Future payment transactions - not as dumb as paper

Pay by phone, the smart way to pay
(Image from Mobile Marketer)

Mobile payments technology is a hot space at the moment. The ultimate goal is to make small retail payments easy, fast and cheap for businesses and consumers. This means that the solutions have to get away from paper, coins and magnetic swipe cards with huge costs attached to every transaction. Add consumer interest in everything about mobile device apps on iPhone and Android, with location services and the ability for the devices to communicate for themselves (something no credit card can do), and there is a huge opportunity for the company that owns your data to direct your future spending with loyalty programs and offers. It is with this in mind that PayPal announced its acquisition of Fig Card - this story in Mobile Marketer adds some nice commentary.

Now that's not to say there aren't challenges with mobile payments. If it was all as easy as just tapping your phone on a black box to pay a retailer, we'd probably not be carrying cash already. The challenges amount to these, and Fig thinks they know the answers:

• Making the hardware retailers need simple, cheap and secure
• Getting enough retailers interested in doing something different
• Educating consumers on a new approach to payment
• Ensuring that consumers don't need new hardware, just a new app
• Building a secure infrastructure that can capture payments for a retailer without them ever storing consumer's details
• Being able to scale the infrastructure to support a nationwide, then international payment infrastructure
• Putting together value add features such as loyalty programs that offer consumers more and make the service pay for itself

PayPal seems to be in a good position to offer much of this know-how and the backing to make it happen. Fig Card gives them the opportunity to go out and chase the incumbent credit cards with a viable alternative, addressing most, if not all of the challenges above. And they haven't forgotten the appeal to retailers, consumers, and their own bottom-line in the power of information.

If future payment "transactions can be as smart as a computer and not as dumb as paper,” (to quote Mr. Chu, Senior Director of PayPal Mobile), then PayPal could be hot on the heels of more than just the payment card industry. Move over Groupon - if you don't own the payments, you know nothing about potential customers. They may just stop coming to you, when more appropriate offers come to them at no cost.

A post from the Improving It blog

Let us help you improve your business today. Visit www.consected.com

Image via Wikipedia

Yesterday I discussed why electronic payments are great for customers and banks, but terrible for small businesses dealing in high value, low volume transactions. This morning, Finextra relays the press release announcing the partnership of S1 and PayPal. S1 provides integration with online banking, so that person-to-person payments can be made directly from an individual's bank account. The actual payment is made through the PayPal infrastructure, giving the security and support that is needed for this to actually fly.

This news is interesting, since it is giving smaller institutions such as credit unions the opportunity to offer competitively priced money transfer capabilities. It starts to put in place a real competitor to the legacy fund automated clearing house (ACH) and wire transfer systems used by the banks for Electronic Funds Transfer. EFT is perceived as being highly complex and may be considered one reason why electronic payments are going to be such an expensive proposition for small businesses. If you make a payment to a small business electronically through an online banking site such as Bank of America, its likely that the bank prints and mails a check. The small business owner has the inconvenience of the paper check still. This is not an end to end electronic solution, it just suits the customer, and the bank gets to hold your money for longer.

If PayPal and S1, or similar propositions start to really compete in the marketplace, I hope this could put pressure on the big banks to start providing better and cheaper check-free approaches for business to business payments, completely integrated with real small business online banking. This is what small businesses want, direct integration, not another service that they have to transfer funds to so they can pay a third-party. The rather hefty charges, and complexity of funds transfers to the PayPal account before making the payment need to be reduced, and competition is the only way it will happen.  

A post from the Improving It blog

Let us help you improve your business today. Visit www.consected.com

Electronic payments - a cost of doing business for SMBs

Image via Wikipedia

Electronic payments such as credit cards, debit cards and PayPal are outnumbering check payments in the US. Debit cards, counted the highest non-cash transactions, at 37.9 billion payments, while checks dropped significantly to 27.5 billion written in 2009. This is according to a short article in Financial Services Technology. 

This all sounds great for businesses, since electronic payments are so much easier to handle, receive and reconcile than checks. But electronic payments come at a cost. 2.9% of the transaction is what a small vendor will pay for merchant processing. Despite the efficiencies involved, this is a big chunk of change, especially if you are dealing in a small number of high value transactions. 

As check usage continues to plummet, and customers start to demand electronic payments from even small vendors, it seems that all the benefits sit with the consumer and the middle man processing the electronic payments. Eeking every efficiency possible out of the use of the electronic payment system is perhaps the only way that small vendors will be able to make up the gap. Process improvement in Accounts Receivable and Accounts Payable become essential areas to focus, especially as the paperwork burden to manage a 1099 for every vendor receiving over $600 in transactions in a year could come into effect.

If small businesses have recommendations of how they receive and pay for large transaction goods and services electronically, please leave a comment.

A post from the Improving It blog

Let us help you improve your business today. Visit www.consected.com

Related articles

• New Study Finds Consumers Won't Tolerate Debit Card Fees Resulting from Finance Reform Legislation; Merchants at Risk If Consumers Revert to Cash (eon.businesswire.com)