Magazine Article | November 13, 2012

Q&A: 3 Mobile Payment Questions You Can't Ignore

By Jay McCall, Business Solutions Magazine

Industry experts share insights on the most important mobile payment trends and pitfalls VARs and ISVs need to pay attention to.

With smartphone users now surpassing PC users, it’s only natural that there’s a lot of noise happening in the payment processing space. Savvy retailers know that the customer experience is a key metric for future survival. And, several mobile wallet, NFC (near field communication), and loyalty vendors are vying for their share of this hot market. Whether you’re a retail VAR or an ISV (independent software vendor), you have some important decisions to consider. To guide you in your quest, I spoke with four industry experts who offered their timely advice.

What technology advancements and announcements are particularly relevant to software developers?

Matt Cicciari, director of product marketing, Merchant Warehouse: A few advancements we’re seeing include:

  • Cloud-based technologies that offer one-time integration and remote updates to a customer engagement device for the merchants
  • Devices engineered to be flexible and scalable that allow merchants to choose which types of offerings they provide over time
  • Platforms that are designed to remove the POS (point of sale) from PA-DSS (payment application data security standard) scope, significantly reducing their annual spend regarding PCI compliance audits

Tony Abruzzio, business development executive, Isis: NFC technology provides software developers an opportunity to enable merchants to process transactions at the point of sale on the devices consumers use most — smartphones. There is also an opportunity for software developers to help merchants deepen relationships with consumers through specific and targeted loyalty programs and offers.

Harry Hargens, director of business development, channel programs, VeriFone: Payment processing is going through a tremendous upheaval, especially in the United States where EMV (a standard for inter-operation of integrated circuit cards) is finally arriving. Over the next two years, ISVs will need to add functionality to accept payments from various electronic wallets such as Isis and Google and support online validation and redemption for LDOCs (loyalty, discounts, offers, coupons) from a growing array of service providers (or “publishers”). ISVs will also need to provide these services to merchants and recertify their payment solutions for EMV with each processor or gateway that they maintain an interface to. That’s an enormous amount of functionality to add, placing a heavy burden on developers to keep up with a rapidly evolving market.

Especially in the case of EMV, certification will be much more complex and technically challenging than the mag stripe certifications that U.S.-based ISVs are accustomed to. For most ISVs, this will be a major rewrite of their payment solution, and it will also require a fresh PCI/ PA-DSS certification. But, many ISVs that we speak to still aren’t aware of EMV, or they voice skepticism that all of these new requirements will really emerge on schedule. The fact is that Google and Isis pilots are in the market now, merchants are already looking for ways to electronically redeem LDOCs, and EMV will emerge as a baseline product requirement as U.S. payment processors go live for EMV in 2013 per Visa, MasterCard, American Express, and Discover mandates. ISVs need to recognize that all of these new requirements are imminent, and if they haven’t already done so, start learning about these new technologies and making plans to integrate them into their POS systems.

Rob Bertke, Senior VP, Sage Payment Solutions: Loyalty is a technology that has a chance at making the others relevant. While mobile wallets and NFC transactions alone don’t offer real value, loyalty programs can. Consumers can benefit from frequent buyer discounts (or recurring purchase history), while merchants can gain valuable data on the spending patterns of their customers in order to drive custom offers and help make stock decisions. Most of the significant players in the wallet/NFC space are now trying to add loyalty to the mix. The initial rush to the wallet and NFC was a little short on the loyalty component. The major players focused on the mobile aspect as well as the credit card aggregation component. Most are now adding loyalty of some kind to the mix, as initial adoption was low. Loyalty is still very early-stage technology. This is where wallet and NFC could make more sense: the merchant gets business intelligence, and the consumer gets a discount.

What technology advancements and announcements are particularly relevant to VARs?

Hargens: VARs will have a slightly easier time. ISVs need to build all this new functionality, whereas VARs “just” need to sell and install it. Many VARs already make a significant portion of their income selling merchant processing services. The opportunity for them will be to also sell value-added LDOC services supported by their POS systems, further increasing their recurring revenue per merchant.

Abruzzio: For VARs, a mobile commerce platform represents an opportunity to provide merchants with a streamlined way to engage their customers, leading to more profitable businesses. Nearly a quarter of top U.S. retailers already accept, or are in the process of implementing, contactless payments. In fact, 86% of POS terminals will accept NFC payments by 2017.

Cicciari: In addition to the advancements mentioned earlier that are also relevant to ISVs, the following technology advancements are relevant to VARs:

  • Tablet-based POS for customers who might not require or cannot afford a more traditional POS system
  • Stand-alone devices for customers that don’t need a POS at this time, but do require a holistic payment and program acceptance solution that supports business growth.

Bertke: Of particular relevance would be the interaction between their systems and the loyalty solutions (combined with wallets) that are emerging. Unfortunately, the focus at this time probably needs to be on extensibility of their solution to support all of the major players (or stand ready to move toward certain players as customer trends emerge).

What cannot be ignored is the data and payments integration of various solutions. The stand-alone payment component of a company’s infrastructure continues to commoditize, and more and more emphasis is on the value of the solutions and the assumption of ubiquitous company data. The ability of a VAR to integrate solutions to provide maximum value to the business will improve attrition rates as business leaders seek to minimize costs. VARs can also capitalize on being early adopters of these new capabilities as a competitive differentiator.

What are some common mistakes VARs and software developers are making concerning mobile payments?

Abruzzio: The biggest mistake a VAR and software developer community can make is not rolling NFC into their development road map.

Bertke: It is very easy to put too much emphasis on an emerging technology before that technology takes hold, only to miss a core theme. Those solutions then die out (RFID cards, for example), and the developer has lost key investment dollars and, more importantly, time.

In the payments space, it is also critically important to not overlook PCI requirements and to monitor the potential changes in that space. Current PCI (or PA-DSS for applications) compliance requirements for mobile solutions are not well defined. It is very likely the requirements in this area will firm up significantly in the coming months.

Cicciari: The biggest mistakes are not doing your research now and waiting for a clear “leader” in the space to emerge. “Mobile payments” is a very general term and extends into mobile card readers (e.g. Square, GoPayment), the acceptance of new payment types (QR, NFC, and EMV), new mobile wallets (Isis, Google Wallet, v.Me), and also includes integrated loyalty, gift, rewards (LevelUp, Passbook), and more. It’s all going to come down to adoption, and the customers will choose their preferred payment types over time. It’s important to look at solutions today that are future-proof as well.

Hargens: The biggest mistake we see is ISVs and VARs not paying enough attention to learning about these new payment methods and preparing to support them. Also, there’s a tendency to underestimate the effort required to develop all these interfaces, which leads to too many homegrown efforts rather than exploring third-party solutions such as middleware and cloud-based solutions. By developing and certifying a single connection to a third-party solution, an ISV can use one interface to enable its POS solution for many payment processors and LDOCs publishers.