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Omnichannel: The Future of Payments

Mastering a single view of the merchant is the key.

By Michael Scheibach, Contributing Editor

Everyone understands that the payments landscape is changing . . . and changing rapidly. What may be overlooked, however, is the necessity for banks not only to understand the technologies underlying this landscape but also to alter their operations and focus to better serve their business customers, especially merchants. In other words, it is becoming increasingly important that banks provide their merchants with more efficient, secure and streamlined payment services.

“While this fast-moving, competitive landscape can be viewed as a challenge,” says Suresh Rajagopalan, president, software products, Financial Software and Systems (www.fsstech.com), “many banks are rethinking their operating blueprint and are implementing a slew of strategies to take advantage of unfolding opportunities. For instance, open banking could create a platform for greater cooperation and collaboration between banks and third-party payment systems, or TPPs, to help enhance the digital payments space.”

This approach requires banks to embrace an architectural approach that third parties can plug into. A natural progression is to move from private application programming interfaces, or APIs, to partner APIs to finally opening APIs to third-party developers, which would expedite the pace of innovation. And implementing innovative technology is the key to success for both the financial institution (or acquirer) and the merchant.

“Omnichannel is a macro-trend defining digital payments,” says Rajagopalan. “With the emergence of new payment instruments and the blurring of lines between in-store, online and mobile commerce, acquirers need to offer integrated payment systems for physical and digital transactions. Merchant services infrastructure, however, has been designed for a world where online and offline operations were viewed as distinct channels. Each product–centric business line focused on building capabilities to achieve vertical integration from the front office to the back office. For acquirers with a large merchant portfolio, the model is inefficient, expensive to maintain and provides limited operational and business visibility, impeding ability to service merchants efficiently.”

To address this inefficiency, FSS provides a full spectrum of technology solutions, from transaction origination to switching to reconciliation. The company’s product portfolio spans issuance, omnichannel payment acceptance (ATMs, POS, online and mobile), transaction switching and processing, analytics and reconciliation. Its Merchant Services Hub is a two-sided services platform connecting merchants and banks. The platform aggregates merchants on one side and payment channels for banks on the other. The Hub assumes complete responsibility for transaction processing, currency conversion for international transactions, reporting, settlement and clearing.

Solutions like the Hub give acquirer banks a single view of their merchant customers, enabling them to optimally manage large customer portfolios. This capability is significant, but although flexibility is important in an ever-evolving world, so is security, especially when practically every device is becoming a payment device. Although tokenization greatly reduces the risk and impact of card-on-file fraud, Rajagopalan points out that the multiplication of endpoints consumers can use to connect and pay potentially heightens the threat of data breaches.

To combat this, FSS is among companies working on 3D Secure 2.0 as well as advanced approaches, including behavioral and biometric-based authentication backed by analytics. This will enable service providers to authenticate customers in the background in line with their demographic, transactional, location and risk profile. For instance, second-factor authentication would be instituted only when customers make payments at a new location and out-of-line with normal transaction patterns.

“We have just touched the surface,” says Rajagopalan, “and the potential is unlimited. Although most banks are still more product-centric, they need to embrace a ‘service-centric’ approach and prepare for an omnichannel payments future that will largely be open, ambient and instant.”

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