The payments industry is in the midst of reimagining its value proposition. While processing a transaction or enabling acceptance may be the functions that payments vendors provide, the value they deliver is business outcomes. True payments partners provide the infrastructure to enable business expansion and best-in-class customer experiences. And perhaps most importantly, they abstract the complexity of payments to allow their customers to refocus on what they do best, which is selling goods and services.
At the recent National Retail Federation (NRF) Big Show, the mindset shift occuring within payments was on full display. Three key trends stood out to me as I walked the floor and met with several dozen providers from across the payments value chain:
Payments are moving from bolted-on to baked-in
Merchants increasingly want payments integrated into mission-critical business applications. While this is quickly becoming a reality in the SMB segment, thanks to the proliferation of providers like Shopify and Square, enterprise retail has historically been less of a focal point. That doesn’t mean there isn’t demand. In a custom 451 Research survey of 800 enterprise-scale merchants across three continents, more than half said it was ‘critical’ for their payments provider to be able to easily integrate into their point of sale (POS) application. Another two in five said the same of their e-commerce software.
I met with a variety of large enterprise software providers at NRF that have growing interests in payments, several of which are making it a key priority to embed payments into their applications this year. NCR, for instance, is already leveraging its $184m acquisition of Jetpay in 2018 to integrate payment processing into its Silver, Counterpoint and Aloha POS lines.
Baking-in payment capabilities changes the game for enterprise software companies by transforming their products into full-stack offerings. Beyond that, it allows for enhanced ownership of the user experience while creating the basis for further product innovation (e.g., data and analytics tools). There’s also a sizeable revenue opportunity to be had when playing a more direct role in payments.
Payments will not necessarily be a ‘build it and they will come’ opportunity for enterprise software providers. Large merchants have highly complex payments environments (e.g., cross-border, multi-channel, multi-tender) that often demand a significant level of customization. Furthermore, they have accumulated massive levels of payments infrastructure debt across often dozens of partners, resulting in a high level of inertia. Winning integrated payments deals with this audience will require truly enterprise-class payments capabilities and a deep appreciation for the demanding requirements to process transactions at scale.
Payments are a fundamental component of the customer experience
Payments directly impact the interaction that a business has with its customers at the most pivotal moment of the shopping journey. The impact of a bad payments interaction can be devastating. When a shopper abandons an online shopping cart due to checkout friction, 451 Research’s data shows that 67% end up leaving for a competitor or never completing the purchase anywhere, and 59% say they are less likely to shop with that same retailer again. Without an approach to payments that enables convenience, speed and choice, merchants are at risk of forgoing up-front sales and eroding customer lifetime value.
Checkout friction has a direct, negative impact on sales
The growing appreciation that payments are vital to the customer experience came across loud and clear at this year’s NRF. Payments providers doubled down on a customer-centric narrative, focusing their messaging on the key use cases (e.g., click-and-collect, cross-border, conversational commerce) and business outcomes (e.g., increased conversions, increased approval rates) that they can help to enable. Adyen is a good example of a processor that has seen tremendous success by repositioning payments as a piece of enabling infrastructure for a best-in-class customer experience. It did a particularly good job at NRF of articulating its ability to transform the customer experience with messages such as ‘payments for every shopping journey’ and ‘customers can buy how they want’ adorning its booth.
The growing impact of payments on the customer experience directly translates to opportunity for payments providers. It enables them to move the conversations they have with merchants away from fees and toward customer loyalty and business growth. It allows them to reposition payments from a cost center and commodity into a strategic, competitive lever. Most importantly, it creates the basis for a relationship based on value instead of cost.
The ‘payments data as a service’ opportunity is emerging
To differentiate in payments, pivoting the sales narrative to business outcomes and customer experience use cases is only part of the equation. Payment processors also need to develop new tools for merchants to get more out of their investment in payments infrastructure. Aside from delivering enhanced value, this type of product innovation is also important to help offset margin compression occurring in processors’ core businesses.
A potentially transformative product opportunity can be found in transaction data – something processors have an abundance of. The range of business insight that can be gleaned from a robust network of global transaction data is seemingly endless. Key use cases are plentiful and include customer profiling, competitive benchmarking, approval rate optimization, payment method selection, store location planning and targeted marketing campaigns, just to name a few. This is the next ‘big’ opportunity in payments, and execution will be essential for making the jump from service provider to strategic business partner.
Several players I met with at the show are already building out data and analytics services for their customers. FIS has a variety of initiatives underway, such as its Issuer Insights and TruSpend offerings, which were both obtained from its 2019 acquisition of Worldpay. FIS also has Pazien, a payments data platform startup that Worldpay invested in and then acquired in 2018. Fiserv, through its 2019 First Data acquisition, has a range of capabilities, including its SMB-focused Main Street Insights service and its Authorization Optimization service for large e-commerce merchants. FIS and Fiserv are in a particularly unique position to execute moving forward, given their scale and access to massive volumes of both merchant and issuer data.
It’s still early for the ‘payments data as a service’ opportunity, however. Real-time reporting capabilities, web-based dashboards, automation and machine-learning-driven recommendations largely remain on the horizon at this time. I expect to see the industry make strides across these fronts over the next three to five years.