The Pulse of Payments

Nick and I discuss several trends in payments including contactless payments, transit payments, the disruption by fintech in the banking space and omnichannel commerce.

Nick discusses the meaning of omni-channel in the context of the convergence of card-present and card-not-present experiences. He states that the idea of omni-channel is not about prescriptive use cases, but more about enabling customers to engage with the merchant wherever they are. Nick talks about the use of QR codes for in-store payments, allowing patrons to scan the code from a few feet away and make payments through an online store, which is an interesting omni-channel use case.

Nick further discusses the need for traditional banks and financial institutions to become tech-enabled. In recent times, these banks have been looking to compete with all-in-one players like Stripe, Square, and PayPal, which not only provide merchant services but also provide banking services and loans. Nick observes that the merchant account is the new DDA and banks need to fight back against the all-in-one players by bringing technology into their environments.

Finally, Nick states that the transportation industry has been rethinking its payment strategies, and he has seen a lot of transportation projects taking the time to retool. He mentions the Open Payment Initiative for transit, where card brands have signed on to allow for open payments in transit systems.

Greg: Hi, everyone. Welcome to the fourth episode in our Q1 2021 Pulse of the Payment series sponsored by Today’s guest is Nick Staria who is the Chief Strategy Officer at NMI. At NMI, their mission is to use their expertise to enable more payments in more ways and in more places. They provide ISOs and fintech innovators and technologists the freedom to focus on what they do best, liberating them from restricted payment solutions and giving them access to the latest payment technology now and in the future.

Hi, Nick, and welcome to the show.

Nick: Hey, Greg, my pleasure. Thank you for having me.

Greg: Absolutely. So, let’s just dive right in. First question. Let’s talk about omni-channel commerce. I think it’s such a buzzword. I think even over the years, the definition has changed. I remember years ago, it meant retail and online. And then it became retail, online and mobile. Now we have things like unattended payments, advanced ordering, pickup curbside pickup there’s so many more things now, what’s your view on omni-channel commerce and where it’s headed in our industry?

Nick: Yeah, that’s a good question. And you’re right, I think the term omni-channel is quite an overloaded term. You know, remember all those omni-channel use cases. I mean, either I don’t really remember. Because people, I remember seeing spreadsheets with 50 different use cases for omni-channel. And really, there was buy online return in store, buy online and pickup. So those are kind of the two basic ones that we’ve all kind of come across the lens that I use, or kind of we use is really this idea that card-present and card not- present continued to converge. I think you’re right, initially, you have one bucket which is card-present, and then another bucket, which is card-not-present. But these two just keep getting closer and closer. And whether it’s a phone making payments in store or a phone making payments in home, or using your card on your phone or your card in the store, that’s kind of our view is really the convergence of these two types of experiences. And really more about making sure that you enable your customers to engage with them, wherever they are. So, this idea of engaging with your customers, wherever they reside, whether it’s in store at home, you know, on the road, etc. That’s kind of our view of what omni-channel really is, it’s more, it’s less about the kind of prescriptive use cases and more about getting in the way, finding where your customers are, and making sure that you have the tools to get in front of it.

Greg: Yeah, it’s even been interesting since the pandemic, I think a lot of just using restaurants as a use case. They really went from bringing a terminal out to your car to really promoting ordering online, so you could pay and not have to deal with that whole part of the experience. So, I think there’s been a lot of learning and changes in the last 12 months of this whole pandemic?

Nick: Yeah, absolutely. And we’ve seen a bit of a resurgence of even QR codes. I mean, that technology has been around for quite some time. But for merchants that maybe didn’t have contactless experiences at their stores. And I think we know that contactless readers, especially for an SMB or a smaller merchant, they can be pretty expensive to get your point of sale upgraded with the latest greatest terminals that accept contactless payments. So, this idea of being able to have an in store retail payment be converted to a card-not-present or ecommerce style. And a merchant who wants to stay six feet away from the patrons coming to the register, if you just generate a QR code, put it on your counter, or allow the client to scan it from a few feet away to launch a web app where they can make the payment via an online store. That’s another kind of really interesting omni-channel use case that was not kind of considered in the last year or two, but essentially converting a retail style transaction to an online transaction. Those are the types of things that we’ve seen, and are actually quite excited about.

Greg: Okay. Well, let’s talk about some disruption in our industry. I think it’s been a common word for several years. And you’ve got fintechs and other challenger banks that are really now trying to disrupt sort of your typical banks and FIs and even credit unions, they’re adding financial services products to their own product line, really disrupting that market. So, what are you seeing banks and other FIs doing in response to that?

