Teknologian kehitys

Developing Technology Makes Paying Easier, while Challenging the Industry

Payment industry is developing technology on the terms of user experience. Amazon’s new store concept and the increasingly common self-service points-of-sale are a good indication of the direction payments are heading towards.

There are still many challenges we must face before traditional cash registers and payment terminals can be retired from use. That said, these experimental payment concepts do raise an interesting question:

“Are traditional payment methods slowly becoming obsolete?”


The Dilemma of Unobtrusive Payments

The slowly disappearing act of payment may at first cause notable societal problems. As payments become increasingly unassuming, we expect problems to arise in the youngest and oldest user segments.

When a transaction is not clearly defined, it is easy to rack up expenses without noticing. We have already seen this happen in children’s spending on mobile games. The value of money tends to become blurred when payment is incorporated into other activities.

It is clear that certain groups require more tangibility in their payment. But we should ask ourselves: At what point does consumer protection become patronizing? Is there a good balance between clarity and convenience?

In the end, these are more moral-philosophical questions, which have to be agreed upon, before the developing technology can take the next step.

Payment regulation is one channel that could be used to take action. It is not inconceivable that there would be a third payment service directive, which addresses matters related to unintentional payments.

Evolving payment services will complicate the situation further. Fortunately, the developing technology brings solutions to many of the rising challenges.

One avenue of attack could be in various value-added-services designed for consumer protection. On that note, we expect parental control, purchase restrictions and different guarantees to increase in popularity as payments keep evolving.


Developing technology

Developing Technology Demands a Response

The changing customer identification and payment methods create stricter technical requirements for the industry, some of which need to be addressed before the development can move forward.

For example, what actions can be taken in abnormal situations? How do concepts like Amazon GO respond to lack of funds on customer’s account? How are customer specific purchase restrictions addressed? What to do if products need to be returned?

These are the kind of questions that will pop up, as unobtrusive payments move from concept level to commercialization.

It is common to cut corners on early stage designs as a way to promote innovation. However, when moving from idea to action, it is inevitable to hit a wall of problems caused by payment regulation and data security.


Regulation VS. eCommerce

Financial regulation and payment landscape’s development are intrinsically linked. For instance, due to the growing need for user identification, the upcoming payment service directive includes a section on strong customer authentication.

Many have gone through time-consuming authentication processes of Finnish online stores, even making the tiniest purchases. Often, we must go through an additional payment gateway as well as authenticate at our Bank’s own web-page. These extra steps in the purchase take away from the otherwise smooth user experience.

This could become yet more complicated as the directive comes into force early 2019.

The technical standard’s earlier drafts required an even stricter authentication, which would have tangled the situation further.  Fortunately, it seems that at least small, recurring, and low-risk transactions will be exempt from the proposed two-step authentication, even in online payments.

Payment regulation will eat away at ecommerce’s convenience, but the resulting security will pay the slight annoyance back with interest. Furthermore, we expect that PSD2’s adoption will be able to decrease the high rate of fraud currently ailing online payments.

At the end of the day, this is a problem of optimization between security and convenience.

As discussed in our May article, finding good compromises is important to both online and offline payments. An example of such compromise could be a digital wallet or payment application that is able to streamline the purchasing experience.

Best option would be to bring online payments’ security on par with chip cards. We could finally rid ourselves of online card fraud, if ecommerce completely switched to card-present payments. For example, mobile wallets utilizing card tokenization or IoT devices with integrated card readers are potential avenues for the developing technology of online payments.


Convenience on the Terms of Security

Consumers yearn for faster and easier payment methods, but in the surveys security usually rises to be the most important factor in the adoption of new technologies. Until security and usability find the perfect balance, it is unlikely that the more dated methods of payment will completely phase out.

Currently, the most practical compromise between security and usability can be found in the various mobile wallets, such as Nordea’s Masterpass based app, OP’s Pivo, or Danske Bank’s MobilePay.

When the webstore automatically receives an authentication, address, and authorization from a customer’s phone, the payment process becomes notably smoother.

In brick-and-mortar, mobile payments serve as an alternative to payment cards, providing new ways to authenticate the user. They also speed up purchases that prove too expensive for contactless payment.

Mobile payments becoming mainstream is the first step towards Amazon GO style payment concepts. Becoming more accustomed to mobile payments will lower the bar to adopt more innovative technologies, while also introducing smartphones to the everyday transactions.

From here, it is only a short leap to a situation, where AI becomes part of purchasing and IoT devices will pay instead of their owners. Only time will tell, when we are ready to take this leap.

About the Authors:

Sakari Parre

Sakari ParreSeitatech's CEO. Extensive experience in developing payment solutions to banking and retail sector provides Sakari a keen eye for the upcoming trends in digital payments.

Toomas Selkänen

Toomas is a digital marketing specialist, with a soft spot for payment technology. He writes on payments industry topics from a layman's perspective.

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