For a long time, the payments industry was centered around countertop terminals in brick and mortar stores. These terminals operated via telephone lines and dial up connections, meaning processing moved at a glacial pace compared to the speed of today’s methods.
Eventually, payment processors went the way of automation along with many other industries, with momentum built and driven by the major banks and financial institutions. Countertop terminals evolved into point of sale solutions that enabled, in addition to payments, inventory tracking, invoicing, commerce and other advanced features that aligned with an increasingly digital consumer landscape.
Today, the evolution looks like a mixture of in-store and online transaction processing, with a focus on speed and convenience. One-click checkout, services like PayPal and Stripe, and mobile payment options have become far more ubiquitous in the name of streamlining the payment process and enhancing the customer experience. Point of sale, though not typically considered a key element of customer relationship management, actually makes a dramatic difference in customer retention and loyalty.
Compare online retailers who enable integration with PayPal for faster checkout, with those that make you get up from your computer, find your wallet and enter your credit card number. Just ten years ago, that wouldn’t have seemed like an inconvenience. But now, I grumble every time I want to make an online purchase but there’s no option to use PayPal or store my payment information for repeated use.
There is a push by outlets and banks for faster underwriting processes and faster onboarding that lead to a more seamless customer experience, but the payments industry faces the challenge of adapting to rapidly shifting client demands while maintaining security and following a complex infrastructure.
For instance, many payments solutions are sold as part of integrated software offerings. This allows software developers to enter the market and become resellers of payment processing solutions which have always been a process handled by banks and ISOs. Software providers place themselves into competition with traditional payment processors and are changing the industry landscape. The difference is, these resellers are registering as payment facilitators which requires a different type of licensing than banks and credit card companies, so it’s easier to enter the payments space.
Square is a highly-popular mobile payments app that illustrates this shift. The company opened up the digital commerce space to more merchants by creating a solution that can turn any mobile device into a payment processor. Square first became popular among non-traditional sellers who wanted the ability to accept credit card payments, such as farmer’s market and craft fair vendors, who could use their phones and tablets instead of relying on an internet connection and credit card reader. Now, Square is used by tons of retailers who simply set up a tablet instead of a cash register. Banks tend to not want to fund “micro-merchants” like startups and individual sellers because there is less guarantee of profitability, but Square gives them the ability to accept digital payments without being backed by banks.
The speed, portability and accessibility of Square’s underwriting system, as the core of their solution, lowered the threshold for approval on their systems. “Lowered threshold for approval” means they are more exposed to risk of chargebacks from fraudulent transactions or insufficient funding. In order to retain profitability while cornering the micro-merchant market, the new breed of technology providers need to be selective about who they work with.
Banks and credit institutions, on the other hand, normally have much more stringent requirements for underwriting merchant accounts, but still push for quick, seamless onboarding and the ability to make changes easily. In order to accomplish this, many will outsource that work to a payment processing CRM or integration provider that can handle the credit, tax, criminal and background checks needed to approve and activate accounts quickly, on the back-end.
These merchant service CRMs also take on the task of paying out commissions and residuals in a timely manner since their systems handle the heavy lifting of analyzing raw data to calculate and verify those payments faster than a single institution can.
The evolutionary path, from countertop terminals to payments on the fly, trends toward constantly optimizing convenience and efficiency in payments, even as markets expand, and commerce becomes more and more global. Globalization has been a major hurdle, given the differences of currency and financial regulations, but sellers can adapt to and scale by embracing modern technologies and letting payment processing CRMs handle the onboarding and operations, so they can get on with the business of growth.
As featured in Payments Journal
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