By 2022, invisible payments technologies like those used at Amazon Go will process an astonishing $78 billion in transactions annually, according to Juniper Research.2 In fact, the payments industry has been moving steadily in waves to this future of invisible and instant payments for more than a decade.
Here’s the progression as I see it. The first wave involved individual retailers storing digital payments credentials. Uber is the poster child here. Its frictionless payment platform is the linchpin of the company’s disruptive business model. The second wave involved storage of digital payments credentials in device-based digital wallets. PayPal is a leader among a crowd of wallet providers, with payment volume of $451 billion last year, a 27 percent jump from 2016.
This wave is a tsunami
Think about the value of invisible payments for a moment. Consumers are not tied to cards or credentials and get “no-brainer” transactions that are quick, easy and secure. Merchants facilitate transactions when consumers’ intent to purchase is strongest and are not haunted by the ghosts of consumers’ abandoned shopping carts.
This is a win-win, yes. But its value is under threat. The problem is that the proliferation of invisible payments options is ironically adding unwelcome complexity. Because acceptance is isolated and niche, consumers must enter and re-enter their digital payments credentials depending on the retailer they are dealing with, the device they are using or the situation they are in. This is not quick or easy. Nor is it sustainable.
This is why the third wave—universal acceptance of stored digital payments credentials—is critical. Commerce will only continue to move to the edges with connected payments enabled by the Internet of Things, voice recognition, biometrics and other technologies. As payments everywhere (universal acceptance) and payments nowhere (invisible payments) converge, the industry is screaming for standardization. Time for a universal buy button that actually works and becomes as ubiquitous to online checkout as swiping, inserting and tapping are to point-of-sale in the store.
The industry is collaborating now on this. EMVCo, a network of major credit card companies, recently released its draft Secure Remote Commerce (SRC) Specification, which supports consistent and secure online checkout and integrates card data management with common technical protocols. Consumers, merchants and card issuers can all benefit. Not surprisingly, merchants are largely on board—89 percent want to offer this universal buy button checkout solution.
Avoid a wipe out
Whether standardization of online checkout comes through SRC or some other means, the third wave of invisible payments is inevitable. So I think that card issuers need to start planning now like it is.
As the industry moves to a universal stored credential, card issuers’ brands will not be as visible to digital payments consumers as before. The battle for top-of-wallet status that has been swirling in the physical world has become an equally vicious war for supremacy of digital stored credentials.
To prepare, I recommend focusing on three areas:
Fight for big deals in a winner-take-all world. Online commerce will scale toward a natural monopoly, with a few Goliaths owning the market. Not surprisingly, Amazon already has nearly half of the US e-commerce market.5 What does this mean for card issuers that want “in” on invisible payments? Co-branding. Co-branding. Co-branding. As digital divas grab more strategic control over payments by virtue of their business models and sheer market power, card companies must be aggressive in becoming the stored credential providers of choice for market leaders.
Make a strong play to play well with fintechs. We will continue to see the payments industry disrupted by new entrants looking to capture some of the payments revenue pool. Odds are that one or a handful of these players will develop the next silver bullet in invisible payments. Card companies should get in early with these players, well before the winner(s) become clear, so they are not playing catch up later. Technical ease of integration with fintechs should be a priority. This means investing in integration capabilities such as APIs and software development kits.
Get really good really fast at consumer affinity. When payment is accepted everywhere, card issuers can double down on winning consumer loyalty. There are many untapped opportunities to do this in invisible payments—to add value even when the payment is free. This could mean services that manage common stored credentials, providing auto-updates when new cards are issued, offering fraud protections around digital credentials, or creating rewards incentives encouraging consumers to place your card in their digital wallets.
Keep following my blog as I explore more of the top market shifts in retail payments in the coming months. Next up is an interesting one—the death of channels.