MICHAEL BACK Twenty-five years ago, if someone had told you you'd make all your purchases with a plastic card, let alone your index-finger, you would have called them crazy, but here we are. As a society, Canadians are some of the world's greatest adopters of transactional payments, with more than 53 million credit cards and over 20 million debit cards currently in circulation. This is thanks to our growing demand for convenient, fast and - more than anything - secure methods through which to make purchases.
The landscape of transactional payments has changed considerably in the past decade, and the momentum shows no signs of slowing down. In fact, this past holiday shopping season saw record numbers, with an estimated 600 payment transactions per second on Dec. 23, the busiest shopping day of the year.
The conveniences we once dreamed about in order to keep up with the 'Jetsons' are now everyday conveniences. And really, this is just the beginning.
As someone involved with payment processing and point-of-sale solutions, I'd like to share with you what I predict to be the biggest trends in payment processing over the next few years. Trends that, if acted on and prepared for now, can dramatically sharpen a business' competitive edge and increase profits; particularly for independent and small chain merchants.
The most important advancement of late is Internet Protocol-based communications. The fact that you're reading this article shows that you are likely a consumer of IP — you might use it to check your e-mail, to play games, maybe you've even VoIP'd by making Internet phone calls. In payment processing, IP is becoming an increasingly important tool, affording businesses the opportunity to offer faster, more secure financial transactions and it is the foundation for the biggest upcoming trends in transactional payments.
1. Less Cash on Hand
Many of the emerging trends stem from a movement away from cash payments. This is something we're seeing quite a bit of already, as the majority of stores don't accept $100 or $50 bills, even in some cases $20 bills, because of an increase in counterfeit money. The biggest growth area for cards in the coming years will be in transactions of $20 and under.
2. Contact-less Payments
Contact-less payments are a function of debit and credit cards with built-in radio frequency tags. Instead of fumbling for change, the holder can simply tap his card, or wave it at a terminal from a distance of up to four inches, and be on his way, with signatures required only for purchases over $25. This trend is already being embraced by service operations such as gas stations, fast food and drive-thru restaurants, and even school cafeterias.
3. Smart Cards
There is a big commitment in the industry to reduce fraud and provide increased security for payment transactions; one of the biggest developments in achieving this goal is the Smart Card. A Smart Card is a plastic card which looks just like a credit card, but rather than a magnetic strip, its power lays in a microchip that acts as a microprocessor and storage tool. The card stores customer account information, diminishing or increasing the balance based on purchases and deposits. It employs a variety of security tools, such as an automatic shut down of the card if an unauthorized person attempts to use it.
Right now the Smart Card is in its freshman stage, with appearances in vending machines and on college campuses. But this technology will start gaining momentum over the next few years with new cards getting into customers' hands and new machines being adopted by businesses.
4. Biometrics
Biometrics has been a Hollywood spy-movie phenomenon for years, which probably explains the slight apprehension people feel now that it has actually become a reality. Biometrics studies a person's unique physical characteristics such as fingerprints, voice pattern and even the shape of a face. As these characteristics can provide undeniable proof of identity, many look to biometrics as a solid solution to the increasing threat of identity theft.
Many American grocery stores are already putting this technology to the test with services such as 'Pay By Touch.' Simply register your bank account and fingerprint with a service provider such as Pay By Touch and then each time you shop at participating retailer, you just swipe your finger to complete your purchase.
Will biometrics be a buzzword for the next few years? Absolutely — it's a fantastic technology with great possibilities. Will it sweep the world of payment processing? Not in the way you might think.
You might use your fingerprint to verify your credit or debit card purchases, but it is unlikely that it will be your only tool for doing so. Those plastic cards that fill our wallets offer great branding for their providers, so unless they develop ways to add the convenience and function without losing brand power, you'll likely see a pairing of fingerprint technology with your smart card.
When will all of this happen? It's an evolutionary process. In places like Paris, a lot of this new technology is already in place. Places like South Africa and other developing markets with cash-based economies that did not utilize transactional payment technologies five years ago can jump in right now with relatively low expense. In Canada, however, our once pioneering dependence on debit and credit cards is actually setting us back in terms of time, as a lengthy migration process must be undertaken to get everybody caught up.
This time next year, even though it will see definite growth, we'll still be talking about implementing Smart Cards and IP applications. On the other hand, 10 to 15 years from now you'll be using the same card for transit, and to buy your newspaper from a vending machine, that you use to buy your morning coffee, all in record time. It's going to seem like it all happened overnight, but it will take years.
That doesn't mean you should wait to get on board. It's the small chain and independent retailers who really stand to gain the most from this evolution. The relatively low cost associated with offering your customers the latest and most secure payment processing services available will give you a leg up on the big players who will incur a huge cost over a long period of time to implement these technologies.
Businesses who partner with a provider will benefit from the delivery of the latest technologies and the competitive edge they offer as soon as they are ready for market.
