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.”
Dealing with legacy systems
Another downside to having a strong infrastructure is that the substantial legacy systems make it very expensive and difficult to make a transition. The advantage of having little is that theres little to change and to integrate into.
Because the rest of the world isnt bogged down with a huge, aging legacy infrastructure, Offereins said, non-U.S. markets can more quickly embrace wireless technologies and improve both reliability and cost-effectiveness.
Offereins made a plea to her fellow CIOs to be open to change even it if means taking chances that are not so comfortable.
“I meet with the CIOs of different retail organizations and there is a tremendous pressure on all businesses to constantly drive out costs. Our constant challenge is to continue to be more efficient,” she said. “Technology changes so quickly that youre always adopting and testing something new. I dont think you should get too wed to any one thing because its going to change. Weve had the luxury of point of sale being pretty stable for the last 10 or 15 years.”
She said the only significant change in that time—an eternity for the rest of the technology world—is “that weve gotten away from the card imprinters. Everything is electronic in terms of the whole reseating process and the ticket retrieval. The whole process is now electronic and there is no paper that flows around any longer.”
If the U.S. is going to remain globally competitive, retailer CIOs must be more willing to experiment and try new approaches, which is what Discover is trying to do with biometrics. “I think you need to get out and try lots of different things because youre not going to know if its going to work or be appealing if you dont test it.”