Alexa, how do you spell “competition”? H y p e r -M a r k e t

Michael Buffer is the boxing ring announcer who coined his trademarked catchphrase, “Let’s get ready to rumble!” I could hear Buffer’s distinct announcing style as I read about Amazon’s repositioning pricing at Whole Foods and Wal-Mart which has teamed up with Google. Can you hear him today saying; “This is a special tag- team match between Amazon & Whole Foods in the red tights, fighting Wal-Mart & Google in the blue tights……. Let’s get ready to Rumble!”

What does the paring of these four behemoths’ mean to the rest of the retail market? When these two finish fighting, will there be anything left? Or are these announcements related to something else? In this blog, I’ll explain how these announcements are related to your business and what you need to compete in this new “Hypermarket”

Amazon.com, Inc. & Alphabet Inc (GOOGLE) are two of the world’s biggest tech companies. Their partnership with traditional “Brick and Mortar” (Wal-Mart and Whole Foods) combined with the introduction of smart speakers represents a new, more aggressive, type of competition. What makes these two partnerships so dangerous is that they link world-class, leading-edge technology with major product distribution channels. If Google can get Home right, Wal-Mart’s store based distribution means I put my money on the blue tights.

The Hypermarket links the consumer to their shopping in a subliminal way by simplifying the process, and the processes, between need, order, payment and delivery. The objective is to provide a seamless, consistent shopping experience…and kill your competition. The smart speaker is an early form of Artificial Intelligence (A.I) in the home. Either “Amazon Echo” or “Google Home” links consumers to the retailer in a new way, surpassing Smart Phone apps, TV’s, Tablets’ or PC’s. The scale of these partnerships are immense! As an example, 55% of U.S. adults start their online shopping trips on Amazon and they expect to ship 10 million Amazon Echo speakers in 2017. As for Wal-Mart and Google; well, they are Wal-Mart and Google! Apple will soon announce I-Home and we don’t know yet how it will be marketed. If retailers plan on keeping or growing their market share, competing in the Hypermarket will require new tools and offer new reasons for consumers to visit their store.

To compete, retailers will need to look to new aggressive strategies, innovative solutions and technology. Stephen Covey wrote about “Sharpening the Saw”. Sharpening the Saw is to preserve and enhance your greatest assets. Partnering with others, as these four industry leaders have done, adds speed and expertise. Competing in the Hypermarket will require each retailer to identify its own unique market position and focus on building similar partner and consumer relationships, both with operations and marketing.

Right to the “3rd” power”: Mobile Payment the POS and ROI

The arc of loyalty/payment programing, particularly as it relates to mobile, is now mature enough for retailers to set long-term strategic goals. The high level strategy is about consumer engagement. The objective is to create a more intimate consumer shopping experience that is contextual in nature. The requirement being: “Right to the 3rd power”; the right offer, to the right person, at the right time. The tool set for loyalty, payment and the integration of omni-channel marketing in the mobile channel is the POS.

Mobile is the most important next generation service, in many ways it is here today. Consumer adoption of mobile services is exploding. The consumer is willing and ready, even waiting for the retailer to catch up. First to market retailers will be in the lead and have an advantage. Ignore mobile and you risk losing both the Millennials and the X-er’s. Is there any doubt that the next group will only be more mobile? Cards, checks and cash will exist, and will require attention, but having a mobile strategy is the key to future success.

While EMV will drive NFC to the POS, consumer engagement will be driven by merchant rewards. The days when retailers give over control of their customers to banks and associations will end as mobile payment becomes the norm. In this war for the mobile consumer, the POS and cloud-based mobile payment is supreme. The transaction is changing from the legacy model of capture/authorize and settle to a robust IP based dialogue. This dialogue is between the consumer and the POS and is about the relationship between the retailer and the consumer. Unlike today where the transaction begins when the item, coupon or loyalty card is scanned, tomorrow’s consumer will begin the engagement long before they arrive at the location. Mobile app based solutions will leverage Geo Fencing, Wireless, and BLE to engage the consumers according to their preference. The IT environment required to deliver these services must be tightly coupled to the POS at the Transaction Services Layer (TSL). This important change in the transaction flow means that payment, rather than being outside of the TSL, is now a part of the TSL. This change means that the entire legacy payments network may be disintermediated from the mobile transaction. We see this with companies like National Payment Card Association and believe MCX shares this goal.

Retailers are understandably concerned about ROI. ROI is a result of more profitable shopping. ROI is more than a function of “frequency and shopping basket”, it is about shaping the consumers purchasing decisions. People are asking about ROI and Mobile and reluctant to allow legacy payment fees into the branded app. To the extent that consumers react through the use of offers, coupons, push notifications, points etc in the mobile channel, payment is required to close the transaction within the same user experience. The notion that the mobile consumer will be interactive with the mobile experience and then be asked to use a card for payment does not make sense. Using a card in the mobile channel would destroy the user experience and make it impossible to measure conversion.

