The impact of the cloud on the future of payments

paypal logo 2013Cloud based payments will most certainly have an impact on the way in which consumers make payments in the near future. The key drivers for pushing payments into the cloud is most certainly time to market, security and consumer adoption.

The idea with cloud payment options is that users register for the service (or receive the service from their telco), and then use the service for one-click check-outs in e-commerce. This may in some cases include a stored value or prepaid account to draw funds from your bank and use as cash in the cloud wallet. These wallets are evolving from existing services and new players in the market.

Issues
There are a few issues that have arisen from the emergence. In point-of-sale (POS) retail situations, the cloud wallet requires cardholders to enter a PIN into their wallet app from the receipt to complete the transaction. This is arguably clumsier than the NFC solution, but has seen much higher transaction volume initially because merchants do not have to change their POS infrastructure. So, the advantages and disadvantages of the two primary wallet approaches have essentially opposite pro’s and con’s.Dependency on the internet itself is also a potential barrier as we all know, even cloud based systems can “go down” effecting millions of users at a time whereas NFC is device and merchant centric limiting the risk of major loss of custom when a technical issue occurs.

There is talk of the cloud making NFC redundant but I don’t think this is the case. They are two different types of payment and both will have pro’s and con’s for customers. For NFC, 2016 is the adoption inflection point at which 50% or more terminals will be contactless /NFC capable. This leaves a huge window of opportunity for cloud based providers to encroach the market and landgrab the customer base. This is where lies the risk for NFC.

Best in Class
When it comes to determining what the leading cloud-based payment systems are and which ones stand out from the crowd, I would definitely say that Paypal is leading the way and have the scale to make a difference. However, Paypal is also feeling competition from newer and smaller entrants in these areas who are also trying to take existing payments away from PayPal. To name just two in mobile transactions, PayPal has found itself up against Square from Twitter co-founder Jack Dorsey and, to a lesser degree, Braintree. Both are on the iPhone and Andoid platforms. Square has a buy-in from payment gateways Visa, Mastercard, Discover and American Express, while Braintree has a small list of developer and consumer organizations taking its payments from new names such as Github, OpenTable, Twillo and Hailo. In my opinion Paypal has the edge both in time to market and soltution innovation due to its enterprise scale and trusted brand.

But then again new kid on the block, Paddle, is a British start-up company hoping to make the way online payments are made simpler and safer by pairing online shopping with a dedicated app on your phone that stores all the data. The system could be seen as a “One-Click” Amazon style approach, but for all sites: when a user clicks on the Paddle button on the website, Paddle generates an individual QR code on the screen which users then scan with the dedicated app. A nice innovative approach with trusted founders could make a huge impact on the market.

The Future
As there are a plethora of electronic payment systems available to the consumer, we will see the market fragment even further, more so than you can imagine as we are only at the beginning of mobile technology evolution. Cloud based systems and NFC chips are only the beginning. Over the next 5-10 years the evolution of device technology mixed with in-store and cloud will see the introduction of more sophisticated payment systems integrated into all types of displays, perhaps with bio tech integrated as a form of security.

Communicating the benefits of cloud-based payment systems will be key, especially as the public can be wary of connecting their bank accounts or payment cards to the Internet that is still perceived as being inherently unsecure. Customers have proven that with the correct level, technical robustness and proactive communication confidence can be instilled, enabling trust for their submission of payment card details in a trusted environment. Facebook and Paypal are good examples of this. The challenge for emerging products and payment brands is to gain this level of robustness and confidence. Perhaps through the standardization of security protocols and payment systems or a governing body will help underpin this.

For the foreseeable future brands and retailers no doubt will restrict the purchase amount for transactions from the cloud to be less than traditional payment methods. This is expected coarse of action until cloud proves itself with growth in consumer confidence by adoption of cloud systems, security and robustness issues are proven to be a concern of the past. Improvements for the future could be in making the presence of payment providers more visible in order to grow consumer education through all key advertising and communication channels. Early adopter brands must implement, not just one payment option, but several so consumers are given a choice. The opportunities through cloud are there for the taking but the evolution of device technology is changing rapidly and is not going to stop still. We’re about to see huge changes to payment systems soon so watch this space.