A New Era of Payments: What Retailers Need To Know About Biometrics
By Sebastien Taveau, chief evangelist, Synaptics
From ancient bartering, to the first coin, to the first paper currency, to the first mobile payment, it’s easy to provide a linear view of how the payment process has evolved.
While commerce has always been an exchange between a customer and a merchant, the payment aspect has historically been the sore point of any transaction. There is a cost, a risk and sometimes frustration during the checkout process at the point of sale or online, and by that point, each side wants the transaction completed as fast as possible.
However, the underlying mechanisms are actually very complex. Over time, multiple players have tried to insert themselves into the payment process with promises of a faster and more simplified customer check-out.
A Brief History of Payments
Beginning in the 1980s, the credit card quickly became a primary transaction vehicle, and merchants were happy to drive more “loyalty” into their stores. With the birth of the Internet, the digitalization of cash and payment instruments accelerated, introducing new challenges around risk and fraud management. Classic payment networks such as Visa and MasterCard started to introduce solutions to support their existing infrastructure, but were ultimately unequipped to answer the expectations from users and merchants as the speed of innovation and consumer adoption of new technologies greatly accelerated.
As a result of the smartphone revolution, new technologies from companies like Square, Loop and PayPal have exposed consumers to new forms of mobile commerce; and now merchants are rushing to support more forms of payment delivery while also staying in line with government regulations around data protection — a challenge for many small businesses.
The New Era of Biometrics
Most financial institutions and banks historically accepted the view that risk management to prevent fraud was well controlled by the classic risk model of what you have (email, mobile number or credit card) and what you know (password, PIN, signature). However, the introduction of the smartphone changed the way transactions happen while simultaneously introducing better risk management options. To capitalize, many high-tech heavyweights began to come together to build out an ecosystem that will support and develop this new era of payments.
The FIDO Alliance was created in 2013 with the purpose of changing how we authenticate ourselves online. The basic concept was to rely on a two-step strong authentication process controlled by the consumer.
The first step is triggered by the use of a fingerprint ID sensor, which authenticates the user/device combination locally on their smartphone. When this first step is verified, the second step consists of the release of a private key stored on the device, but also known by the online party like a merchant, service provider or medical office, etc.
The beauty of the system is that there are no longer millions of credentials which can be hacked, and no need for complicated passwords — a win-win for both the merchant and consumer.
It’s not far-fetched to imagine a similar use of authentication inside the physical retail world by relying on technologies like Bluetooth Low Energy (BLE or Beacon), which is a low-cost way to implement a communication channel with an alternative payment network like PayPal Beacon or Apple iBeacon. Most importantly, the user will be able to pay with their identity. By doing so, the payment instrument is removed from the transaction and the sensitive credential from the user is now decentralized on each consumer device, which in turn reduces the chance of another Target-scale hack. Decoupling a payment instrument is not new but a full disintermediation of the payment instrument itself and replaced with an identity is where commerce is going.
New Payment Experiences for Retailers
The introduction of biometrics in consumer devices and the capacity to share data in real-time means that retailers need to start reevaluating the entire checkout experience if they want to drive meaningful experiences for their consumers. This also means that retailers need to get serious about security in order to protect the privacy of their customers as PINs and signature authentication becomes a thing of the past. With the quality of the data being shared on mobile and social networks, our identities are becoming more exposed and ultimately more valuable in a retail environment.
What seems like an impossible equation to solve is now within the grasp of reality. We are moving beyond the “Internet of Things” into the “Internet of Me,” and any retailer who will understand this evolution will be able to connect their digitally-connected consumers in a more personalized way. The war won’t only be on prices anymore, it will be a war on the experience.
Target’s digital transformation
Target has formed a digital advisory council as part of its efforts to accelerate its digital transformation. The company will look to the panel of technology industry leaders to help guide its omnichannel strategies.
The council includes experts with varied tech backgrounds, and includes Ajay Agarwal, managing director of Bain Capital Ventures; Amy Chang, CEO/co-founder of Accompani, former head of Google Analytics; Roger Liew, chief technology officer of Orbitz Worldwide; and Sam Yagan, CEO of the Match Group and CEO/founder of OkCupid.
Left to right: Jason Goldberger, SVP Target.com and mobile, leads a panel with the Target Digital Advisory Council at Target headquarters featuring Roger Liew, CTO of Orbitz Worldwide, Ajay Agarwal, managing director of Bain Capital Ventures, Amy Chang, CEO/co-founder of Accompani, Sam Yagan, CEO of the Match Group and CEO/founder of OkCupid.
“We believe this council can play an important role in Target’s digital transformation — one of our top priorities as a company,” said Casey Carl, president of omnichannel, Target. “This new group is bringing their tremendous talents and experience to help guide Target’s strategies and tactics. They’re also providing fresh, disruptive ideas that will help us re-invent the Target run for tomorrow’s guests.”
The council will meet quarterly as a group with Carl and others driving Target’s omnichannel strategies, including the Target.com and mobile teams, the enterprise strategy team and other Target leaders. Council members, who will serve two-year terms with an optional third year, will also be called upon to provide guidance on various topics and to help Target connect with other tech leaders.
In addition to forming the new council, Target is bolstering its internal digital team and plans to hire at least 50 new software engineers this year for its Target.com and mobile product teams. The engineers will be primarily based in Minneapolis, where they will work as part of the company’s new digital product teams. Some new engineers will be based in Target’s San Francisco office.
In the past year, Target has launched a number of digital initiatives, including the mobile coupon app Cartwheel, Target Subscriptions and Store Pickup, which allows guests to buy online at Target.com and pickup in a store. Target is now enhancing and expanding these services while also piloting new offerings such as same-day delivery and the ability to ship online orders from stores.
“Target is pursuing an aggressive omnichannel agenda and we want to go faster,” said Carl. “We’re confident that efforts such as creating the council and adding new engineering talent to our organization will help us achieve our goal of becoming a leading omnichannel retailer.”
Ahold targets online expansion
Ahold CEO Dick Boer cited competitive pressures in New England as a contributing factor in the company’s flat U.S. sales in the first quarter, but it’s not stopping the company from targeting online expansion.
Ahold’s U.S. operations posted first-quarter net sales of $8 billion, down 0.3%. Excluding fuel sales, overall sales were flat relative to the same period last year. Identical sales growth excluding gas was 0.1%, which included the positive impact this year of the post-Easter week falling into the second quarter.
Peapod achieved double-digit sales growth and opened 47 new pickup points, bringing the total to 167, Ahold reported.
"The market was characterized by a continued focus on value and volumes remained under pressure," said Boer. "Our market share was down slightly, mainly driven by competitive pressures in New England," he said. "We are expanding our online position in the United States and the Netherlands, and we are pleased with the overall sales growth of more than 20% on an identical basis."
Throughout the course of the quarter Ahold rolled out a program focused on improving the company’s customer proposition across all divisions.
"The program was piloted in the second half of 2013, resulting in encouraging volume uplifts," Boer noted. "To bring better quality, service and value to our customers, the program focuses on improving our fresh offering, enhancing customer experience through more engaged store associates and introducing targeted price reductions. By the end of the first quarter, the program was active in 190 stores and we are accelerating our plans for further rollout, increasing the intensity of the program in New England specifically," he said. "By the end of 2014, we expect the program to be implemented in over 50% of our store base, largely funded by the expected $250 million simplicity cost savings in the United States this year."
Ahold reported underlying operating margin of 3.9%, 0.2% lower than last year, mainly impacted by cost price inflation outpacing retail pricing. Private label penetration increased 50 basis points to 37.0%, approaching the company’s target of 40% by 2016.