Certainly, there are many issues impacting retailers and the POS environment. The key questions is: which IT solution makes the most sense and how does it set the retailer on the road towards a larger goal of implementing a successful consumer acquisition and retention program that is “Right to the 3rd Power”?

The Target Breach: what it means to card and mobile ACH payment:

In the aftermath of the Target Breach, David Heun at American Banker writes that ACH decoupled debit could be the big winner saying “security may have suddenly become the product’s biggest selling point.” He tiled the story, “Target’s Redcard Proves Less Vulnerable to Data Breach than Bank Cards”. Today Richard Crone, chief executive of consulting firm Crone Consulting LLC is quoted in PYMTS.com saying “Skimming the 16 digits on Target’s proprietary decoupled debit Redcard will probably not even be pursued by the fraudsters who captured that number because it can only be used inside Target”, he went on to say; “The proprietary Target card represents another reason merchants may want their own card because it can mitigate risk, too.”

National Payment Card Association is the leading provider of ACH decoupled debit card services at the POS and the world’s largest processor of mobile ACH transactions at the fuel pump. ACH decoupled debit is safer than legacy payment because the actual payment credentials are not being passed through the POS. Instead the consumer links their financial account to a card or phone as a psydo number/Token across our database. This process isolates the consumer’s financial data from the payment processing network. This differs from legacy payments where the payment credential is on the card; given the choice, “no one would pass actual payment credentials through the point of sale”, says Richard Crone

Retailers can lower their liability to payment data loss by implementing ACH decoupled debit programs. At the 2013 Pinnacle Users Conference in Dallas, I quote Gray Taylor; Executive Director of PCATS, where he said that ACH programs lower the retailer’s exposure to payment data liability. Retailers are rightly concerned about the liability associated with payment data loss. Target is not the first to be a victim of this crime and watching the media reminds me of, with my apologies to the family; Kitty Genovese.

The debate about payment data is hardly new, who can forget the transition to 3dez. Target has announced that stolen PINS are safe behind a processor based encryption key, one win in the data protection business. Proponents of EMV, and by its extension, those involved with NFC mobile payments will point to Target as another justification for their systems. Meanwhile thieves will work on new man in the middle attack strategies. As long as the payment credential passes through the POS and processing network, it will be a target for theft.

Mobile payment is impacted as well. Data security is also a consideration as the retailer evaluates cloud-based mobile payment or NFC at the POS. Some proponents argue that the payment data can be stored on the secure element and be safe. The growth of mobile payment will capture millions of users as consumers choose mobile payment. Retailers have a unique opportunity to lower payment liability by shifting consumers to card and mobile ach decoupled debit.

Big Data, mobile payments and the connected consumer

“Big Data” is a term that refers to the vast quantity of consumer information that is available both on-line through 3^rd party resources and within the retailer’s environment. Connecting Big Data to consumers through mobile payments represents the commercial usefulness of the information. Thanks to more powerful ePOS, the internet and the emergence of the “information cloud” this data can now be manipulated and utilized to drive pre-sales consumer engagement and drive sales during the purchase cycle. Big Data information is more potent when it can be applied to areas unconnected with how it was originally collected. As an example, the ability to link the CDC’s tracking of the flu with promotions for cold medications, or the ability to link coupons for hot/cold drinks to National Weathers Services tracking of temperatures. The back bone of retailer performance will be connecting Big Data to mobile payments (the consumer) during the purchase cycle through “personalization” and driving consumer engagement.

Mobile payments. The integration of the consumer through their smart phone to Big Data is the technical challenge facing the industry. Leveraging Big Data in a mobile payment environment means establishing a dialogue between the consumer’s smart phone/wallet and the ePOS at the time of purchase allowing a robust exchange of data so that the consumer experiences payment, loyalty, and offers (product recommendations, coupons) in one seamless experience.

The technical requirements of serving mobile payment and the connected consumer at the ePOS during the purchase cycle will drive change in the payments processing environment. Perhaps the greatest change is the potential disintermediation of the traditional payment processor from the mobile payment. A large shift in consumer payment behavior to mobile payment means a significant drop in card transactions across the legacy payment processing network. 

The legacy payments processing network was built to handle payments at the beginning of the electronic payments era before the emergence of Big Data. The result is that the infrastructure, while highly fault tolerant and reliable, does not lend itself well to change and is not compatible with a robust exchange of Big Data between the consumer and POS at the time of the transaction. This is great for the traditional card based ISO8583 message, but severely lacking for mobile payments and Omni-channel shopping.

The ePOS has evolved from a limited “dumb” machines built around closed systems with proprietary code to a very powerful computing device utilizing open standards. The ePOS now has the ability to communicate in an IP environment and as a result, has the ability to communicate both payment and Big Data to networks outside of the legacy payment network utilizing IP based communication.  ePOS vendors have changed their payments strategy and are moving to cloud based systems. In Petroleum all four major providers are developing cloud based payments applications that will standardize the software between the POS, EPS and Payments Cloud.

The future of Omni-channel shopping depends on the ability to communicate to the connected consumer through an IP/cloud based mobile payment with access to Big Data. Big Data is the “secret sauce” of mobile payments.