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Perfect storm for payments innovators?

Amazon and PayPal push further into payments

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  • Written by  Chris Nelson, Zoot Enterprises
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  • Comments:   DISQUS_COMMENTS
UNconventional Wisdom is a periodic guest blog where the conventional wisdom is held up for fresh inspection, often with divergent recommendations. If you have some "UNconventional Wisdom" to share, email UNconventional Wisdom is a periodic guest blog where the conventional wisdom is held up for fresh inspection, often with divergent recommendations. If you have some "UNconventional Wisdom" to share, email [email protected]

The power of partnerships with retailers in payments is becoming apparent as two of the largest, most-established payment providers push their newest products. The core of these services is the importance of being where consumers already are and removing friction from the customer experience. However, their success will rely heavily on both retail buy-in and consumer trust.

What’s next in payments? It’s here

PayPal’s unveiling of its new technology Payment Code shows the continued refinement of their early tests of mobile wallet payment technology at retail locations.

PayPal’s first attempt at integrating at the point of sale in Home Depot stores wasn’t wildly successful, because customers had to key in too many numbers. Payment Code technology works with merchants’ existing infrastructures to allow shoppers to pay more easily with their PayPal accounts at checkout. Customers use apps that generate QR codes readable by merchants’ scanning devices. Alternatively, PayPal sends a four-digit code (for one-time use) to the customer that can be entered into card-reading terminals.

Payment Code also gives consumers the ability to automatically redeem special offers or rewards programs and adds a layer of authentication, for enhanced security, that ensures the person is who they say they are.

Amazon is now offering Login and Pay with Amazon. It does exactly what the name suggests—customers login and pay using their Amazon credentials rather than retyping their address and payment information at every internet retailer. (The slogan is, “Make Amazon’s customers your customers.”)

Partner sites will have a payments button that reads “Pay with Amazon” alongside other payment options. This creates a seamless customer experience and expands merchants’ online reach to the reportedly 215 million active Amazon account users so consumers can go from browsing to buying anywhere as effortlessly as possible.

Another perk is that buyers receive the same protection they get on through the company’s “A-to-z Guarantee”—all while keeping the same level of security they have with Amazon.

Will these fly where wallets haven’t?

Will these new offerings take hold and become mainstream? It is too early to tell, however they seem more promising than the plethora of mobile payment options that haven’t—Google Wallet, Apple Passbook, and Isis Mobile Wallet, to name a few.

The PayPal and Amazon products are different because consumers don’t need to make a big leap to using something entirely new. They simply use the accounts they know and trust to make purchases where they are already shopping.

There are a couple of factors that will impact the success of these innovations. One is getting enough retail locations to accept them as payment options. You can pay for Gogo in-flight internet with an Amazon account today, but it remains to be seen how many merchant partners will add the Amazon payment button to their site. A few other retail brands using “Login and Pay” include Petco, Linens-N-Things, and Ace Hardware.

While PayPal hasn’t officially disclosed all of the retail locations that will eventually accept Payment Code, Home Depot is already on board and PayPal’s partnerships with MICROS and Discover Financial Services open the door to millions more locations. MICROS and Discover retailers will be able to upgrade their software to accept payments via PayPal starting this month.

Internationally, Payment Code is already being accepted at over 1,500 locations in the UK and by hundreds of taxis in Canberra, Australia.

At a recent industry conference a PayPal executive stated that the business of payments is all about trust. The success of these new payment options will also rely heavily on this second factor.

Because consumer trust in card security has been steadily waning in the aftermath of the recent Target, Neiman Marcus, and Michaels data breaches, there may be even greater opportunity for these innovations to break into the mainstream.

If consumers have the option of using an alternative to debit and credit cards that they believe is more secure, why wouldn’t they take advantage of it? Even though Amazon accounts include a customer’s card information, they are viewed as a secure payment option. That trust will remain as long as they don’t have a data breach of any magnitude.

The stakes are higher today than ever before. The Target breach alone had far-reaching negative impacts on consumer confidence. For some the retailer was to blame, but the incident sparked much debate about the fraud vulnerability of magnetic stripe cards and questions regarding why the U.S. has yet to adopt EMV technology.

It may be the perfect storm for these innovators to be entering the payments world as consumers become more wary of how safe their cards really are, the standards for card security become more stringent, and the retail sector is forced to update its infrastructure to accept EMV cards.

Change is coming in some fashion. If the innovators succeed, what must the card industry do to keep up?

About the author

Chris Nelson is founder and CEO of Zoot Enterprises, a global provider of advanced loan origination, account acquisition, and credit risk management solutions located in Bozeman, Mont. Nelson has nearly 30 years of experience in the software and financial service industries.

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