by Markus Eichinger
February 20, 2018

Your Windows is not booting up?

That’s easy, just remember to modify config.sys in order to enable DOS to access the High Mem Area and do not forget to include EMM386.EXE for memory management – after that, just load your device drivers to High Mem with the DEVICEHIGH command, e.g. DEVICEHIGH=CDROM.SYS and you should have enough Base Memory to startup Windows.

No idea what I am talking about? This was the Windows 3.1 customer experience for some users, more than 25 years ago.

But what I am actually talking about is the frictionless customer experience, also known as seamless customer experience.

That will be the sixth and final part of this series about megatrends that will influence the industry in 2018 and beyond (here are #1, #2, #3, #4, #5 – find the articles’ overview below).

If you’re in your late 30s or early 40s, you have probably experienced the “friction” described above when it came to boot up your favorite games, programs or even operating systems. Now compare it to the experience that 12-16-year-old teens have today when they load and start their favorite iOS game.

Smoothing out all bumpy spots: This is a frictionless customer experience

I personally define frictionless customer experience as a user interaction flow that:

  • does not pose unnecessary stress on the user,
  • does not require unnecessary information,
  • focuses on the actual desired outcome and
  • predicts and delivers with high accuracy.

Do you want a very simple example of an “accurate prediction and delivery?”

Well, it can be as trivial as an automatic proof-reading of your Facebook post with Grammarly, delivering the correct spelling:

In addition, Grammarly’s integration and use doesn’t stress the user nor does it require any unnecessary information – instead, it reduces the user’s stress level by clearly focusing on the desired outcome, exactly in the moment of need to make your social media posts grammatically correct, so you don’t look like a fool.

But let’s get back to the bigger picture – and the bigger players:

All successful companies that create unique and frictionless user experiences, such as Apple, Amazon, Airbnb, Uber (and many more), are sticking to these principles.

Frictionless user experience: ecosystem ownership is the key

To deliver such an experience, there’s a key element: Ownership over the ecosystem. Without end-to-end control of the respective ecosystem, it will never be possible to deliver a superior customer experience over those players who retain the control.

For example, why have car sharing platforms not been thriving as well as skyrocketingly successful platforms like Uber or Lyft? Because they did not control the entire ecosystem. There was always a certain level of stress and unpredictability for the customer when booking a ride.

Why is Amazon so successful in ecommerce and even manages to deal successfully with grocery delivery? They put predictability first and control nearly the entire ecosystem – end-to-end, including last mile delivery options.

I could easily give more examples, but there’s always this key element of an end-to-end ecosystem. Ecosystem owners are the new rulers of the industry – or to say it more polemically: Cooperation is left for the weak.

The payment industry has not delivered a frictionless customer experience – until now

Let’s be honest and self-critical: For a long time, our industry has failed to deliver a frictionless customer experience. Of course, regulatory authorities have further hampered the efforts, but the rules are the same for everybody, so let’s not take this as an excuse.

Just take the example of contactless payment. Even though it is a superior technological solution, it’s a technology and process that is getting adopted slower than expected.

Why? That’s simple:

  • Unpredictable results – at some merchants it worked, at others it didn’t
  • Unnecessary stress – why change a proven behavior and risk looking like an idiot if even the merchants did not know how it worked.

This is now changing, but it took several years.

Or take the example of strong customer authentication (SCA). There are valid reasons for this technology, and SCA is already used without even knowing it by a lot of people who use Apple devices.

But while Apple controls the whole ecosystem, in payments it’s not that easy. There is an additional step required to set up text message TANs or to register for SCA. In the eyes of the customer, this is just “unnecessary information.”

When confronted with the above, people in the payment industry, often start their answer with “yes, but…”. That is understandable, but in a world where the ecosystem wins and where barriers of entry are lowered by regulators every other few years, this is the wrong attitude.

What is important to understand is that payment has to be frictionless in the first place – because unlike playing computer games, nobody really “likes” to pay.

Integration is king: the ecosystem approach for payment

What does a successful ecosystem for payments look like? I’d like to propose an integrated approach here – an approach that we are also following at Wirecard.

