Recently I came across an article which cited that those in the millennial generation would rather opt for Uber Credits than buy a car for themselves. The “Uber Experience” has indeed gained quite some popularity and this one-of-a-kind model is being adopted by numerous players in the payments and commerce industry. Talking about the taxi-hailing service itself, the Uber experience is all about taking a ride and simply walking out of the car. There is a seamless payment experience in the background and you don’t need to talk to the driver about money. What the “Uber Experience” is all about is removing “friction”.
So what exactly is this friction that can make a difference in payments and commerce services? At a physical retail store, this friction could be POS terminals not being available on the floor you are shopping. For an e-commerce checkout, the friction could be having to go through multiple forms and checkout pages in order to complete the transaction. At the point-of-sale, the friction could be waiting for your chip card to be removed from the machine instead of simply swiping it and completing the payment. In certain scenarios, this friction could be about providing security - the scenario that I am considering here is payments. So then where does the trade off lie between friction and security?
In the world of Payments we are witnessing the advent of more and more consumer security practices primarily because of regulatory liability protection provided to consumers when it comes to adopting new payment technologies. With a focus on improving security practices, numerous stakeholders ranging from financial institutions to merchants and solution vendors are implementing additional security and fraud mitigation techniques in the payments flow. But sometimes these tools and techniques could bring complexity to financial transactions.
From a consumer's perspective, these particular complexities can hamper the payments experience, or perhaps create friction in the overall payments experience. In the payments world, this friction is ideally measured in the number of barriers hindering a smooth and successful payments flow. These hindrances can include lack of acceptance, slow speed, multiple procedures, high cost, inaccuracy, and lack of reliability. To make the payments experience far more convenient, industry stakeholders are leveraging a host of payment technologies which include providing customers with different form factors for enabling payments. Take Apple Pay for example; you don’t need to carry your physical payment cards, payment is made in a ‘tap-and-go’ fashion and within seconds; moreover, there’s a seamless biometric authentication system to ensure that your payment is safe.
But there is another perspective that I would like to introduce: why do I consider these additional measures as complexities when they can bring in additional security? And if you still consider them as complexities, then I would like to highlight the fact that industry players are indeed focused on implementing security measures in the most covert way possible. But there are exceptions and I do have a particular example which clearly questions the trade off between security and friction.
Consider the EMV technology that has become one of the most popular topics of discussion for the entire industry. As the U.S. is gearing up for the EMV liability shift, there is a consumer experience perspective that people might miss out on. Before the dawn of EMV cards, we had magstripe cards which could be simply swiped to make payments at the POS (point-of-sale). Now those who use EMV, I myself being one of them, are aware that the chip-based card has to be kept inserted in the POS terminal until the entire transaction goes through, there’s no swipe-and-go concept here. So doesn’t this increase the waiting time for the end consumer and can this be a friction for the US market?
Another form of friction that I have noticed comes from the evolutionary phase that the retail environment is going through. The retail environment has a new and exciting concept to boast about, the omnichannel experience. Omnichannel commerce gives retailers the ability to sell through multiple channels such as mobile, e-commerce and in-store. This allows merchants to reach more customers in less time, but from the merchants' perspective, there are friction points that exist. In order to ensure secure processing of payments, merchants end up using individual payment processors for the multiple channels. So there would be one for mobile, one for e-commerce, one for POS and so on. This adds to the cost of retailers for the sake of payment security; different channels have different security measures which are not usually developed by a single payment processing player. The demand for an omnichannel payment processor is rising along with merchants’ focus on adopting new channels. Until this is resolved, this retail friction will continue to exist.
Considering the current payments and commerce oriented systems, some friction is here to stay for the time being and the efficient use of technology will determine how both friction and security aspects are managed together. Only time will tell where the trade off between these two may lie, we shall certainly keep a lookout for that!