At the New Jersey Technology Council (NJTC) FinTech Conference, held at Opera Solutions (Jersey City) on May 23, 2012, Bob Carr, CEO of Heartland Payment Systems (Princeton), spoke about a rapidly changing payment industry, with merchants and the companies serving them needing technology to keep up with mobile payments, new kinds of loyalty programs and changing software models.
Speaking to a group of about 140 N.Y, N.J. and Pa. banking and financial professionals, Carr discussed today’s payment players and their future roles from the viewpoint of Heartland, the sixth largest payment processor in the U.S.
Referring to PayPal as a “prepaid credit card without the card” that uses Automated Clearing House (ACH) transfers, Carr said, “I think they will become a much bigger player since they were first in that space.”
Discussing Square, the popular add-on to the iPhone that lets merchants accept payments ad hoc, he said that system could become an avenue for fraud.
Turning to the various mobile payment models just emerging, Carr said tap-and-go has a problem: not enough merchants are equipped to use it.
Carr then discussed the two most prevalent wallet systems by Google and Isis, which use Near Field Communication (NFC) for mobile payments. He said both Google Wallet and Isis Mobile Wallet a collaboration with AT&T;, T-Mobile and Verizon, have “a lot to prove to show their model is sustainable.” Visa’s wallet solution will authenticate in the cloud, he added.
Much of these models’ success will depend, Carr said, on where the payment takes place, the transaction’s speed and complexity and who has control over it.
Mass transit will become a major player in advancing mobile payments, Carr predicted. Again, how fast those payments can be processed will be important: whether a transaction takes 0.200 seconds to process versus 0.500 seconds will determine if people will use the tap-and-go system. And it remains to be seen how many users will take out their cellphones to pay, he added.
One thing is certain, Carr said: magnetic stripes are going away — perhaps as early as over the next three to five years — to be replaced by alternate ways of authenticating and paying.
Loyalty programs are changing as well. There will be a “big movement toward the settlement of loyalty points back to the point of sale,” Carr said. For payment settlement, issues are developing over split tender models. Consumers will pay for something, and the cashier will know they have points and ask if they’d like to apply their points to that sale. They may want to add a gift card to the purchase. Payment systems will have to be modernized to accommodate these programs, he noted.
New payment programs will help brick-and-mortar stores suffering from the widespread showrooming phenomenon: shoppers research an item at a physical store, then buy it elsewhere on the Internet. Consumers will get discounts or rewards for buying the product on the spot.
In addition, merchant-funded rewards programs will let merchants bypass the OpenTables of the world and allow shopkeepers to have closer buying relationships with their customers, he said.
Since there are myriad payment and settlement options, Carr said Heartland is opening up its software platforms so developers can write programs to its application programming interfaces (APIs) and software development kits (SDKs). “With the cloud model, closed systems don’t work anymore,” he said.
In addition, with multiple ways of paying, the future point-of-sale (POS) system will have to be very smart and able to handle more than one transaction at a time as well as alternative currencies. “Rebuilding legacy systems is not going to work,” Carr commented.
The only model that will succeed in this “brave new world” is software as a service (SaaS), Carr said, which will allow frequent updating of software to keep up with an ever-changing world. The days of licensing payment and loyalty-related software are over, he concluded.