Todays retail payment space is ripe for radical change, says the CIO for Morgan Stanleys Discover Financial Services Inc. unit. And when radical change happens, it can shake up an industry, and market leaders can find themselves in a market that is much less friendly than before.
"Ive never seen so much change in a particular space at any one point in time. In Europe, there is a movement mandating the use of chip cards and PINs," said Diane Offereins, Discovers CIO and executive vice president. "In Asia, we see lots of examples of different devices making payments: cell phones and proximity kinds of things. The (tender) space is becoming very interesting in terms of an infusion of new technology."
Click here to read about Discovers plan to use biometrics to gain market share.
In global retail, many of state-of-the-art technologies and strategies are tested first in Europe and Asia; a handful of the winners then migrate to the United States. Thats the opposite of many areas of technology and, ironically, it is often because the U.S. technological underpinnings are so strong that there is less of a need to take the risks associated with trying new approaches.
This counterintuitive trend is not limited to retail. In telecommunications, cell phone use and voice over IP dominated in parts of Asia before the United States because the analog phone systems there were considered much weaker. By comparison, therefore, the new technologies were more attractive.
The same scenario is being played out with retail payment/tender technologies.
"The U.S. has such a great online authorization process and the rest of the world isnt quite as sophisticated. The merchants [globally] are looking for something that will provide some return on investment," Offereins said. "I think our entire culture is totally conditioned and very comfortable transacting with the mechanisms they have. Its convenient. Its a big investment to go out there and take out your whole point-of-sale device infrastructure and replace it with something because it is changing quite a bit."
Overseas, retailers are comfortable experimenting with various payment approaches "to overcome the lack of a sophisticated telecommunications infrastructure," she said. "Here, everything is wired and cheap. [U.S. retailers] can authorize a transaction better than anyone else. Its fast and we can send amazing amounts of data so that we can prevent fraud and do the right job in terms of processing the transaction and giving the data that the merchant needs and making the right credit decisions. The whole infrastructure here is very mature."
But there are downsides to having a strong infrastructure, such as complacency. "I think innovation comes from a need to overcome an obstacle sometimes. I think the rest of the world, when it comes to processing transactions, has other challenges that we dont have here," Offereins said. "We have a lot of mom-and-pop [retailers] that are going to wait for the best thing before they swap out their point-of-sale devices."