The landscape of payments is like quicksand beneath retailers’ feet these days. No sooner has a group announced a coalition designed to bring clarity to payments’ future than a technology company or telecommunications provider announces a new lone-wolf attempt to carve out its own piece of payments real estate. Between payment industry mandates, titans of technology and telecom doing battle, the growth of smartphone adoption, and retailers’ own forays into mobile apps and current hyper-focus on customer engagement, the winds of change around payments seem stronger then ever. The problem is, no one seems to know which direction they’re blowing.

Uncertainty & Loss of Control

What’s the challenge? It has long been held by retailers that the moment of truth comes at that exact second in time when the customer hands the clerk money in exchange for merchandise. Prior to the advent of digital commerce, the exchange of money for goods and services was assumed to happen in the store at checkout. And from a store operations perspective, credit and debit cards were fundamentally no different than cash in terms of where and how the payment is presented – that is, at the checkout stand. That put the quality of the payment experience in the hands of the retailer. It was for this reason that retailers’ POS payment processing capabilities were usually the most reliable, albeit inflexible, systems in the application portfolio.

But how retailers and consumers interact to pay for goods and services is being challenged, especially with the rise of smart mobile technologies as a “digital shopping assistant “. Consumers routinely use several channels (both digital and physical) to make a single purchase decision, for example by investigating and selecting a product with a mobile phone while making a purchase in a store. In fact, consumers don’t see “channels “. That in turn creates the opportunity for consumers to use their smart phones as a kind of “digital wallet ” to authorize an electronic payment – debit or credit – for goods and services, either while inside or away from the store, i.e. not necessarily at the checkout stand.

In short, the form factor and “use case ” for payments is being driven by consumers, not retailers. That in turn could affect the quality of the “moment of truth “.

The MIT Technology Review recently reported that “it took landline telephones about 45 years to get from 5 percent to 50 percent penetration among U.S. households, and mobile phones took around seven years to reach a similar proportion of consumers. Smart phones have gone from 5 percent to 40 percent in about four years, despite a recession. ” The speed of “smart mobile ” adoption has triggered a true “reset moment ” for retailers, as they ponder the wholesale changes to their operating models necessitated by consumers’ new shopping behaviors. Adding to all this churn is an influx of new players – Google, PayPal, mobile network operators, Square, ISIS, and the recently announced Merchant Customer Exchange (a consortium of large retailers led by Walmart). While its not likely that league leaders VISA and Mastercard are planning to quietly cede the space to new competitors, newly mobile-empowered consumers and new payment players are plainly giving retailers heartburn.

Time to Act

According to RSR’s soon-to-be-released benchmark study, Retail Payments: When the Future Becomes Now, retailers fully accept – or at least very few disagree – that a consolidated payment processing capability across all channels is critical, as opposed to the stove-piped payment processes and systems that are the legacy of old in-store POS and 1st version eCommerce offerings.

Next generation payment processing needs to be moved near the top of the corporate “to-do ” list. Even in an environment that contains a lot of uncertainty, retailers are not completely boxed in while they wait for titans of other industries to battle to the bitter end. While consumers will most likely have the most say in the success of future payment innovations, that means retailers have at least as much ability to influence consumer acceptance as anyone else can – as Starbucks and Square have proven with their own remarkable acceptance rates.

To stay prepared for whatever may come, retailers need to focus on first consolidating their own internal payment mechanisms, so that they can take whatever form of payment comes at them from whichever channel a consumer happens to be in. Consumer technology companies may have the advantage when it comes to gaining consumer acceptance of payment innovations, but don’t count out the incumbents. As always, retailers need to be cognizant of any impacts to security and consumer privacy, and in part with that, they should make sure that they are getting the right people involved – not just from a tactics standpoint, but from a strategic perspective. Payments is part of the customer experience, and should be treated that way.

Read the Report

RSR’s latest benchmark study, Retail Payments: When the Future Becomes Now, will be released this Thursday. Among our findings:

• In three years, retailers expect mobile and digital payments to transform from almost nothing to a major piece of their payments.
• The smallest retailers (less than $250 million in revenue) expect to feel the greatest impact from mobile & digital payments.
• The largest retailers (greater than $1 billion in revenue) expect to make the greatest inroads in reducing credit cards as their primary form of payment.
• Winners are less reliant on credit cards today – having shifted purchases more towards debit cards than peers.
• Consumers – not retailers – will dictate how payments will be presented in the future, and that in turn could affect the quality of the “moment of truth “. Our respondents also emphasized that consumers – not the retail or payment card industries – will determine which of the next generation of payment methods will gain critical mass.
• Winners are far less concerned about escalating transaction costs than other retailers. A winning Payments behavior is to focus first and foremost on the customer, and then to worry about “everything else “.
• “Uncertainty about the technical future of payments ” trumps all, even for Winners.
• A surprising number of retailers agree that they are stuck until some solution to rising processing fees is presented to them.
• When it comes to payments innovation, retailers are more focused on two things: form factor, and in breaking the physical connection between payments and in-store POS.
• Retailers are taking their leads from innovators PayPal and Google, whose success is driven not by service providers, but by consumers themselves.
• In the largest organizations, it appears that, even though they are the main believers of a dedicated “Customer Experience ” organization, payments does not appear to be a strategic consideration in that experience.
• Store Operations seems to be the largest sticking point, even topping the list for Winners as an organization requiring more education about payments.
• While retailers have often made much about reducing their payment transaction costs, alternative payments and alternative payment networks do not appear to present themselves as any kind of truly convincing alternative.
• Absolutely no payment technology’s value translates into budgeted plans for the future. This is a direct result of much of the uncertainty that retailers feel about the future direction that payments will take. Even mobile – the current darling of payments – has at best a moderate group of retailers willing to invest.
• The known task before retailers now is to implement a consolidated payment processing capability across all selling channels, and to be able to associate payment authorization with a transaction anywhere that a transaction is finally “rung up “.
• After years of being buffeted by PCI mandates from the payment industry, top retailers want to be in front of emerging privacy and security standards related to mobile payments.
• Winners involve more participants in payment decisions, including Customer Experience organizations, Treasury, and Marketing.