Industry News & Papers

When do payment terminals disappear?

added: 16-04-2018 Author: Cezary Kosiński

Conservatives are convincing that terminals will not disappear in the predictable future and they appoint contactless smartcard payments as a new standard of velocity and comfort in payments to be followed by challengers. Enthusiasts of new style of interactions with customers will immediately refer to the success of Uber and the way they utilise InApp payment, which conquers the world without use of terminals and plastic cards and which has a growing number of followers. Revolutionary innovators will present a concept of bitcoin and crypto currency conquering the world and throwing payment terminals and even coins and notes on the scrap heap faster than we could imagine. 

Shrinking terminal’s functionality

It is the easiest to say that various manners and methods of payment will coexist so the terminals will be still needed for accepting payments by cards. But what the terminals will look like in the next future?

Changes in card technologies

In Poland, transactions performed by cards on magnetic stripe (MagStripe) are disappearing owing to popularity of EMV standard. According to one of authorization centres, volumes of MagStripe based transactions initiated by cards issued abroad prevail in quantity among domestic cards. Polish market is almost ready for ending support of MagStripe due to residual volume of such transactions. Then a MagStripe card reader is becoming redundant in terminals. It is worth noticing that only 20 years have passed since EMV cards appeared in the Polish market and nearly 10 years ago their dynamic popularization has commenced. 

By analogy, it is easy to imagine a moment when a number of transactions initiated by EMV cards will drop to a negligible level in relation to the number of transactions initiated by contactless cards and NFC devices that are quickly becoming popular nowadays. Then the discussion on withdrawal of EMV readers from terminals will begin. One of the strongest motivations will by the willingness to vanish significant costs of variety of EMV related certifications that must be incurred today. Comparing the dynamics of EMV technology dissemination in the past with the present pace of contactless smartcards spreading, it may be acknowledged as real that consumers and merchants will be ready for the change in 10-15 years. Then ….

Amendments in the regulations are necessary. Will payment organisations be willing to abolish the obligation of using specific interfaces, e.g. magnetic stripe card readers or EMV readers? Will local governments be willing to interfere in the way similar to IFR or PSD2 initiatives? Regulatory could have high impact on blocking or accelerating the changes.

Changes in authorization methods

Typing PIN to the terminal is a most common transaction authorization method in use currently in Poland. It requires that terminals provide a safe keypad with privacy shields and safe methods of further PIN storing and processing. Such requirements generate additional costs related to the construction of devices and obtaining proper compliancy certificates confirming their safety.

The simplest and most promising alternative could be offered by smartphones or other personal mobile devices. Even today it is possible to authorise transactions by inserting PIN to smartphone (mPIN) or by submitting user’s ID and password when logging to Wallet application, or by reading biometric features of a finger or face. The use of smartphones for payments is not widespread enough and is growing much slower than expected. There is no consent between experts in giving reasons for such slower than expected market adoption. Therefore mass spreading of new authorization methods on a consumer’s mobile device that may replace authorization by PIN on terminal is not likely within next 10 years. However, the situation may change if the style of doing shopping changes significantly and paying by means of mobile devices is widespread.

What else could be detached from the terminal?

Printers will be less and less necessary, as in many countries there are on-going projects of replacing paper receipts by its electronic versions stored in the cloud. Beside MagStripe and EMV reader, secure keypad and printer, there are contactless antenna, secure memory and multimedia touchscreen. Does it make sense to maintain such limited functionality as a separate device? Probably more reasonable would be to combine the antenna and secure memory with other devices like e.g. cash registers. Btw, a few years ago Turkey mandated terminal integration with fiscal module and cash register functionalities.

We should observe those two dominant trends leading towards reduction of terminal’s functionality and its integration with other devices based on modern mobile devices.