The traditional ecosystem of payment, a 4-party model (click to enlarge (Copyright: Wirecard))

The traditional ecosystem of payment, a 4-party model (click to enlarge (Copyright: Wirecard))

The above ecosystem depicts, in a simplified form, how the payment world traditionally plays together. Acquirers do their part, issuers do their part, card schemes connect both worlds. That’s how it worked since the foundation of Visa and Mastercard and that’s how we are all paying.

But there’s a big disadvantage because this thinking and architecture goes back to the 1950s when credit card payments were still conducted by using “imprinters.” By the way, they are still used today and that’s the reason why the numbers on your card are embossed.

A picture of an “imprinter” for credit cards: This may trigger nostalgic feelings in some – but also unbelieving head-shaking in others. (Source: Wikipedia)

A picture of an “imprinter” for credit cards: This may trigger nostalgic feelings in some – but also unbelieving head-shaking in others. (Source: Wikipedia)

Since then, technology has thankfully evolved but the payment ecosystem architecture has not changed significantly.

If you look at the various interfaces that are required to exchange information between all the different stakeholders, it becomes pretty clear that a lot of standardization is required – and that slows down the flexibility of the ecosystem to adopt to external changes.

A new mindset in payment: Customer Touchpoints and Customer Engagement Channels

This is why I strongly believe that the future for payment application lies within an integrated ecosystem.

The integrated ecosystem for payments (click to enlarge (Copyright: Wirecard))

The integrated ecosystem for payments (click to enlarge (Copyright: Wirecard))

Instead of differentiating between “Acquirers” and “Issuers,” I prefer to think about “Customer Touchpoints” and “Customer Engagement Channels.”

Customer Touchpoints are the places where customers engage with merchants – that can be the cashier, the terminal, the web shop or even the aisle, if the staff is equipped with mobile POS technology.

For customer touchpoints it is key to use that interaction to process more data than “just” the payment information. Payment companies and merchants have invested a lot of money to create a real-time data processing network for payments – so why not use this infrastructure for more than “just” payments?

On the other hand, payment instruments have to become real Customer Engagement Channels. Enabled by smartphones (and mobile payments), the payment flow is the perfect place to initiate value added services such as consumer credits, customer loyalty points or other forms of customer engagements, e.g., raffles. With this respect, a “payment interaction” becomes an actual engagement with the customer – if payment plays the second fiddle in this flow, there’s no problem.

Combining the channels: Bring together what belongs together

Combining the channels is clearly the next step: By implementing an integrated ecosystem such as the one described above, merchants benefit from a holistic and unified view on the customer. If enriched with additional customer information, the payment ecosystem can become a real driver of value – both for top-line revenue improvement (e.g., higher basked sizes) and bottom-line cost reduction (e.g. less fraud).

But besides the various benefits of working with data, the unified ecosystem allows for a smooth payment experience as well. Alipay is showing the way: The Alipay app, which has over 520 million active users, is a true customer engagement channel – and the payment at the merchant location is seamlessly integrated into the checkout process.

But there is even more: Alipay allows merchants not only to process the payment, but also to actively use the mobile app channel to advertise to consumers or place special offers. That makes Alipay the probably first real unified ecosystem for payments at the point of sales!

Summary: This is why frictionless customer experience in payment is a megatrend

Frictionless customer experience used to be the key differentiator some years ago – but nowadays, not offering the best customer experience is a competitive disadvantage. The reason is the success of closed ecosystems that define new and unique customer experiences that had not been thinkable or realizable in a collaboration (collaborative?) approach. And this is the new standard that consumers now expect.

Thus, payment companies will need to adapt and develop towards unified and integrated platforms for Acquiring, Issuing and Value Added Services in order to keep up with the pace that new market entrants such as Alipay or WeChat Pay are setting. I personally see a big need for these platforms every time I talk to merchants, especially from the “traditional” brick-and-mortar retail world.

So as with every other megatrend that I covered in this series – with every challenge there comes an opportunity.

It’s going to be exciting in the years to come!

These are the other articles of the Payment Megatrends series: