Payment Paradigm Poised for Major Shift

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Now is the time to ask: Which of these systems will succeed, and what will they mean for retail IT? First, let's have a look at some of the technologies in play.

According to the UK's The Guardian, RFID payment technology is being widely used in credit card and mobile phone payment solutions in countries including Germany and Hong Kong, and in cities such as London.

Chip-and-PIN, known as EMV cards, contain embedded microprocessors and are being rolled out worldwide. According to the Smartcard Alliance:

Eighty countries globally are in various stages of EMV chip migration, including Canada and countries in Europe, Latin America and Asia. According to EMVCo, approximately 1.5 billion EMV cards have been issued globally and 21.9 million POS terminals accept EMV cards as of the end of 2011. This represents 44.7% of the total payment cards in circulation and 76.4% of the POS terminals installed globally, excluding the United States. American Express, Discover, MasterCard and Visa have all announced their plans for moving to an EMV-based payments infrastructure in the U.S.

Then there's the mobile wallet concept in which your smartphone itself is used to complete transactions and process payments, holds all your loyalty card programs and coupons, and serves as your identification. For example, as we've previously reported, ING and MasterCard are trying a new system that involves registering your mobile phone number with your bank to authorize a purchase in a store by scanning a QR code.

As E2's sister publication Digital Canvas Retail notes in a recent report, the payment revolution won't happen in 2013, but this will be the year that retailers make the necessary changes to deliver on a new range of payment options.

As to which of these payment options will succeed, recent reports and polls give us some insight.

The Guardian raises security concerns about RFID payment solutions, noting that the security compromises requirement to make near field communication (NFC) and contactless payment easy for consumers opens the gateway to hackers. Likewise, some consumers who have used chip-and-pin cards, with their added security measures, have found the solution to be clunky, particularly when attempting online purchases.

When it comes to mobile payments and mobile wallets, consumer interest does not necessarily mean consumer uptake. For example, in the US, Harris Interactive polled 2,383 adults during November 2012 to get their views on mobile payments and mobile wallets. Two thirds of respondents (66 percent) believe that smartphones will eventually replace payment-card transactions. However, less than than one third of respondents (32 percent) believe this will happen in fewer than five years.

UK research firm ICM uncovered similar results in its survey of 2,015 consumers in Great Britain during November 2012. According to ICM, a third (34 percent) of respondents say they would "definitely or probably" use their mobile device as a wallet to make payments, as well as to collect coupons, to use as event tickets, and to use for access to public transportation.

As the solutions shake out, there are a number of steps CIOs and other IT leaders can take to prepare their retail infrastructure for payment changes:

• Open lines of communication now with the executives in your organization charged with protecting both information security and physical security.
• Likewise, get the discussions going with your chief marketing officer and your head of sales to talk about how these solutions can be used to maximize revenue and improve customer service.
• Take inventory of your in-store payment processing systems as well as your wired and wireless networking infrastructure, looking for potential weaknesses.
• Keep ahead of the curve and study up on the various solutions being considered or deployed worldwide, otherwise you run the risk of being left out of the strategy altogether.
• Consider how these advanced systems, particularly the mobile wallet, will change the way your retail organization uses customer data. You'll be seeing demand increase for solutions that can analyze patterns and finely target individual consumers with personal offers via their mobile devices. Be ready with your ideas.

Which payment options would you most like to see succeed? And what additional advice do you have for retail IT to prepare for the new payment paradigm?