Nick: Another good question. I mean, I think that what I’ll maybe call the traditional banks and the traditional FIs, there are banks that we’re all familiar with and have been familiar for many, many years, they need to be tech-enabled. Interestingly, banks are one of the areas where you would kind of maybe assume that they were innovators with technology and payments. But we haven’t really seen that, at least in our space, in transaction, authorization, settlement, kind of the transaction switching space, which is kind of where NMI sits. We have seen banks looking to get some technology to help them better compete with the all-in-one players, some of the disruptors that you talked about, you’ve got Stripe, Square, PayPal, these are kind of the all-in-one players that not only provide merchant services, but now they’re also starting to provide banking services and loans and other services that traditionally, more traditional bank would provide. And if you rewind just not too many years ago, oftentimes, businesses or essentially merchants would walk to their local bank and say, hey, I want to open a business bank account, and then the bank could offer them a credit card for their business, they could offer them a merchant account for their business. And that kind of used to be the way that traditional banks would operate, they would have a bunch of different locations around, and merchants would come in generally starting with a bank account, and then all these other services would be kind of built around the merchant account. What we’re kind of seeing is a bit of the reverse, in that, oftentimes, merchants are going online to maybe figure out how to get payments acceptance setup online. And really we’ve said internally that the merchant account is the new DDA. And people are building other services, including banking services around, the merchant services, and all of that has been kind of slowly moving to an online environment. So, the banks are looking and really kind of need to fight back against the old one players that are taking their service offerings to the clouds, and we’re seeing that a lot of the these more kind of traditional banking services are starting to really finally doing some diligence and bringing some technology into their environments to help them better compete with some of these online players.

Greg: Yeah, interesting perspective, because I worked at a bank, Chase Paymentech. And, it was acquired by Chase. And certainly, the DDA was sort of the lead product. So I think you’re right, those times have definitely shifted. Let’s change gears, a little talk about public transportation. I mean, this, I did a little research and in Q2 of last year, in the U.S. alone, the ridership was down like 76%, which probably doesn’t surprise anyone. But you know, a lot of people talk about, well, maybe during that time when it was down, maybe the leadership of these organizations kind of stepped back and said, hey let’s look at our payment strategy and figure out maybe what we can do differently or better. So, can you talk about any trends that you’re seeing in the transportation sector?

Nick: I can, so I think you’re right. It has been a good time for these transportation entities and mass transit services, to rethink their payment strategies, but also to retool with ridership down some of the initiatives that have been on the radar or on the roadmap, like upgrading their terminal systems, upgrading kind of the fare boxes. We’re working on quite a few transportation projects here in the U.S. And in, we’re seeing a lot of them taking this time to retool, I think maybe most importantly, all of the card brands in the last couple years have signed on to what’s called this Open Payment Initiative for transit. And, again, in the past, the most common and really still today, the most common way of doing mass transit in any major or even kind of average city is you would buy like a fare card of some sort. So, you would take like a credit card, and you would exchange value from a credit card to a fare card or a metro card. Or you pay cash. There’s other ways it was kind of like a reloadable closed loop, transit fare card, and when you went to go access the bus, you would in a lot of cases, you would tap your fare card and of course, you would have your balance reduced and when you run on your balance, you got to use your card to reload back to your closed loop system. Well, the majority of these transportation initiatives have support for NFC or near field communications also known as contactless, and with the surge of contactless in the U.S. market specifically I think that it just makes sense that instead of having to go to get your Citi card and load value to it that you would just use your contactless card, whether it’s a Visa, MasterCard, Amex, or Discover, to tap to get on the bus or the train. So, these are what are called Open Payment Initiatives, which are very different than the closed loop, kind of city card method. And of course, most cities will support both closed loop and open loop for certainly the foreseeable future. But we’re really excited about the Open Payments Initiative. Because it just makes a lot of sense, if leverages the NFC tech that I think the issuers and the networks are really kind of excited about and growing. And certainly in the UK and EU, we’ve seen lots of transportation projects where contactless is much more prevalent than in the U.S. market. That’s those kind of open loop initiatives have gone very well in London, Nordics etc. So yeah, we’re seeing that the transit enablers here in the U.S. market and really globally have taken on this Open Payment Initiative. And during the pandemic, they’ve taken that time to retool, rethink, and work towards rolling out the technology required to support open payment, tap on, tap off using actual real cards, and of course, digital wallets, phones, watches, etc. So, we’re pretty excited about that. We definitely are liking what we’re seeing there.

Greg: I was also reading a little bit about that the challenge, I think, I mean, obviously making that user experience easier, and where people can pay any way they want is obviously dynamic. I think the challenge that some of them are facing is so many companies, a lot of big companies, who are headquartered in major cities are allowing employees to work from home indefinitely. And those are the people who road the public transportation system. So, I think there’s going to be a challenge there that really has nothing to do with payments, but it’s just an interesting dynamic.

