Why merchants struggle to adopt innovative payment technology
Innovation in the payment sector is closely linked to consumer expectations. Once precedents are established, merchants who do not live up to them risk falling behind in the market, putting competitive pressure on all parties in the ecosystem to stay afloat. However, it is not always as simple as encouraging sellers to adopt the latest innovative technology, given the various obstacles they must overcome to live up to the standards set by these leading innovators. Some of the key barriers preventing merchants from adopting innovative payment technology include integration, regulation and communication. Let’s take a look at why they can present such major obstacles to the rollout of the payments industry’s latest innovations.
Easier integration between devices
To begin with integration, a major obstacle to adopting new technology is the big difference between old and new software and hardware. Merchants want to be able to offer a connected experience across their channels for their customers. This may mean integrating an EPOS solution with an older POS payment terminal, where each terminal brand uses different APIs. Both sets of technology must be able to operate in an integrated ecosystem, and yet there are few standardized protocols for moving from one vendor to another.
But there are various changes that are preparing the ground for more integrated payment ecosystems. Firstly, the current migration towards Android POS payment terminals will mean that the payment hardware will gradually become more compatible. In light of this, communication between Android terminals should standardize messages and protocols between devices, removing a large part of the integration barrier. In addition, progressive ePOS solutions and POS payment terminals are set to further enhance integration through new sets of digital APIs. These APIs communicate with the cloud, which then allows them to connect down to individual terminals. Integrating with cloud APIs in this way, rather than coding to individual device protocols, will make communication with end devices easier in the long term.
Leveraging regulatory frameworks for innovation
Regulatory bodies play a critical role in driving the sector forward to lay the foundation for fair competition and innovation. The continued support of regulators to guide and support industry standards in the payments space is fundamental to the rollout of cutting-edge technology, as well as advancing the sector as a whole. As seen around the world, regulatory bodies have the power and responsibility to encourage competition and ensure an improved end-user experience for consumers. For example, the state of current end-to-end open banking payment flows in many European regions could be significantly improved. If they remain in their current form, with financial institutions slow to implement the necessary APIs, adoption will stagnate. It is up to regulators in these regions to push for cooperation between financial bodies and fintechs to solve these problems.
It is not an insurmountable task. A wonderful example of where regulation has driven innovation is in India. In the earlier stages of the pandemic, the sector was mobilized to digitize payments on a national scale, to help the general population struggling to function without cash. Specifically, the National Payments Corporation of India mandated various industry players to work together to create a United Payments Interface – ‘UPI’. This national, instant, real-time payment system supports interbank, P2P and person-to-merchant payments. As a result, merchants down to the smallest street vendors can offer QR code payments without expensive hardware; and often use no more than a small printed sign.
Communication and awareness are key
A final barrier is the lack of communication between the parties in the payment ecosystem. This creates a significant gap in public awareness of new payment methods, such as QR codes and open banking. With slow adoption of these services, there is little incentive for innovators to keep pushing forward. The reason for this disparity in public understanding, although disputed, lies in the fact that the responsibility for educating consumers often falls on merchants, rather than payment providers. But merchants often don’t understand new payment technology themselves, nor do they have the resources to properly instruct their customers on how it works, keeping adoption levels low.
The solution to this is for all providers within the payment ecosystem to ensure that merchants are educated and equipped with the resources to advertise new payment methods and understand how they are used. This will allow sellers to tell customers that these methods are useful and safe for them to use. An outstanding example of this was the rollout of Apple Pay, which came with clear messaging from payment processors right to issuers – for merchants and customers about how to use it and support for advertising it as an option.
What next for payment technology?
Although consumer expectations are driving the adoption of innovative payment methods, this demand is difficult to meet when the barriers faced by merchants are not prioritized. Because of this, payment providers should take advantage of the shift towards Android POS terminals and cloud APIs to smooth the integration process, regulators need to get more involved in the space, and all parties in the payment ecosystem should work together to empower merchants to better communicate with their customers. If this does not happen, we can expect merchant and consumer adoption of new technology to stagnate, leading to a long-term decline in innovation.
