Invisible payments are transforming the physical point of sale into a zero-effort, frictionless affair. Joy Macknight explores why banks should have a strategy for this new payment concept, particularly in an Internet of Things world. 

Amazon Go

Invisible payments are all about consumer convenience, eliminating the need to wait in a queue, fumble for cash, cards or a mobile phone and remember a PIN. Ride-hailing app Uber is the most commonly used example: the passenger, on reaching their destination, just steps out of the car – the payment, embedded in the Uber app, happens almost as if by magic.

Of course, there is impressive technology running in the background. For example, the Amazon Go store – where items are automatically added to a consumer’s virtual card when taken off the shelf – uses computer vision, deep-learning algorithms and sensor fusion to power Amazon’s 'just walk out' technology. But, importantly, a customer does not need to consciously interact with any of these technologies for the payment to occur.

Gaining traction

Nick Kerigan, managing director of future payments at Barclaycard, believes that invisible payments are beginning to gain traction after years of enthusiastic buzz. He positions invisible payments within a broader shift in payment types. “We are seeing a big shift towards electronic payments, as evidenced by UK debit cards overtaking cash for the first time in June 2018. In the UK, we have seen a ramp-up in contactless adoption and invisible payments is the next wave of that trend,” he says.

Ignacio Bañón, BBVA’s head of global payment solutions, views the trend as part of the transformation of the physical point of sale (POS). “With the rise of e-commerce, consumers are looking for a different – and delightful – shopping experience,” he says. “I don’t see queueing in the future of shopping.”

In addition to removing friction for consumers, invisible payments will help merchants provide a better experience, as well as transform their operations, according to Mr Bañón. “Merchants will be able to sell more because their customers will be happier. They will also receive more information on how consumers shop, which will enable them to better tailor products and in-store experiences,” he says. “Invisible payments will also improve efficiency because the merchant won’t need staff for solely taking payments and providing receipts.”

However, invisible payments may not be appropriate for every type of transaction. Jerry Norton, head of strategy for the financial services business at IT consulting firm CGI, believes they are better suited for low-value payments. “If the payment method is embedded in an app, as in the case of Uber, then the consumer doesn’t need to authenticate each time they use it. But if it was a higher value purchase, then greater authentication might be needed because of potential fraud opportunities,” he explains.

The killer applications

Both BBVA and Barclaycard have been experimenting with invisible payments over the past few years, looking for use cases that deliver the most value for both consumers and merchants. For example, BBVA began with a half-dozen 'experiences' in the cafeterias and restaurants at its headquarters, testing out different concepts and technologies with the group’s restaurant partner, Sodexo Iberia.

One of BBVA’s first experiments was an app for ordering ahead and paying through the app. The app automates payments but also lets customers reserve a table, order food, check the bill on the app and so on. Additionally, the bank implemented a customer loyalty solution within the app.

In late 2018, it rolled out a ‘facial recognition for payment’ system, which recognises the user’s face through cameras equipped with artificial intelligence (AI), and directly charges the card associated with their profile. It is based on facial recognition technology from Veridas, a joint venture between BBVA and Das-Nano. More recently, the bank has been piloting a new camera system that can recognise the food on the tray and charge accordingly.

“We have been quick at rolling out new experiences, continuing with those that work and abandoning the ones that don’t work, always with the idea of learning and reaching the ‘open market’, or the real world, to improve our merchant clients’ operations,” says Mr Bañón. As illustrated, the bank is also quick to partner with fintechs. “This is a very dynamic space and many fintechs are making advances in niche areas, so we have to be open to innovate with them,” he adds.

Barclaycard's tech grab

Barclaycard is also at the forefront of experimenting with invisible payments. In 2017, it began trialling its Grab+Go app to streamline the shopping experience for customers buying low-value goods. The app turns the customer’s phone into a mini checkout, so they can scan their goods as they go, complete their purchase with a single click and then walk out the door.

Mr Kerigan says: “Grab+Go is intended to give merchants the benefits of checkout-free shopping, without having to upgrade to sophisticated technology like Amazon’s. That kind of upgrade is possible if a merchant is building new stores, but it is more of a challenge for large retailers such as the ones we support.”

In 2018, Barclaycard trialled its ‘Dine & Dash’ app, which allows restaurant customers to pay automatically for their meal and leave without having to ask for the bill. Barclaycard is now looking at adding a richer set of services to create a more connected experience.

More recently, Barclaycard launched a smart terminal, called Smartpay Hub, which is a combined till and terminal solution. “Smart terminals open up many opportunities because they are based on standard operating systems, which makes it much easier to add additional services. Invisible payments can be one of the services, bringing the digital solution into the physical world,” says Mr Kerigan.

He points to Tesla’s ability to update all of its cars with various software services instantaneously. “That transformation from hardware to software will also happen in the POS environment,” he says. “The smart terminal solution makes it possible to add services through an app store-like environment, allowing us to provide a much richer set of services more easily.”

Machine to machine

The connected car is another use case gaining traction. In 2017 Jaguar and Shell launched the first payment system by a car. Through the Shell app, drivers of the new model cars can use PayPal or Apple Pay via their car’s touchscreen to pay for fuel at Shell service stations.

And from connected cars it is a short hop to connected devices. The promise of the Internet of Things (IoT) culminates in the ability of smart objects to initiate payments on an individual’s behalf. Machine-to-machine transactions are the ultimate example of invisible payments.

