Did you grow up wanting to be in the payments industry? If you said yes, we need to meet because you must have had an interesting childhood. Rene Pelegero, Managing Director of Retail Payments Global Consulting Group, started his career in payments started as a software engineer at Tandem Computers. The computer systems he was working with were commonly used in point-of-sale networks, which is where his fascination with how transactions could travel halfway around the world within a few seconds began. He went on to work at GE Capital, had roles in consumer financing, and eventually landed at Amazon in 1999. At Amazon, he was able to see how different people around the world exchanged value. Twenty years later, Rene is still a #paymentsgeek and is loving every second of it. We spoke with Rene on a recent #PaymentsGeek webinar to find out how you can become your company’s Chief Payments Officer.
Payments are Cool
Rene has seen a lot of changes in the payments industry throughout his career. One of the major shifts is that payments have gotten “cool” over time. Everyone is trying to find a better, more convenient way to exchange value - look at what’s going on with Google Pay, Apple Pay, Facebook, and all of these new methods of payment. This rush to own payments is no surprise to Rene because the way in which payments are accepted and handled can make or break a company.
“The way in which payments are accepted is the livelihood and blood of the company.” - Rene Pelegero
Once your company understands the importance of payments, they need to employ a Chief Payments Officer to help them reach their business goals.
What is a Chief Payments Officer?
The Chief Payments Officer is the executive face of the company regarding the payments function.
Responsibilities of the Chief Payments Officer:
- Support and champion the payments agenda to the C-suite and board of directors
- Create and develop an end-to-end payment strategy
- Interface with the Chief Financial Officer because of the financial nature of payments
- Interface with the Chief Marketing Officer to enhance customer experience and bring in new methods of payments
- Interface with the Chief Technology Officer and Chief Information Officer to ensure the technology groups are working towards compliance and regulations, such as Strong Customer Authentication (SCA) in Europe
- Interface with Human Resources to provide the necessary education to build a team
All of these responsibilities are required to manage what Rene calls the “payments refinery.” In a refinery, you input petroleum which then goes through the pipes, heaters, pumps, etc and you have gasoline coming out the other side. In the middle of this process, there is a control room ensuring that the end-to-end process is optimized and free of complications such as leaks or fires. In payments, transactions go through payment service providers (PSPs), gateways, acquirers, issuers, payment networks, and you get cash in the bank on the other side. However, very few organizations have created the control rooms necessary to manage their payment operations. One of the first tasks of a Chief Payment Officer is to create the payments control room to manage the payments function to the maximum benefit of their company.
Where should the payments function live?
Rene believes that “organizations don’t get anything done. People do.” When Rene was at Amazon, he reported to the CIO, CMO, and Treasurer. Payments truly has a cross-function impact and can be placed in many different departments within the organization. The best place for the payments function to live is within the department that is the most supportive of the payments agenda. Given the financial nature of payments, many times this is going to be found when reporting to the Chief Financial Officer. Regardless of which department the payments function ends up residing, the Chief Payments Officer needs to build very strong links with other executives and have a solid understanding of the overall company strategy. They will need to educate the other functions on how payments impacts marketing, finance, customer service, and the legal structure, among other things.
Technology Platforms Behind the C-Suite
A number of C-level roles have large technology platforms behind them. For example, the Chief Marketing Officer has a CRM such as Salesforce and the Chief Procurement Officer has something like Ariba behind them. The Chief Payments Officer should also have a platform for organizing and managing payments. Currently, that “platform” is not very optimized in many organizations. Lack of attention to payments has led to an entangled mess of payments infrastructure. Rene shared examples he’s seen where ERPs, booking engines, order entry systems, fulfillment systems, and subscription engines are initiating payments. Initiating payments is not what these systems were originally designed to do.
“If you’re buying those particular functions from a third party provider, every time you want to introduce a new payment method, you have to wait nearly a year and pay half a million dollars.” - Rene Pelegero
What the Chief Payments Officer should do instead is create an architecture that layers the core functionality of those internal systems and separates them from the actual payments function. This is called a Payments Orchestration Platform (POP), and there are vendors that provide this platform. Payments Orchestration is routing, optimizing, and managing the payment activities. A POP is intended to support both pull payments (cards) and push payments (someone sending money to you). Some merchants have been able to build the POP functionality in house, but it requires a lot of support from the rest of the organization and alignment around payments as strategic to the business goals.
Roles in a Payments Team
Similar to the job of the CPO, the payments team needs to cover a broad range of areas. There needs to be an:
Operational Analyst: Responsible for monitoring approvals, declines, and ratios indicating performance of the payment operations
Financial Analyst: Responsible for optimizing cash, ensuring no transactions are dropped on the floor, and tracking the cost of payment acceptance
Product Manager: Responsible for communicating the needs of the payments team to the engineering team, defining proper business requirements, and identifying future payments needs
Project Managers: Responsible for planning and defining scope, setting and following timelines, and documentation
Vendor Manager(s): Responsible for calling out any problems with a vendor. This may be one person or a team depending on the number of vendors involved
Industry Specialist: Responsible for following industry trends, attending webinars/conferences, identifying where the market is headed, influencing payment providers, and bringing back knowledge to the payments team and the company at large
The makeup of these teams is going to depend on each company’s unique needs. Some teams might have one person serving as both the vendor manager and product manager, while others may need multiple vendor managers or industry specialists.
The Three Keys of a Chief Payments Officer
For the merchants who understand that payments are a valuable asset and require investment, the Chief Payments Officer needs to do three things:
- Keep the Lights On: Ensure there are no major problems with outages, breaches, and security. In case of an outage, the CPO should do two things: 1. Measure how much revenue they are taking every hour of the day so they can tell the vendor responsible for the outage how many sales were lost because they were down, and 2. Develop preplanned run books to immediately execute in order to minimize the outage.
- Demonstrate the Value of the Overall Payments Function: The CPO should show how they are managing the cost of payments as well as how much money they’re able to save the company by avoiding chargebacks and fees, minimizing downgrades, utilizing lowest cost routing, and reducing or eliminating other types of fines they may encounter. The CPO needs to demonstrate their understanding of the customer and the value each particular customer adds by keeping track of customer data, such as how many times they visit a shop.
- Managing External Vendors: The CPO needs to ensure there are Service Level Agreements (SLAs) in place with vendors, and should be hosting quarterly business reviews to crosscheck and reconcile the information they’re receiving from vendors with their own internal activities.
With these three key responsibilities in mind, the CPO can build a strategy in line with their business goals to accomplish each of these activities.
The Value of Payments
Reporting on the ways that payments enables business growth, enhances the customer experience, and reduces operational and payments costs is vital when sharing the value of payments. There are some companies who have already come to realize the importance of payments, but there are others who still are living with a mess in their payments infrastructure. The RPGC Group explains that most companies see the payments function as either a burden, utility, or necessity. Moving businesses to view payments as an asset or revenue driver is a difficult, but necessary, task. Establish metrics that indicate the value of payments such as decline rates, cost of payments, and chargeback ratios, and you’ll be well on your way to building your career as a leader in payments.
Are you ready to become the Chief Payments Officer? Reach out to the #paymentsgeeks at Modo to learn how we can support your payment operations and help you better control your “payments refinery.”