Payments innovation has been in the limelight for quite some time and has been extensively worked up by the industry. Across the retail space, the upside potential that an innovative payment solution provides has been established beyond doubt. As we know, the fuel pump industry is one segment that has relatively been slow to adapt to these innovations. There is a reason for this late adaption. The payment system integrated at the fuel pump/convenience store selling fuel is a complex one and requires more time than a general retail outlet to adapt to new solutions. The certifications required for a new payment system/updated system is also a lengthy process embroiled with huge paperwork. This makes the complete process a costly affair for small convenience stores. One needs to bear in mind that though the majority of the gas stations are branded by the fueling service provided, less than 1% of the total fuel payment outlets are owned by them. It is the smaller convenience stores who look at leveraging the existing brand of the fuel centers and attract consumers by higher service quality. Essentially, these are also the major reasons why the financial services industry has given an extended deadline for the fuel pump industry to upgrade to the EMV chip technology or face the fraud liability shift.
However, this delay has led to fraudsters cashing in on non-compliant gas stations as a target for skimming. Several recent articles have pointed to the fact that skimmers have increasingly started to target gas stores and to a certain extent, ATMs, in order to install the skimming device at the POS, which allows them to capture the customer data leading to a compromised account.
With these issues in the backdrop, industry participants have started looking at developing innovative low-cost solutions which help in providing not only higher security standards but also making the overall consumer payment experience smooth and easier.
We asked experts in the market about payment innovation at the fuel pump space. TM Praveen, who heads the Cards, Retail & Payments practice at Opus Consulting, said, “The payment innovation for the fuel retailers and gas stations will revolve around customer experience – whether it is building apps that allow you to pay from the comfort of your car during extreme climate conditions or building loyalty solutions that drive stickiness. It is an exciting time as the industry is just starting to roll-out some of the disruptive technologies like contactless payment, IOT, cloud, etc.”
Though the use of plastic at fuel stations is nowhere a new concept, the changing landscape of today’s world has led to a wide variety of innovation in the payments space. The NACS Retail Fuels report provides a detailed analysis of the history of card usage at pumps, briefly described here. Fuel pumps or the gas industry has seen the acceptance of cards as early as 1924. They had later moved to prepaid cards, self-fueling concepts and built-in card acceptance (introduced in 1986, which eliminated the need for customers to go into the store for making card payments). However, the adaption of these solutions was slow. It was only in the late 90s to the early 2000s that we have seen close to about 80% of the petrol pumps fitted with built-in card readers.
The same trend can be seen with the usage of mobile payments too. Though the first mobile payment at pump solution was introduced way back in 1996, we are yet to see a huge uptake in this solution. The initiatives since the second half of 2014 have, however, made a huge difference now. Essentially, with the upcoming EMV deadline, most retailers are required to upgrade their stores to be EMV-compliant. This could be a blessing in disguise, where the retailer has to incur the cost in upgrading the system but can be benefited by lower fraud, lower than expected cost (new cloud-based solutions requiring minimum hardware upgrade cost), and increase in the scope of customer loyalty solutions (payment and loyalty are being increasingly integrated). The support industry’s forces also play a major role, leading to a spike of interest and solutions in this space.
So what technologies/solutions are gaining momentum?
According to TM Praveen, who heads the Cards, Retail & Payments practice at Opus Consulting, “Technologies that help fight fraud are gaining lot of momentum and with the EMV deadline for the outdoor gas station approaching in about 18 months or so, this segment needs to start pushing on technologies like tokenization and P2PE which will help create a more secure payments environment. These technologies provide an end-to-end solution tackling fraud at vulnerable points in the cycle – whether it is at POS terminals or on the processor side.”
Below is a brief of the major forces that we believe are paving ways for the innovative solutions going forward:
- Mobile: Undoubtedly, the smartphone revolution has been a major factor for disruption in every industry. Availability, high penetration and low cost are all factors documented to be the reason behind the mobile revolution. The fuel payment industry has witnessed a spike in solutions from across the value chain. The convenience of sitting in the car and completing the payment process via a mobile app allows higher security for the consumer.
- IoT: The concept of connected devices helps in identifying the ideal time for refueling, the nearest fuel pump outlet, connecting to the pump before reaching and booking the slot in order to avoid waiting in queues. A consumer could be notified when the ideal time is for a refuel and could also be routed to the nearest fuel station. They can also be notified as to which lane is empty or which lane has been booked for the customer, eliminating the need to wait in a queue or getting stuck in the wrong lane.
- Loyalty: The convenience stores providing the fueling pump service have one major issue of low sales with pay at pump solutions where the consumer does not enter the station. Loyalty cards were one solution that was used to increase consumer loyalty and also drive rewards program by convenience stores. From the customer’s standpoint, in order to collect these reward points, the customer needs to first swipe the payment card and then the loyalty card. New solutions, cards/mobile apps are integrating the loyalty with the payment and reducing the friction of payments for the customers.
- Security: As discussed previously, there has been a spike in fraudsters skimming card data at the fuel pump. The loss due to fraud has been estimated to be around $500 million. Apart from migration to EMV coupled with the use of tokenization, GPS/geolocation solutions, multifactor authentication and advanced analytics are seen as competent solutions that would help the fuel industry in reducing card fraud.
Some of the industry initiatives in the past two years:
-Visa launching the fuel app enabling car commerce: The app utilizes IoT/geolocation technology to automatically alert the customer regarding the fuel levels, the nearest pump and app payments.
-ExxonMobil partners with Apple Pay: Estimates Apple Pay to be added at all of its locations (~10,000) by the end of 2016.
-P97: Formed in 2012, P97has made extensive partnerships across the industry to enable geolocation-based technology provided over the cloud. Its partners are Chase Pay, MasterPass, FIS, Samsung Pay, Verifone, Allied Commerce, Wayne, etc.
-Chevron and Visa have tested mobile payment in 2015 with security being the major focus (tested the Visa Token Concept).
-FIS and SAP: FIS announced the integration of its Mobile Payment Enablement Gateway solution with SAP Vehicles Network which runs on the SAP HANA Cloud Platform.
With all these innovations, coupled with the pending EMV liability shift mandate, we believe the way one refuels and pays their bills at the gas station is set to change, making the experience a lot richer for the consumer, retailer and the services providers in the next three years. For the next decade, with advancements in the industry – self-driving cars, connected device proliferation, etc. – would there be automatic refueling in the gas pumps while the customer shops for goods to be delivered home, all while sitting in the comfort of his car, is a farfetched concept that we leave open for discussion.