By Andy Orrock, COO, OLS Payments
This past year has been full of transformative trends that have reshaped the retail industry. For payments, in particular, the pandemic has continued to accelerate the growth of fast and contactless methods to meet consumers’ demands. For example, we saw mobile POS systems grow in popularity and watched as cryptocurrency made a mark and some retailers started accepting it.
With 2022 right around the corner, a new year means new opportunities for retailers to position themselves for success in a (hopefully) post-pandemic world. Although it’s hard to say what will come next, one thing we do know for sure is that payments innovations will not stand stationary. Therefore, as retailers look for ways to stand out from the competition, they must prioritize strategic and innovative approaches to their payments processes.
Retailers can prepare for what’s to come by evaluating the five payments trends that we predict will shape the industry in the new year.
A Battle Will Escalate Between Simplified Payments Vs. Payments Diversity
Retail IT groups are looking to simplify their connection scheme by consolidating their transaction traffic to route everything through their payment processor. At the same time, business owners are fighting for more payment diversity and more data per transaction.
Yet, payment processors are often the lowest-common-denominator implementations, many times offering the bare-minimum-feature versions of payment types that they need to choke down as a one-size-fits-all gateway provider. Meanwhile, business owners want feature sets that only a genuinely ‘native’ provider integration can provide.
In 2022, we’ll see a conflict between these two opposing forces escalate – we’re seeing more and more retailers shift to the everything-through-one-pipe model while, at the same time, payments diversity is flourishing like never before. So something’s going to give here.
Retailers Will Need To Meet Stricter Encryption Requirements
The PCI Security Standards Council designed the PCI PIN Security Requirement 18-3 (Key Block) mandate to enhance the protections of symmetric PIN keys shared among payment system participants. The Council divided the requirement into three implementation phases, with phase two set for Jan. 2023. In this phase, organizations must implement key blocks for external connections to associations and networks.
Though ostensibly related to PINs, our company follows Visa’s interpretation of the requirement, which is that: “Visa will apply the key block requirement to all keys that Visa transmits between itself and payment stakeholders. This [coverage] includes keys that protect PIN data, as well as keys that protect other cardholder data.” We recommend that others take the same approach.
The upcoming deadline will trigger retailers to level up their encryption processes in 2022. As a start, retailers need to assess whether current hardware and applications can meet these new challenges. If not, there are some hard decisions to make. Those who procrastinate and don’t prep to do the work will be in for a shock, racing to catch up with the guidelines.
IT Teams Will Look For More Modern Interfaces
Many inter-company interfaces rely on a long-in-the-tooth standard called ISO 8583. The International Organization for Standardization (‘ISO’) created this framework to regulate the then-new concept of governing systems that exchange electronic transactions from credit or debit card data.
Increasingly, IT teams are looking to replace these quickly aging interfaces with something more modern. Adding to the rate of this change: the “Great Reshuffle” produces younger integration teams with little tolerance of interfaces of yore. This human factor will speed retailers’ desire to update these interfaces whenever given the opportunity.
QR Codes Will Gain Traction
QR codes as a payment mechanism will continue to gain traction in 2022, primarily as retailers position themselves to protect customer health by accepting payments without direct POS engagement. This trend has already been growing since the onset of the pandemic. According to Statista, an estimated 11 million households in the U.S. scanned a QR code in 2020.
But the reasons for this growth in usage spans beyond health concerns. QR codes are also convenient for shoppers who are looking for a faster way to check out. In addition, retailers benefit by enabling better experiences using QR codes, driving engagement and loyalty with digital shoppers. For example, Starbucks utilizes QR codes for mobile payments and rewards customers each time they pay by scanning. CVS also ties in QR codes to its loyalty program, creating a streamlined and frictionless customer experience.
Retailers can implement QR code capabilities in the new year by understanding the different approaches for QR code acceptance and how to integrate QR codes into their current payments ecosystems. Laying this groundwork will be critical to futureproofing payments for what consumers have increasingly come to demand and expect as pioneers like Starbucks and CVS embed pay-by-scan into the collective public’s muscle memory.
Contactless Capabilities Will Become Even More Popular
It’s hard to believe that contactless payments had a barely noticeable presence in the U.S. just a few years ago. Now, thanks to aggressive mandates by the card associations, doing the ‘tap’ as part of our daily lives continues to make serious headway. As a matter of fact, 79% of respondents in a recent MasterCard survey across the globe said they were using some form of contactless payments in 2020. In the U.S., a significant factor is the recent waves of card re-issuance by major banks. These mass actions seed the market with new contactless capabilities. Now, there are over 190 million contactless Visa credit cards in circulation in the U.S. Visa expects that number to hit 300 million by the end of the year.
Retailers with once antiquated systems are also getting the memo to upgrade and support the future of payments. For example, contactless payment options are now available at gas stations, thanks to the EMV at the pump deadline that passed earlier this year. We predict that the growing ubiquity of tap will influence decisions to replace point of sale technology, with retailers moving on from frameworks where contactless is a shaky bolt-on to solutions where the convenience of tap acceptance is front and center.
Retailers Can Ring In The New Year By Prioritizing Payments
The impact of the pandemic is continuing to shape how consumers want to shop and pay. As a result, retailers are running alongside their customers, with little choice but to keep up with the changing demand. As a result, retailers need to strike a balance that allows them to introduce new payments methods, meet evolving security requirements, and explore new point of sales solutions that handle widening payment diversity with ease.
With these trends in mind, retailers can navigate what’s to come in 2022 and take advantage of the still-evolving payments landscape. Equipped with the right technology, retailers can continuously innovate with the future of payments and make 2022 the most successful year yet.