Nick: Yeah, no, you’re right about that as well. I mean we have kind of been saying, kind of pre-pandemic, or maybe even still, mid-pandemic is usage of contactless and tapping at the register is somewhat of a learned behavior, too. And our theory was as you tap to get on the bus or the train the more you get in that habit of tapping, you’re more likely to tap at Nordstrom, or tap at the retail now, of course we do think that retail at least in the short-term will be reimagined to be a bit different than in the past. But we do think that there will be some resurgence and whatnot in-person activities, post pandemic, we have some, some confidence around that. But you’re right what level of ridership comes back for mass transit, I think remains unseen. But I think the learnings of really the people in cities and the kind of learned behaviors and the habits that come out of that, which will maybe be better for the greater good of the society like efficient use of cards, safety, convenience, all of these things with that will maybe kind of diffuse from the pandemic and mass transit can be a big influence around that front.

Greg: Okay. Yeah. So that’s kind of a good segue into the last question. Obviously, the pandemic has driven a lot of people to use contactless payments. Are there other trends? I mean, obviously, transportation is kind of one use-case. You talked a little bit about retail, but are there other trends that you guys are seeing in that whole contactless space?

Nick: Yes, absolutely. And you’re right, we didn’t just talk about transit. One of the other ones that were keeping a close eye on and doing quite a lot of work on is a technology called tap on phone. And what tap on phone is essentially taking an off-the-shelf Android phone or tablet, and turning that into a payment acceptance device. These devices today are pretty much all built with NFC. Now phones and tablets have NFC already generally because you’re able to tap those at the point of sale to payment terminals and kind of use that in lieu of a contactless card. But you can also put those NFC phones and tablets into listen mode, and you can listen for taps against that device. So today, a lot of them are mobile point of sale is comprised of people pairing external card readers either via Bluetooth, or you might plug it in physically and have like an audio jack model where you can swipe, insert or tap the card on a payment device that’s paired or physically connected to your phone. Well, if we look past maybe the next couple years, and with the idea of not needing that external payment device, and just basically downloading an app to an Android phone and turning it into a contactless payment acceptance device, knowing that the issuance of contactless cards are going to go up significantly. It was up over 100% in 2020 versus 2019 as far as contactless prevalence here in the U.S. market. And we’ve seen what’s happening in the EU and UK, it happens pretty quick once you get critical mass, and we do believe that we’ve hit critical mass for contactless issuance in the U.S. market. And tap on phone is one of those technologies that for in the field service, flea markets, these types of micro merchant use-cases that you’ve all seen with Square using an audio jack reader on the top, just kind of eliminating the reader and turning a device into a contactless payment acceptance device. Once we have more prevalence of contactless here in the U.S. market, we really think that that’s going to be the future. I have a quick caveat on Apple, because I’ve said Android a few times. You know, for those of you that track, M&A activity in the industry, you probably will recognize that Apple acquired Moby Weave. This was I think, last year, Moby Weave is a company that builds that tap on phone type technology. So, we don’t really know if Apple has aspirations to enable their ecosystem for NFC tapping similar to the Android ecosystem, or if they’re just going to use it for their own Apple devices, when somebody comes in the store, you can use your phone to tap their phone to make a payment something like that. So, we’re tracking that closely. But at the very least, Android is certainly up running and readily available. And also we think that unattended contactless is going to be pretty important. Again, this is all sort of maybe accelerated by COVID and the pandemic, but it’s not really a new idea. There are other markets that have been rolling out unattended payments for quite some time. You know, we’ve all kind of horror stories about the crazy unattended, you can buy anything in Japan, from a vending machine. Even though we haven’t been through airports too much this year you’ve seen like mobile CVS is in airports where you can buy everything, walk up to the machine, tap your card or swipe it, to dispense it. So, we think that this idea of unattended payments fits well within that contactless initiatives, more of a self-service type model. So, we’re pretty excited about unattended with respects to contactless tap on phone technology with respect to contactless and of course, transit. Those are kind of the things that that we have on our radar that we’re pretty excited about.

Greg: Well Nick we’ve covered a lot of ground today so far. Are there any other topics you want to touch on before we go?

Nick: I don’t think so. We did cover a lot of ground and I enjoy these types of discussions. I could probably talk forever about them. So, thanks for having me, Greg. I really do appreciate it.

Greg: No, thank you. I really, really appreciate you being here. And to all your listeners out there and viewers. I appreciate your time as well. So, Nick, again, thank you so much for being on.

Nick: My pleasure.

1:12 Omni-Channel Commerce

4:18 Industry Disruption

7:44 Transit Industry Discussion

14:05 Trends in Contactless Payments

17:28 Future of Unattended Retail