By Joan Goodchild, Card Not Present Staff
Big technology companies Facebook, Apple, Google and Amazon are increasingly interested in expanding their offerings in financial services and payments. Many consumers are already familiar with payment services like Apple Pay, Google Pay and Amazon Pay. But there is plenty more afoot from big tech when it comes to payment processing.
Consider these developments in the last year:
- In August, Apple partnered with Goldman Sachs to introduce the Apple Card, a credit card designed to be used primarily with Apple Pay in a mobile ecosystem.
- Google is teaming up with banks and credit unions to offer checking accounts to consumers this year.
- Late last year, Facebook launched its new payments system named Facebook Pay. Available across Facebook, Messenger, Instagram, and WhatsApp, it’s designed to facilitate payments across Facebook’s networks and apps. And the social media giant is also planning to introduce a digital currency called Libra, a virtual token tied to a basket of currencies and government debt.
While Facebook, Apple, Amazon and Google have a strong history of creating technology that’s convenient, these companies and others often faced criticism for their handling of users' personal data and their overall record on security and privacy. So, as big tech wades deeper into payments, it becomes increasingly important to know how secure these formats will be, both for consumers and the merchants who will be collecting payments through them. Is big tech equipped to deal with the potential for fraud and the inevitable disputes and investigations that go into accepting payments?
Mark Flamme, managing director with AlixPartners, says there are a lot of unanswered questions in that area.
“Financial services providers [and merchants in the case of online transactions] through both regulatory pressure and the need to maintain consumer trust, typically cover a consumer in the event of a fraudulent event,” said Flamme. “If someone steals your credit card and makes a fraudulent transaction, the bank typically handles it and the consumer doesn’t pay. It’s unclear how a big tech company would handle a similar event.”
Another issue that strikes Flamme is the conflicting revenue models of big tech and financial services. Are they well matched for a secure experience? Flamme says that is also up for debate.
“Financial service companies make money by building trust and growing transaction volumes and or payment loans,” he said. “Many big tech companies make money by selling advertisements. Using an individual’s payments data to better target advertisements to them is part of the inherent business model. This is a meaningful contrast. A payments business model built on earning consumers' trust has more economic incentive to protect consumer data than a payments business model built on earning advertising dollars through selling forms of consumer data.”
Convenience + Payments = Trouble?
The primary value proposition big tech firms bring to the table in payments is convenience—and consumers are all about convenience. Sally Baptiste, founder of the payment consultancy Payments Operations Group, said she expects little pushback from consumers to adopt these platforms because people are still simply not invested enough in their own personal financial security.
“Online consumers should always be wary of any business they choose to purchase from online. Especially for businesses with a poor track record related to data protection, customers should perform due diligence regarding that business’s security measures tied to purchases. But they don’t and they won’t. U.S. consumers tend to react to these large businesses as part of their daily intake and if there are problems, well there are always problems, aren’t there?”
In other words, despite ongoing headlines over the years about some of the inherent security and privacy issues with big tech platforms, Baptiste suspects that will have little impact on consumer desire to adopt big tech payments services.
“This is simply not the area of security that deeply resonates with online consumers in the U.S.,” said Baptiste. “Bottom line is that the most important relationship for these buyers is with their cardholder bank. As long as consumers are protected from having to pay for fraudulent transactions against their account, they will not take the time or make the effort to participate in their own online security during their purchases.”
But what does that mean for merchants? If it’s easier to engage in a transaction (think using voice command on a device to authorize a purchase) will merchants see more chargebacks? Will big tech handling of consumer data possibly lead to more breaches that could result in account takeovers affecting the merchants who sell with them? Ultimately Baptiste and Flamme think the focus for merchants is still on sales for now. Concern about potential fraud is a far lower priority.
“Merchants are typically laser focused on not losing sales,” said Flamme. “So, acceptance of multiple payment methods is essential. For many merchants the challenge is integrating the data flow across multiple payment methods to reconcile to accounting and inventory systems.”
“Merchants have seen new payment methods and purchase venues come and go. Staying power is always the big question,” added Baptiste. “People sign up once and then lose all interest due to delays, complexity, or product offering styles. Merchants know how to sell their own goods so they should be wary only if their product type is highly comfortable in these new monster venues. And if their competition knows this, too.”