 

InApp payments in omni-channel shopping and m-commerce

New methods of doing shopping in various omni-channel scenarios and related InApp methods of payment constitute a factor that may have a significant impact on elimination of payment terminals in mid- and long- term perspective. Uber is one of examples with a huge hype today, but there are many other companies exploiting applications with InApp payments. In the InApp / Uber payment model, the interaction of a consumer’s device (passenger’s smartphone) with a seller’s device (driver’s smartphone) is carried out remotely with no touching or tapping of the two devices. Most distinguishing features include:

- there is no need for terminals or cards, remote communication of a buyer’s and seller’s devices goes through the Internet instead of an local exchange of information at the terminal;

- transaction authorization is supported by geolocation and the effect of social platforms. It increases mutual reliability of sellers and consumers and decreases the risk of an abuse, which is a very important advantage of all selling techniques using InApp payments

- payment is integrated with selling functions of the system, amounts are automatically calculated and charged in the background by the seller’s application as a trusted site.

Extended time of payment execution is not as critical as for checkouts at physical stores, because it does not delay availability of the service for the buyer. It does not lower the comfort of using the new method of buying the service, neither comfort of other people waiting in the queue for a checkout. In such a situation, the very short time of transaction execution by contactless payment cards is not perceived as competitive advantage for the benefit of plastic cards and terminals. 

Geolocation:

Geolocation is a key issue for modern techniques and sales systems. In Uber it means using GPS for location of a consumer and seller. In other systems it may also mean location through Mobile Network Operators, Wi-Fi routers, QR codes, beacons, audio or lighting in-door location and navigation systems, etc. Geolocation is an element of sales technique and the payment itself makes only use of its availability.

Click & Collect

Click & Collect sales technique uses InApp payment model as well. Consumer buys goods remotely and on-line and uses e-/m-wallet for payments, and the payment is made automatically in the background of the purchasing process and in a manner non-involving the customer directly. There are Click & Collect scenarios where consumer pays at the delivery, however more and more applications encourages customers to pay InApp as this reduces risks and improves KYC.

mPay and SkyCash payments in Poland

Comparing mPAY and SkyCash applications to Uber may seem an overuse, but the circumstances are extremely similar. When paying for city parking, a car registration plate number of a vehicle is a tool of geolocation irrespectively of the current place of parking, the payment is integrated with the parking place sales system, billing is strictly proportional to the time of parking and is charging is performed automatically.  

Internet of Things

Payments in Internet of Things also use InApp mechanisms of payment. Popularization of purchasing models where people delegate purchasing and paying rights to machines results in decreasing number of payment transactions initiated with cards on terminals.

Shopping applications with InApp payments are threat to payment terminals

A number of retail and consumer service businesses using omni-channel shopping model combined with mobile and InApp payments is still growing. This drives changes in habits of consumers, who can purchase more and more goods and services without even visiting stores. Demography is additional significant factor supporting diversion from payment terminals. Younger generations are extremely open to innovations, including these referring to the manner of buying and paying, so different style of life.

 

Summary

As a summary please let me ask a few questions. The answers, when combined together, clearly indicate what could be expected in the perspective of 10 years.

­   What method of transaction authorization can be considered as a candidate to replace PIN entry on the terminal?

­   Will there be consent between payment industry and market stakeholders to resign from MagStripe readers (near future) and EMV readers (one day)?

­   Will there be new legal initiatives driven by political bodies and impacting terminal devices?

­   How quickly can the new omni-channel shopping methods using InApp payments gain popularity among consumers?

­   Shall we count crypto-currencies as a real alternative in cashless payments?

Change in the perspective of 10 years

Probability of market readiness for changes

Probability of regulatory amendments

Elimination of safe PED keypad

Low

Low

Elimination of MagStripe reader

High

Low / Medium

Elimination of EMV reader

Medium / low

Low

Mandates of terminal integration with other devices

High

Medium

New omni-channel shopping scenarios and applications

High

Low

Cryptocurrencies

Medium

High

Do terminals disappear
in 10 years?

……

…….

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