A wave of digital transformation has swept the world during the past year, driven by a global pandemic and wholesale adoption of cloud-connected tools. But there’s little sign of all that change when you try to do something as seemingly simple as buying something in a store.

As many a shopper can attest, paying for goods in a U.S. store with a credit or debit card may still require picking up a digital pen and awkwardly scratching out a signature on a point-of-sale keypad screen, technology that’s decades old. Has the latest wave of digital modernization missed the payments business?

The answer depends on a wide set of factors, including which type of store, the point-of-sale system used, security concerns, government regulation and the country involved. Indeed, the current story of the payments industry is full of progress and setbacks, conflicting agendas and plenty of bureaucratic red tape.

Off and on at Walmart

One example of the ups and downs of payment technology can be found in the use of “scan and go,” where shoppers scan barcoded items they wish to purchase using a mobile phone app and then exit without having to visit the checkout counter.

Walmart Inc., the nation’s largest retailer, has been experimenting with this technology since 2012. After numerous pilots, it finally shelved “scan and go: in 2018 amid reports of technology glitches, customer reluctance and problems with theft, although the retail giant continued to use it in its Sam’s Club warehouse chain.

Then, with the launch in September of a new “Walmart+” membership program during the surging pandemic, “scan and go” suddenly reappeared as a member benefit.

“You need to think beyond point-of-sale, because that’s ultimately where it’s going,” Mario de Armas, senior director of international payments at Walmart, said during a discussion of scan and go as part of the Electronic Transactions Association’s “Future of Payments” virtual event in February. “We’re trying to save money and time for our customers, and we can do that through payments.”

Modernizing banks and cars

The banking and automotive sectors are also looking at ways to adopt device technologies to facilitate payment for goods and services.

The explosion of personal digital assistants, such as Amazon’s Alexa platform and Google Home, has fueled interest in using voice commands to make purchases or manage money. Although voice shopping has become an integral part of the voice assistant experience, estimated to reach $40 billion in the U.S. by next year, voice banking remains a work in process.

Much of the lag in voice banking is the result of a lack of awareness. A study conducted by Fiserv found that more than 60% of consumers either didn’t know or didn’t believe that voice banking was a thing one could do. The options still remain mostly limited to intra-account transfers, checking balances and, in a few cases, making credit card payments.

Another platform being eyed for both retail and banking involves the car. The era of the connected vehicle has seen a rise in interactive voice-directed automotive systems and the prospect of paying for gas, drive-through food or a parking space with just a few words is tantalizing.

Gartner has projected that in-vehicle payments will exceed $1 billion by 2023, up from $100 million in 2020, and a number of platform applications such as Alexa, Xevo Market and the Alibaba-backed Banma in China are already available for use.

Yet credit card companies are ever vigilant to the growing problem of card-not-present or CNP fraud, which is now 81% more prevalent than point-of-sale theft, according to one report. In short, security remains a major concern.

“The tech is there to do it today, and the ability to protect and insure it’s getting to the right place, to have safeguards, is lagging,” Mike Lemberger, senior vice president and chief risk officer, North American Region, at Visa Inc., said during a panel discussion at the ETA event. “What if you lend someone your car? Can they go on a shopping spree? We really need an authentication piece across that.”

API disruption

Despite security concerns, Visa has not been shy about pursuing a technology-driven strategy for the payments space. In January of last year, the credit giant announced plans to acquire Plaid Inc., a financial technology company that powers a number of banking apps, for $5.3 billion. However, the merger collapsed when the Department of Justice filed an antitrust lawsuit two months ago.

Plaid represents a disruptive force in the banking and payments industry. The eight-year-old company’s application programming interface software is responsible for enabling trades via Robinhood, cryptocurrency exchanges through Coinbase and money transfers over Venmo.

In a presentation during the ETA conference, one Plaid executive offered an example of how API-driven banking based on her company’s approach could benefit a consumer who attempted to buy $87 in groceries, but had only $80 in his bank account.

Traditional debit card banking would force the purchaser to jettison some items, but Plaid’s API-driven solution would link the consumer’s account to a verified payroll provider and simply debit the overage from his next paycheck.

“We just don’t need to be in that environment anymore,” said Ginger Baker, head of financial access at Plaid. “We’ve seen a dramatic increase in the use of digital tools in 2020 and we have a goal this year of committing 75% of Plaid’s volume to API solutions.”

If there’s one word that characterizes the state of the payments landscape in the U.S. today, it’s friction. New payment platforms are disrupting banks and credit card companies, but legacy point-of-sale technology remains. Major retailers pilot new payment tech, only to abandon it and then restart it years later. The federal government rejects fintech mergers while greenlighting much larger moves in the telecom and social media businesses. The dissonance is high.

Looking to China

Yet one country stands out as a place where nearly all of the payment pieces have come together in a seamless, frictionless whole: China.

The country’s embrace of social platforms and online payments has propelled it to a whole new level of transactional processing compared with the rest of the world. In 2019, social commerce accounted for $186 billion in retail e-commerce sales in China versus a mere $19 billion in the U.S.

And a recent report showed that China is about to become the first country in history where the majority of retail sales will be online instead of in brick-and-mortar stores. In contrast, e-commerce retail sales will account for only 15% in the U.S. this year despite a global pandemic.

Friction in payment technology remains significant for U.S. consumers and there is a lot of ground to be made up before the country even gets close to China.

“If you look at payment innovation and connected commerce, where we’re really seeing it is in China,” said Walmart’s de Armas, who noted that consumers in the country can have an app-ordered meal delivered in less than ten minutes. “They have found ways to take the friction out of e-commerce. You can order one thing during a commercial, and by the next commercial they’re knocking on your door.”

Image: Pixabay Commons