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Same, but different: how payments became commoditized – and what payment providers can do about it

By Peter Caparso, President North America,

Peter Caparso, President North America,

Peter Caparso, President North America,

The thing about technology is that it’s not really just about the technology. Product is crucial, but there are many factors influencing how and why a product takes off, including market fit, timing and how the product is brought to market.

Payment processing is essentially a utility – and merchants neither need nor want radicalism from utility providers. They just want greater efficiencies and better performance at the right price.

Customer service can therefore make a real difference. When it’s egregiously bad or exceptionally good, it’s noticed, but too many businesses – across all industries – are content with letting theirs sit within the baseline-to-average range.

In a heavily commoditized market like payments, this is a dangerous attitude, and one that will leave merchants susceptible to change.

Commoditization and complacency

Commodities are in high demand because of the valuable function they serve; but the problem is that by definition, they don’t leave much room for differentiation. And in many instances, the tech boom of the last few decades has led to oversaturation.  Most markets are experiencing this to one degree or another: if a customer becomes unhappy, they’re very comfortable switching to a provider that can do better. Indeed, some 54% are being driven to the competition because of poor service, according to Racounteur’s Future Customer Report 2017.

Payment providers are no exception to this trend. In the age of eCommerce, merchants can’t function without them, but they have no special need for any particular provider. They want to keep up with the market, adjust to important trends, attract customers, retain them, and make a profit. Providers have to supply essentials such as mobile and desktop functionality, and they need to have clear strategies for the implementation of voice-activation and other emerging tools.

But without a clear focus on service, they’re still going to fall behind. Amazon succeeds because its innovation strategy is closely aligned to customer desires: when next-day delivery became too slow, it introduced same-day delivery; when that became standard, it introduced Prime Now. In myriad smaller ways, it tinkers and adjusts to meet the needs of its target audience. Equally, look at the example of Netflix: for all the talk of it revolutionising streaming, it ultimately succeeds because it lets people watch the things they want to watch, and on the devices they like using. But as well as introducing a better way of doing things, Amazon and Netflix invest significantly in educating the market on why these innovations are important and how they can use them to improve their lives.

Payments is similar. Many merchants think that the ‘old ways’ of doing things are non-negotiable. However, with the advent of new technology-first payment companies, the merchant is being taught how to get more out of their payment solutions and are learning to expect a level of service they didn’t get before.

We are seeing payments shift and become a strategic lever and expect this realization to continue to expand in 2018 as more companies look to payments as a critical customer experience factor, a source of business intelligence and an opportunity to increase operating efficiency.

Exceptional service and experience isn’t just a good way to stand out: in a commoditized payments space, it’s the only way to stand out.

But how can you do it?

Striking a balance

Technological concerns must be balanced against the need to provide customers with exceptional service. This is difficult to accomplish, but absolutely necessary.

Despite increasing automation, technology always leaves gaps that only service can fill. Payment providers should look for ways to actively collaborate with customers: look at their problems and build a relationship based on solving them. The intention should never be to sell them a product: it should be to forge a strong bond via a shared understanding of the merchant’s needs.

Otherwise, the provider’s technology has to be perfect 100% of the time – addressing all current needs and any needs that may emerge in future. This is something that’s obviously worth striving towards, but in practical terms it’s completely unrealistic. Customer satisfaction requires human intervention.

Changing payments

The aim should be to move away from the idea of payment provision – and towards a more agile style that incorporates dedicated account management. Banks are already moving in this direction (albeit slowly), and it’s not hard to see why. Raconteur’s Future Customer Report 2017 estimates that US financial services institutions are losing around $3 trillion a year due to their lack of agility.

But reforming a centuries-old financial institution means reckoning with the internal regulations and bureaucracy inherent to centuries-old organizations. In their pursuit of agility, banks are taking shortcuts and acquiring additional tech services: a recent example would be JPMorgan’s acquisition of WePay in October 2017.

Will it be effective? At this early stage, it’s hard to say. But the culture of a start-up – especially in a commoditized space – is hard to reconcile with the culture of a 200-year-old bank with a completely different philosophy. It’s easier to provide exceptional service when every customer matters: it’s harder when every customer is one data point in an inconceivably huge international network. Put simply: if consumers wanted impersonal bank service, they already had that option. The human touch is all-important and will drive behaviour.

However, payment providers proceed, they must look to maintain an unrelenting focus on the customer. Their interests and their demands must be accounted for and anticipated. Competition is high and only intensifying: to compete, they must stay on top of industry trends, adjust their offering to suit customer needs, and work to supply the best possible experience for merchants. Technology is part of that, but it’s not the only part. Agility, service, and responsiveness are already all-important; in 2018, they’ll become absolutely paramount.

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