Sungmahn Seo, head of Europe, the Middle East and Africa payments and foreign exchange at JPMorgan, is measured in his approach. “While you can argue that both invisible payments and IoT are at relative nascent stages, and the linking of the two is therefore much further down the line, [we can] consider internet-enabled cars as part of the picture,” he says.

“I am not sure there will be huge consumer demand for refrigerators to order groceries any time soon, but the car is probably the first place where we will see rapid uptake using invisible payments to pay for parking spots, petrol, food at drive-throughs and pay ahead,” adds Mark Flamme, a managing director in the financial services team at consultancy AlixPartners. “But value will have to be there. The real friction being removed is eliminating the search for a parking spot by perhaps having an app that finds and prepays for a spot while you are miles away. Then the stored credential in the background is charged.”

Security concerns

The security around credentials is something that is top of mind for Visa, which has launched several tokenisation projects to address this issue. Mike Lemberger, Visa’s head of product and solutions in Europe, says: “In an invisible payments scenario, we are interested in where the credentials are being placed within the payments world, how are they are being established, collected and secured – that is top of mind for us.” Visa recently launched a set of guidelines around merchant-initiated transactions that cover credentials on file, how to initiate payments, what type of security is needed, as well as what type of verification and consent.

Mr Lemberger adds: “As our refrigerators begin buying food for us, we need to ensure the credentials are secure. In addition, with smart assistants such as Alexa and Google Home, we will start to use voice authentication, which is another thing we are working on. Our job is to focus on the payment and security components.”

Mr Norton highlights potential problems arising when a consumer has numerous invisible payments set up. “Managing them becomes an issue, especially in an IoT environment. Who is responsible for listing the consents, or setting them up?” he asks, adding that this may be a service that a bank could provide. “It is an issue of control, consent and safety. Perhaps the bank maintains all these instructions, like direct debits and standing orders. But the thought of having thousands of devices with my credentials is a bit nervy and something that the regulators will be concerned about.”

A balancing act

The balance between convenience and security is something that the industry has to get right, says Sanat Rao, chief business officer and global head at banking solution provider Infosys Finacle. Like Mr Norton, he believes that transaction limits will most likely be brought in, as with contactless payments, to ease acceptance among the public.

In addition to value limits, Mr Flamme believes some friction should be introduced in unusual transactions as flagged by AI and recurring transaction reminders. “This enables banks to still play a meaningful role too,” he adds. “Based on analysing a consumer’s spend behaviour and those of thousands of other similar customers, the bank can flag a transaction as unusual and send a simple text to the customer to approve, which is not significant friction but a good check.”

However, Mr Kerigan does not think customers value friction in and of itself; instead he proposes that banks should provide more consideration around a higher value purchase. “We should be giving customers more choices and control over how they want to pay, and the best solution for each customer may be quite individual,” he says.

As such, he argues that greater control needs to go together with greater convenience. “There is a concern that invisible payments make it too easy to spend, so we are providing customers with the ability to manage and control their spend through their mobile app. They can set rules around things such as maximum weekly grocery spend,” he says. “They aren’t authorising every individual transaction; instead they are setting their budgets, and probably having greater control around spend than they have ever had before.”

Multinational payments company Paysafe’s research, Lost in Transaction, found that one-third of respondents said they worried about controlling their spending. Additionally, almost half of respondents said they worry about being charged for things they did not buy. “Whether those fears are real or perceived, it behoves companies such as Paysafe to find ways to reassure consumers that they won’t get a nasty surprise when using these technologies. This may mean an SMS or e-mail confirmation that matches their expectation,” says Daniel Kornitzer, Paysafe’s chief business development officer.

The bank’s role

At a time when banks are facing business model challenges, including the compression in fee-based revenues, developing an invisible payments strategy is important. BBVA’s strategy ties in with the broader bank strategy of being a leader in digital transformation. “We want to stay close to our customers, adding valuing and helping them better manage their finances,” says Mr Bañón.

“While there is pressure on margins, we believe that bridging customers and merchants makes a lot of sense. Put that together with the POS transformation trend, it makes sense for us to be in the acquiring business,” he adds. “We could choose to stay as a gateway provider, but then we are going to become irrelevant and someone else will step in to address the needs of the merchant.”

On the merchant side, JPMorgan is investing to enable its clients to offer near-invisible payments to customers. “Enabling invisible payments requires investments across multiple fronts and requires banks to evolve their competencies. Fraud detection, customer identification and authentication, and identity management are all becoming essential components of enabling invisible payments,” says Mr Seo.

On the consumer side, Mr Kerigan returns to his point about the important role banks can play in providing customers with greater control. “If we are moving from controlling spend on an individual transaction level to a situation where payments are happening more invisibly, then a suite of services around controlling spend and personal financial management, which banks are well placed to provide, become incredibly important. Banks may have a different engagement with their customers, but they still need to be top of mind – the place the customer goes to be able to manage their finances,” he says.

While most of the discussion today is around the seamless experience invisible payments enables, Mr Rao believes the next stage will be to explore what the banks can do with the data surrounding the experience. “For the banks that have thousands of merchant customers, how can they build on the customer experience? They should be looking at how can they use the data to deepen the relationship and gain deeper insights,” he says.

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