There’s a lot going on in the payment world, but in this post I want to focus on retail payment trends as we approach the biggest shopping events of the year: Turkey Day and Black Friday. These shopping events set not only the trends but also the tone of what is to come. I firmly believe that commerce trends are the primary drivers of innovation in the retail payment industry. The focus is shifting from the issuers, rewards and payment network to the consumers and merchants.

One interesting trend is the emergence of contextual payment, which is driving dynamic retail payment technologies and systems. For a consumer, contextual payment refers to the device, location services and mobile wallet (or other payment instrument). For enterprises such as retailers, banks or merchants, the story is not that simple. The growing diversity of payment forms—such as in-store, in-app, online, social media and cyber currency—puts the focus back on consumer choice and merchants that support an omni-channel payment experience.

In this post I will discuss my hypothesis that commerce trends are the primary drivers of innovation in retail payments by looking at e-commerce and m-commerce trends as well as technological evolution and its impact on the retail, banking and payments industries.

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According to IBM Digital Analytics Benchmark Hub predictions, more than half of all online shopping on Thanksgiving will come from a mobile device, up 23 percent year-over-year. Mobile sales are also expected to grow, reaching 28 percent of all Thanksgiving online sales, an increase of more than 9 percent over 2013. So how are mobile payments bringing such change?

Role of the mobile wallet

The concept of a mobile wallet is simple for the consumer but can get complicated for retailers and banks in a fragmented, rapidly changing market. Innovations in this space have truly disrupted traditional payment schemes such as cash or bankcards and have led to a digital wallet frenzy, where every bank and many payment processors have launched their own version of a digital or mobile wallet.

So what is the ideal mobile or digital wallet? An ideal wallet should offer the following capabilities:

• Customizable like our own wallets
• Does more than pay (such as allowing person-to-person transactions and having the ability to store other credit or cash instruments)
• Works anywhere (implying the use of open frameworks technology)
• Is inclusive of rewards management, either linking the apps or driving the reward management from the back-end systems
• Is simple, secure and easy to use—simple and easy to encourage adoption, secure to institute trust

As mobile wallets continue to evolve, there will be several key areas to watch in the payments industry.

The battle for mobile payments

There are several key battlegrounds for mobile payments:

• Proximity technology: This includes near-field communication (NFC), QR code and Bluetooth Low Energy (BLE) and provides an option for in-app purchases.
• Point-of-sale (POS) support: The question for POS vendors is not just survival but the reaction of modular systems that can evolve with the mobile proximity payment options.
• Payment credential storage, or mIdentity: This includes the security of identity technology. Tokenization and host card emulation (HCE) are two examples currently in use by top vendors. Other competing technologies include SIM-based, MicroSD and so forth. The idea is to ensure that the payment identity is secured either locally on the device or in the cloud and is unlocked with various second-factor authentication mechanisms.
• Payment account: The battle for the “account of choice” continues, with credit cards, open and closed loop accounts, loyalty accounts, mobile network provider accounts and so on all vying for attention. The goal of every player in the payment value chain is to maximize benefits for themselves and users.
• Interface and interaction technologies: These technologies put the focus on the consumer and where the interface or interaction (in the case of wearables) sets the tone for usage and popularity. Easier to use payment instruments with implied security tend to win the mind and ecosystem share.

Driving innovation

Mobile payments and the related technology landscape are in a constant state of flux. While trends in mobile commerce drive innovation in retail payments, the focus is on convenience, experience and speed of payment processing. Here are a few points related to emerging payments trends that I want to leave you with:

• Only a handful of payment innovations thus far have had an impact on the payment industry (such as NFC payments using mobile devices).
• Many technological advances piggyback on the existing retail payment systems.
• While most innovations have a potential for a global reach, regional payment options are also emerging.
• Developed economies focus on speed, engagement experience and contextual value-added services, but emerging economies see financial inclusion as a primary driver in the development and evolution of regional payment blocks.
• Continued focus on speed of payment processing is manifesting itself in the form of faster settlement or faster payment initialization.
• The barriers to entry into the payment ecosystem are being lowered, and the markets dominated by banks, payment processors and payment networks are seeing a flood of new entrants. These new entrants not only provide technology innovation for a low transaction cost, faster processing, settlement and so forth, but they also provide a competitive landscape to the seasoned players with maturity in the payment business.

So if you go shopping this Thanksgiving or Black Friday, pay attention to how trends in commerce are changing the way we pay in the retail sector.

Connect with me on Twitter @nitingaur to talk more about mobile payments.

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