Talking about the changes brought about by 2020 is now a thing of the past. Since 2021, and going forward, we need to understand, acknowledge, and join into the changes that have already been established and come to improve our lives as consumers, through technological adaptations and creations that offer us security, speed, and hygiene. What do I mean? It will happen more and more often that, when paying at stores or restaurants, we will no longer need to insert or slide our means of payment in a POS or terminal. It will be enough to hold it close to the device instead. In some cases, it won’t even be necessary to take it out of our wallet because it will be set up in our cell phone, so the payment process will begin after we scan a QR code or receive a payment link. Our interactions with other people or devices will become almost negligible, even nonexistent. This type of interaction that was perceived as “magic” at the Disney parks, where visitors could access the parks and buy souvenirs at the stores with just a swipe of a wristband, is now part of the new reality of payment methods —a reality that is starting to take off at an accelerated rate.
This convergence between the worlds of card-present payments and card-not-present payments opens up a wide range of opportunities, and this is where I want to delve.
Why do we talk about convergence between the worlds of card-not-present and card-present payments?
Because we use the same payment formats both when we shop from home in online stores and when we are at the stores and use QR codes, payment links, biometric measures, or any other method to generate payments. What is happening is that, while we can still point out the differences between card payments and non-card payments, we are starting to use technology in a way that may lead to replacing cards altogether with the concept of an account. Accounts use different payment interfaces, such as physical or virtual cards, as well as wearables (typically, an electronic device we carry with us in the form of a clothing article, a watch, a bracelet, or other items, and which, in most cases, is an extension of the functions in our smartphone), apps, or other additional interfaces, all linked to a single account.
Changes in use
The use of prepaid or debit cards has been encouraged since before and during the COVID-19 pandemic, leading to a decrease in the use of credit cards as a payment method. We are now beginning to see a reversal of this trend, and credit cards (financing) are once again gaining prominence. This change may be seen as a natural response to the quarantine and blockade measures that were (and still are being) implemented in many countries, where people felt they were “missing out on doing things,” such as traveling. People are once again consuming more in order to live better and recover what they lost during the compulsory confinement. So, how are payments going to be handled from now on? Currently, cards are multi-mode: they have chips and magnetic stripes, and they have become increasingly contactless. It is very likely that, for health reasons, many cashiers or individuals who handle payments will prefer not to touch customer cards, which is why contactless payments are the first step towards this convergence. When we use self-pay or self-checkout terminals at supermarkets, for example, there is no interaction with the person receiving payments or cards. This will lead to the devices being modified. Perhaps in the future, they will not need a chip reader, for instance. Another trend we are already noticing is that, in many cases, our signature is no longer required to validate the cardholder’s identity when paying with a credit card. There are still many places that require a signature, but its use has decreased, and instead, credit cards are now requiring the use of PINs. In Europe, accepting credit card payments without requiring a signature has been a common practice for many, many years. But in the Americas, it is not yet as usual, except in Brazil and in a few Central American countries. In the short and medium term, the request for a signature will be replaced by a PIN or biometric identification. In some cases, like for transactions involving very low amounts where the card issuer has the technology to automatically detect whether the payment is within its customers’ usage and payment patterns, no identity verification method will be required at the time of payment. In these cases, issuers can opt to implement an integration to perform risk-based authorization, where the security systems, connected in real time, are also involved in order to assist in this type of validation and to state whether, due to the transaction’s characteristics, a PIN should be requested. They may also integrate their applications or biometric identification. Furthermore, and as an additional measure, the PIN and/or biometric identification may be placed in the user’s own device instead of in the merchant or store device.
Crossing borders
In terms of integration with the digital world, we should not forget applications such as Google Pay, Apple Pay, and Samsung Pay, which are mobile wallets where we register/store digital versions of our cards on our cell phones, and we can use our cards from the cell phone using a contactless mechanism. This is known as “bring your own device,” where the phone is used to pay with cards set up in third party apps. This modality is often offered by financial institutions, but other companies have also started offering wearables that upload the card information into the mobile wallet and connect it to the wearable. This improves the payment experience by reducing friction and contact: the payment is made by simply bringing the wearable close to the device or cash register. Along the same lines, we can talk about “card on file,” a type of transaction we have already embraced in the world of recurring payments.
What does the term “card on file” refer to?
It means that the card data is stored in an app or mobile wallet, allowing us to make payments without having to enter the payment method or any other information every time we use it. There is a difference between what would be, for instance, paying for a recurring service subscription and using a service with its corresponding activation every time we use or consume it. In both cases, the payment method information must have been previously uploaded and stored. But there is a difference between fixed recurring payments, such as a streaming subscription, and payments for services that are consumed on demand, such as restaurant orders through an app. In the second case, the payment experience disappears because the payment is implicit within the app. That is to say, the consumer does not use the card every time they place an order because it was enough to load the card information when they downloaded the app or placed their first order. This is a method that will eventually move to physical stores. The most extreme case of all is Amazon and stores that use facial recognition.
There is one payment method we have not yet analyzed, which is clearly also the convergence between card-present and card-not-present payments: QR payments. We are actually seeing it everywhere. It is expanding, and the particularity here is that it is not a new technology. This technology has been around for quite a while, but the pandemic pushed us to use it with mobile wallets in order to place different payment methods, including non-cards, as a way of reducing contact by delegating the payment interaction to the mobile wallet. In China, for example, payments through apps represent more than 80% of global payments, both card-present and card-not-present. Even in Puerto Rico, payments through ATH Móvil® with a QR code have exceeded expectations, with more than 1,500,000 users in the island adopting the app.
Once again, we see that the lines are becoming blurred, and technology is increasingly becoming an ally to the entire transformation process, not only at the card level, but also in terms of the concept of accounts as such. For example, central banks in Brazil are using Pix; in Mexico, there is CoDi; and in Uruguay, instant transfers are also starting to take place. And all of this comes hand in hand with the innovation that fintechs, such as Evertec, bring to the sector. There is a new world of payments and payment acceptance arising, thanks to the changes generated by the pandemic and the natural evolution of technology so far. At Evertec, we have been implementing these changes and creating services and solutions that adapt to these new times and trends and that offer —aside from practicality— security and efficiency in a new world of payments.
Sebastián Franco – Regional Presales Manager (Evertec)