Transaction Trends

By: Cleveland Brown, CEO, Payscout; Chair, Payment Sales & Strategy Committee

The ETA Payment Sales & Strategy Committee reflected on the need for payments companies to invest in new software. Below, committee chair Cleveland Brown analyzes four crucial operational concerns driving investment in new software.

In our modern, API-driven economy, a company’s software systems represent the foundation on which core business operations are built. Overhauling or updating that infrastructure can be a complex and costly undertaking, but ignoring the changes of an evolving ecosystem can have far more costly outcomes than making the necessary improvements. These are a few of the factors that compel companies to change their infrastructure and software.

Increasing Compliance Concerns

Regulatory changes in the world of financial services have shifted accountability for interrelated rules around anti-money laundering (AML), know your customer (KYC), and protecting personally identifiable information (PII), to name a few examples. When accountability moves around like this, different players in the ecosystem require new solutions to safeguard against financial penalties and losses.

A good example is the concept of beneficial ownership, which is a key area of focus as it relates to AML requirements. A beneficial owner is the entity enjoys the benefit of a property, or otherwise owns or controls that property, without (necessarily) being named as the legal or registered owner or titleholder. In the transactional space, it is incumbent on underwriters understand the beneficial owners of companies they are underwriting. For a payment processor, as an example, new software may be required to conduct more thorough KYC checks to determine beneficial ownership while minimizing the operational impact on their systems.

Consolidation Requirements

The electronic transactions space is a complex ecosystem of financial institutions, card brands, processors, service providers, integrated software vendors, and more. Each entity needs to be capable of handling information and data from multiple sources, and when companies in this space start thinking strategically about mergers and acquisitions, they tend to start considering tools to help with consolidating those platforms.

The consolidation of these platforms, whether CRM systems, financial reporting stacks, or compliance tools may require a complete overhaul of a company’s software systems. The use of data warehousing and the integration of multiple platforms must be done in a way that minimizes the disruption of a company’s operational workflows, but if an entity’s strategic growth is fueled in part by mergers and acquisitions, the process of consolidation will increase efficiency in the long run.

Efficiency in Transaction Monitoring (and Factoring)

At the transactional level, there is a delicate balance between managing compliance concerns and optimizing conversions (profitability). Since there is accountability at the transaction level, payments companies need to monitor and understand exactly what types of transactions they’re processing, how, and ensure there is no fraud occurring in the system. The challenge is doing so in a way that does not compromise conversions, and so new software and infrastructure could be required to strike that balance in an efficient (and profitable) manner.

The Natural Cycle of Business

Innovation and disruption go hand-in-hand in almost every facet of business. As new technological solutions emerge, they create ripple effects that require competitors to respond to those solutions by innovating on their own – or risk being disrupted and left behind.

This rhythm of innovation and disruption is part of the natural cycle of business, and it often shifts in response to pressures from external or nefarious forces. EMV adoption, as an example, grew in response to a rise in card-present fraud at the point-of-sale (POS). As EMV adoption expanded and began to reduce the amount of fraud at the POS, a corresponding increase in card-not-present fraud began to emerge as bad-actors shifted their attention away from the hardening target of POS. As a retail/e-tail company in this environment, where once you required new infrastructure and software for EMV enablement, now attention must be turned to software enhancements to better mitigate fraud in a CNP environment.

New competitive products force existing companies to race to alter their offerings, and the rise of omnichannel experiences in payments is no exception. It is no longer sufficient for a company to focus on selling their product or service on one front alone, especially as consumer preferences for mobile- and app-based commerce experiences continue to rise. In many cases, accommodating consumer preferences and delivering omnichannel experiences will require businesses to reassess their infrastructure and add new software solutions.

One of the main objectives of businesses in the payments ecosystem is eliminating the friction inherent in the transactional experience. As companies continue to evolve and look for opportunities to automate and expedite the processes their systems are enabling, more circumstances will emerge that require updates to infrastructure and software solutions.