paid to fraud — both are hot topics for most industries right now,” says Frank Stornello, chief marketing & strategy officer for Los Angeles-based Verifi Inc. “Online E-commerce, in particular, has taken an evolving and conservative posture based on the severity of the risk. On the front end, for example, sales are being impacted and legitimate customers are being lost as a result of these incidences.”
To combat the problem, companies like Verifi are working to strengthen post-sale risk mitigation in order to dial back some of the “potentially overly rigid front-end controls,” says Stornello. For Verifi, such efforts include a chargeback alert protocol designed to catch fraud post-sale. “Recent statistics revealed a 40:1 ratio in terms of losing legitimate customers to overly rigid front-end controls,” Stornello explains. “Chargeback alerts are one way to move that to the post-sale side in order to avoid throwing the baby out with the bathwater on the front end.”
Chris Uriarte, chief payments officer at Vesta Corp. in New York, says one of the biggest obstacles that direct marketers face in the payments processing arena is the fact that consumers don’t actually understand the logistics of the payment ecosystem. “They don’t know what happens behind the scenes — nor should they have to,” Uriarte points out. “People just want to swipe their cards and they want their payment to go through.”
What they don’t know is how that a seemingly simple “swipe” sets off a series of fraud prevention steps that occur at multiple points in the transaction.
“You have fraud prevention that’s happening on the acquiring side (those entities that have a relationship with the merchant), the network side, and on the part of the card issuers themselves (like Visa, MasterCard and American Express),” Uriarte explains. “The system is very much focused on the consumer and making sure that they don’t lose confidence in it — particularly when they hear about all of the data breaches and other fraudulent activities that are taking place.”
Calling those data breaches an “incoming shift or tsunami,” Orlando says direct marketers should pay particular attention to card-not-present transactions that are taking place via the Web and/or mobile. “In Europe, Canada and Latin America, we’ve seen that when such initiatives were launched, a large majority of fraud shifted to the online channels,” says Orlando, who adds that many merchants are ill prepared to deal with such onslaughts.
“Everyone has floated into a nice level of comfort around dealing with fraud and figuring out how their systems are going to need to operate to maintain the fraud rates below the criterion,” Orlando continues. “They’re not really ready for the more systematic fraud that’s going to come during the next 18 months as retail fraud moves online.”
Payments on the Go
According to Forrester Research, contactless and mobile payments are expected to reach $90 billion by 2017. “That’s huge,” says Garcia, who also sees PayPal, Google Wallet (with about 5 million installs in 2013), and bitcoin as major players in the “alternative payment” space right now.
The growth of smartphone and increased tablet usage are also helping to boost mobile’s prowess in the direct marketing arena. “Mobile is gaining at a rapid pace because it’s easy to pick up a smartphone while you’re on the go and make a purchase,” says Garcia, “versus sitting at a computer or picking up the phone.”
Uriarte says consumer comfort with mobile payment mechanisms is growing year over year. “People no longer feel like their mobile phones and/or tablets are just mini-browsing devices, and that they’ll go home later and make the actual purchase on the computer,” says Uriarte. “That’s promising.”
Currently, he says card issuers like Visa and MasterCard are working on wide-scale mobile wallet technologies that would put more power in consumers’ hands and no longer require an actual “card” in order to make a final purchase.
At Vantiv in Symmes Township, Ohio, Dustin Young, vice president, mobile product, sees four clear trends emerging in the mobile payment space: basic mobile acceptance both online and offline; the development of applications for consumers to use when making mobile purchases; forward-compatible security (i.e., certification of all mobile apps — and the hardware that sits atop those apps) to be Europay, MasterCard and Visa (EMV) compliant; and the growth of value-added services and applications.
“Payments are not just about the transaction itself; they are about creating a customer experience that can be very personal in nature,” says Young. “Marketers can leverage their points of sale (POS) to track consumer wants and needs and to deliver more effectively. That’s a fundamental disruption in the payments industry and why we use an all-encompassing, platform approach.”
Where payments processing was once a very transactional process, the modern-day experience includes a wider range of options, opportunities and securities for the customer. Knowing this, Chris Reinmuth, vice president of mid-market sales for Meritus Payment Solutions in Santa Ana, Calif., says direct marketers must factor in everything from PCI compliance (a set of requirements designed to ensure that all companies that process, store or transmit credit card information maintain a secure environment) to alternative payment options to correct partner selection (fulfillment centers, call centers, etc.) into the mix when setting up their campaigns.
Selecting the right payments processing partner is also critical, says Reinmuth. “Protecting customer data is huge, so it’s very important that you work with processors that have their own platforms and that aren’t outsourcing much,” he advises. “There are a lot of providers out there that use an outsourcing model and, as such, don’t have much control over the data.”
Reinmuth also advises marketers to look for “flexible” business partners that can adapt to the space’s variation of offers, including straight sales, continuity programs and subscription options. “There are many banks out there today that just flat out won’t take that business, or that may not understand it,” says Reinmuth. “They can pull the plug at any given time.”
When working with customers who may not always understand the payment ecosystem, Jeff Sawitke, Verifi’s senior vice president and chief product officer, says over-communication is always a good approach.
Simple steps like using clear billing descriptors that include website addresses, for example, can go a long way in helping to keep chargebacks to a minimum. “Over-communicating in order to create awareness,” says Sawitke, “is a prudent move in today’s environment.” ■