It’s getting real in the payments industry, with many innovations that have been on the cusp for a while finally entering the space in full, while others fall by the wayside. As the landscape is crystallizing, independent software providers (ISVs) are in a particularly unique position — given their expanding roles in the industry — to perhaps set the tone for which technologies and solutions will gain the most traction.
MPD CEO Karen Webster recently spoke with Bill Lodes, SVP Business Development & Strategy at First American Payment Systems, to get his perspective on the role that ISVS are playing in determining the new landscape of payments.
KW: The point of sale is going through its own transformation and redefinition. As you are working with the ISVs that serve the verticals you focus on, how are you and they thinking about point of sale, and how are you accommodating the transformation?
BL: Point of sale is no longer just the desktop POS software that’s been deployed in the past. It’s now moving to the various different cloud options, to iPads and mobile phones.
Based on our conversations with potential partners as to how they’re trying to address the needs of their end user, I think the days of us taking a standalone terminal and integrating it with the POS application are gone. Now it’s an integrated solution that incorporates a semi-integrated terminal, but it also includes mobile applications and the ability to take a payment through their POS software on that tablet.
KW: ISVs are among the hottest channels in the payments industry today, in part because there is so much change happening within that very sector. How do you work with them?
BL: From the standpoint of First American Payment Systems, we view the ISV community as the key contributor to defining the next several years in payments.
The payments landscape is changing every day. We all know about the disruptors — things like EMV to Apple Pay, for example — that are changing the way we do business daily. For us at First American, the folks that are at the forefront of that change are the ISVs.
The ISVs, with their POS solutions, are really the front lines for the merchants and those merchants’ customers, so they are impacted by that change every day. Historically, they’ve put together their solutions to help those businesses from an efficiency standpoint, while leaving the payment piece to acquirers.
Now, with all of the disruptors and security mandates in the space, they’re looking for partners to help them navigate those disruptions. That’s why this segment is our biggest focus going into 2016.
KW: A number of the industries that you currently support — health care, dental, education, property management — have their own complexities. Does the nature of the vertical impact what ISVs must do to stay on top of the innovation that you describe?
BL: Yes. Each vertical requires a different set of technologies, and has a different end user. With those different end users come different forms of payments. The payment acceptance in the health care vertical might be different from that of veterinary, for example. Within those different verticals, there are different solution sets that we’ve put together that address the needs for each one.
All of those POS providers are trying to compete and gain business within their verticals. Our goal is to put together products and services that help differentiate themselves from their competitors.
KW: We had seen the pendulum swing away from payment acceptance to other features and functions that add richness to the customer experience. Now, with EMV, it’s kind of swinging back to being all about payment acceptance again. How complicated is this making the environment for the ISVs that you’re dealing with in the verticals you service?
BL: The topic of EMV is a challenge in itself. The latest reports and statistics show that there are only 750,000 EMV-enabled terminals in the U.S marketplace, representing roughly 18 to 20 percent penetration. There are lot of folks out there — a lot of the partners in the industries that we’re talking to on a daily basis — that don’t truly understand EMV, and need help gaining a perspective of what they need to do not only from an EMV perspective, but also from the perspective of security and compliance.
Addressing those issues, as well as the different forms of payments — i.e., an NFC payment — requires building a solution set specific to a partner’s specific vertical. We’ve had industries, such as the dry cleaning space, where EMV is a major disruptor, but there’s also a need for NFC payments. We’ve heard from some of our partners that they require the ability to accept Apple Pay and Chase Pay; they see it as a differentiator because they’ve been hearing it from their customers.
KW: EMV does create a different experience for the consumer and requires a different mindset from the merchant. It’s understandable, then, that all of these different verticals would be interested in prioritizing mobile, because it is faster for consumers at checkout and allows for continued focus on elements that enhance the customer experience, instead of just swapping out hardware to accommodate a chip card.
BL: I agree. It’s the value proposition that these POS providers are putting forth in their verticals: One that’s offering a total EMV solution and adding NFC capabilities to it clearly thinks that they are providing a differentiator from others. They’re able to gain traction in that vertical by acquiring more customers.
KW: In our most recent quarterly look at storefront businesses, we learned that a lot of them don’t quite understand why they need EMV, and they view it purely as a cost as opposed to a benefit.
With the benefit of 20/20 hindsight, how do you think EMV should have been positioned to businesses in order to get them to understand why they need it?
BL: It’s what we do today with a lot of our partners in helping them understand EMV. I think EMV as a singular focus doesn’t help ISVs understand its purpose.
From a security standpoint, EMV on its own would not have solved a lot of the breaches that occur. The addition of tokenization and encryption, and the various points of a security package, will provide to these end users a complete solution to not only protect their business, but also allow them — through these EMV-capable terminals — to provide state-of-the-art technology to their merchants and to their end users. I think that’s what’s missing in a lot of the conversations that are being held.
The feedback that we’re getting shows that the population just understands that EMV is the chip on the card; they don’t understand the full impact of what the EMV technology brings to them, and that it possesses a lot of other capabilities that will further enhance and protect their businesses.
KW: In the payments industry, the year began with a lot of activity focused on the acceleration of mobile and mobile payments, and an understanding that point of sale is transforming. Are we going to notice much change by this time next year?
BL: I think there is going to be change. Going into 2016, what we see at First American is an extension of 2015 — as far as the adoption of EMV, the integration of some of these different payment acceptance types, and working with POS providers to really put together an integrated package.
In 2015, we saw a lot of nontraditional payment players enter the space and disrupt our market. I think we’re going to see more of them do so in 2016, and further differentiate by offering different products and services.
From our standpoint, we’re going down a path where we can offer products and services that we can not only integrate from an ease of use standpoint, but also integrate ones that we haven’t yet seen.
Overall, the ISV community is ever adapting to what payments is driving to them.