Modo CEO, Bruce Parker, spoke with The Paypers on the difficulties and inefficiencies of integrations, and why interoperability is the way to ensure future payment success. Read the article originally published on The Paypers below.
From PayPal and Alipay to Target REDcard and the pervasive mobile “Pays” (Apple, Google and Samsung), new payment methods are continuously cropping up, maybe at the fastest rate in history. Taken together, they’re also quickly growing in use: The leading mobile payment platforms already have more than 1.42 billion users worldwide. Looking ahead, mobile payments are expected to grow almost six-fold between 2017 and 2022, at a compound annual growth rate of 41.9%. And in the US, mobile wallet adoption has grown from 27% in 2016 to 34 percent in 2018, according to a survey by Auriemma Consulting Group.
What does all of this growth mean for online merchants in particular? A lot. Online merchants who don’t add new payment methods to their online checkouts are losing out on potential revenue and loyalty opportunities. Consider this: USD 236 billion in sales were forgone in the first quarter of 2018 alone due to friction in the checkout process, which often includes problems with payment options. Online merchants who make the effort to accommodate a wider variety of customers (and their preferred payment methods) have been shown to enjoy higher checkout conversion metrics.
And it's not just a merchant issue – banks are also impacted. As the number of digital wallets adopted by consumers grows, and the number of companies enabling payments via those wallets also grows, banks need to keep pace, or risk being disintermediated. In addition, banks that aren't connected to the multitude of new, local, and global payment methods can meaningfully inhibit their ability to distribute and request funds around the world on behalf of their clients.
But you knew all that, didn't you?
Integrating of new payment methods is painful
If connecting to alternate methods of payments is so painfully obvious, why aren’t merchants and banks rushing to make every connection they can? Despite a desire to stay engaged in new fangled forms of commerce, retailers and banks can run into problems as they try to incorporate new methods of payment. We can blame much of this implementation pain on legacy systems and a (stubborn) commitment to integration. Here’s the deets on what’s going down:
The #paymentsgeeks of years past (#HallOfPaymentsFame) solved payment problems with bespoke software and proprietary platforms, built for purpose, that really worked well and grew really rapidly and reliably. Today, trillions of dollars of payment volume are running through these custom systems which makes it very hard to change anything but build on top of the existing infrastructure (insert analogy about mid flight jet engine changes here). The natural evolution of these decades-old solutions to the first problems of payments has left us with siloed, unconnected, and disjointed payment systems that introduce a ton of friction, not to mention inefficiencies and workarounds. Read that as the barriers to success when today’s industry movers try to innovate and bring new functionality to payments.
Many merchants turn to integrations with a bunch of payments providers in an attempt to solve the issue of siloed systems. But integration with a new provider is a lot like learning to juggle with a new partner: It’s messy, and as you learn each other’s systems, a lot of balls get dropped. That messiness costs money and time, not to mention the impact on customer experience, so merchants think twice about integrating with a new payments partner, wondering if it is really worth all the hassle, risk, and trouble.
These traditional one-by-one, one-to-one integrations for one too many payments methods are also slow and complex. The potential complications at every step – from settlement to reconciliation, exceptions and returns – can take a long time to figure out and often can’t be tested fully without turning them on, so many retailers opt to stick with their current options for online checkout. And while they’re waiting on the sidelines, they’re losing potential sales.
Bet you knew all that too.
Interoperability: A better alternative
So, time for the big finish. As you might have guessed, there is a better way: interoperability. Not integrations. Merchants can use interoperability to make any new payment method interact with their systems precisely like one of their old payment methods. Interoperability is a one-to-many solution: It empowers retailers to combine new, different and varied payment systems into one seamless checkout experience. In the world of interoperability, traditional payments like credit cards live happily alongside newer tools, like mobile wallets, loyalty points and credit players. Why? Because the systems that can “speak” cards, ”speak” cards, and the interoperability solution translates that to wallets, loyalty, and APMs.
Same song second verse for banks. They can leverage their scaled systems that “speak” bank, including demand and lending accounts, clearing schemes, card and other networks, to interoperate with the new payment methods and players storming the scene. Interoperability means that no one has to change, in order to start getting along and communicating effectively. Sounds like something useful in life beyond payments too, right?
This single point of connection, interoperability not integration, accelerates time to market, scalability and partner flexibility. By enabling more payment methods, ecommerce sellers can attract a wider customer base, increase customer loyalty, capture bigger baskets and enjoy less drop-off during checkout. It also opens the door to a more global customer base. Banks can start leveraging the ease of use and adoption that wallets have achieved in order to better serve their account holders, without losing control of them. Everybody wins. Why? Because the real enemy is friction. And the broken model of integration.
Five years from now, we'll still be witnessing a zillion new payment methods and it's anybody's guess which ones will turn out to be winners. But you don't have to gamble on which methods will be top of wallet: You can have them all with one single connection to an interoperability solution. Oh, and hey, we have one of those. Come talk to us at modopayments.com.