Payment innovations must stay user-centric

Payment industry is transforming as more new payment applications are built by developers with financial company's open APIs, though analysts caution that even the most innovative apps must remain user-focused.
Written by Jamie Yap, Contributor

The payment industry is experiencing a massive sea change as credit card companies and payment service providers dangle open APIs for developers to create innovative online payment applications, note analysts. But they add that an app's novelty factor does not guarantee success as much as being user-focused, secure and convenient.

A Frost & Sullivan report dated Oct. 6 predicted that mobile payments in Asia-Pacific would double within five years, with billings exceeding US$3.5 billion. The research firm attributed the growth to increased consumer demand and payment technology innovations such as near field communication (NFC).

Jean-Noel Georges, Frost & Sullivan's global program director of smart cards, told ZDNet Asia in an e-mail interview that the online payment industry is "facing huge changes, with several new payment solutions [becoming] available" for consumers when they shop online via the Web or mobile.

Not to lose out to competitors that provide alternative payment methods, credit card companies are already involved in NFC trials and commercial roll-outs for contactless payment, he elaborated.

Still, Georges pointed out that card network firms still prefer not to risk revenue losses or to invest heavily in creating all-new Web or mobile payment apps, which are not their "core activity" in the first place. Instead, these payment network companies 'push' the job to open source and developer communities--a trend that has been observed to be definitely on the rise.

According to a Business Week report, credit card giants such as Visa, American Express (Amex) and MasterCard are only starting to woo independent software developers, as alternative payment middlemen such as PayPal are increasingly turning the competition into a one-sided match.

Stay close to merchants, customers
However, Martha Bennett, practice leader of financial services and retail technology at Ovum, noted that one has to bear in mind PayPal has more mindshare than market share, citing a Datamonitor 2009 survey which also stated that credit and debit cards accounted for the majority of online transactions.

That said, Bennett did not deny that payment network companies will put on a fight to ensure they are not left behind and will introduce their own innovations into the payment space. After all, these companies would not want another PayPal invade their turf, she reasoned.

Credit card companies will want to be close to the merchant and customer in order to gain mindshare--and wallet share--by making it as easy as possible for the consumer to effect a card payment, Bennett said in an e-mail.

MasterCard Worldwide in May launched its proprietary payment and data services as an application programming interface (API) and allowed third-party developers to build new payment applications.

In an e-mail, Yunsok Chang, group executive of global products and solutions at MasterCard Asia-Pacific, Middle East and Africa, said MasterCard's open API developer portal is exemplary of the company's efforts in developing new ways to make people's lives and purchases easier as they become more mobile and reliant on technology.

MasterCard also has a specific research and development (R&D) arm, MasterCard Labs, which is dedicated to creating new payment solutions and resources designed to meet the changing needs of consumers. It does this by focusing on areas such as mobile payments and e-commerce, Chang added.

Asked whether MasterCard would work with developers to customize merchant-specific apps or provide a standard SDK (software development kit), Chang replied that because consumer needs and habits are ever-changing, MasterCard is "open to working with all sorts of partners and innovative developers in a truly collaborative way".

MasterCard's open API initiative comes on the heels of rival PayPal's API offering, PayPal X, which was launched at the end of last year. This also gives independent software makers the freedom to build new payment technologies off PayPal.

"The future of payments is in the hands of its developers," said a PayPal spokesperson, pointing out that the company is removing the barriers that limit payment innovation by providing developers with the tools they need to revolutionize the way people pay.

In an e-mail, he revealed that nearly 1,000 new apps have since been launched using PayPal X, and that US$175 million in total payment value (TPV) have gone through PayPal's platform.

The PayPal spokesperson also noted that what the company is battling against are "old and inefficient ways of how people pay, such as cash and checks".

User-friendliness is key
Regardless of how innovative a payment application is, Ovum's Bennett said firms will do well to remember that the focus should always be on customer convenience and security.

Bennett noted that if customers need to go through a lengthy sign-in process to make a payment, they would not be interested to use the app. Ultimately, a consumer would not adopt a new payment application unless they truly have no alternative, she concluded.

She also noted that security is a thorny issue. "Any payment mechanism that involves storing customers' credit card numbers and other personal details is only as secure as the password the customer has chosen. And with mobile, there is the additional issue of having such details potentially stored on the device itself, which increases the potential security [risks]," Bennett said.

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