Vehicle Present payments: a new paradigm to reduce transaction cost
In recent years, payment methods have undergone massive shifts thanks to the growth of digital commerce and mobile phones. However, there are still significant challenges. This demonstrates that the payment space is still ripe for innovation.
Cashless payments are ubiquitous in our society. We might assume that facilitating payments is simple. The fact is: enabling payments is extremely complicated. When a consumer makes a single payment, many different entities must be involved. These include the Point of Sale (PoS) system, payment processors, acquiring bank, issuing bank, and merchant.
Moreover, payments go through several stages before being completed. First, the payment must be processed. Then, it needs to be authorized and authenticated and settled. And all of this should happen relatively quickly in order to satisfy consumers.
Recent innovations like PayPal and other digital payment systems have shifted the entire payment ecosystem. PayPal has made it possible for online retailers to collect payments globally, with much less friction than predecessor payment systems. Mobile payments have also been a game-changer. Many people, especially younger generations, regularly make payments via mobile phone. Many major retailers such as Starbucks have developed their own payment apps and they are widely used.
There are significant problems with our current payment systems. The standard payment system for in-person transactions is called Card Present, meaning that the consumer must display their credit or debit card for the payment to go through. Although this isn’t always the quickest method of payment, it does protect against fraud. A would-be thief needs to steal the physical card and risk the merchant asking for identification. Usually, consumers can protect against this easily even if their wallet gets stolen or lost.
Not so for online payments, known as Card Not Present. When only a credit card number is required, it’s much easier to steal someone else’s payment information. Stolen payment information is easily available on the Internet. Unsurprisingly, fraudulent payments are a major problem in digital commerce. Businesses, banks, and money transfer services will lose about $200 billion over the next five years.
Fears of fraud have also slowed the growth of mobile payments. According to Pew, nearly 30% of Americans chose not to use a mobile payment system at least once because of security concerns. Consumers who experienced problems with mobile payments also had more challenges resolving the issue as compared to traditional credit/debit card payments.
Developing a universally accepted payment system is also a major challenge. As of last year, about 65% of U.S. retailers accepted Apple Pay, including 74 of the 100 largest retailers. But Apple struggled to reach that point, despite its massive user base. Many major retailers resisted Apple Pay because they preferred their own payment systems. Although this problem isn’t insurmountable, it does present another obstacle towards the widespread adoption of any new payment system.
There are many innovations that can be implemented in the payment system to improve security and user experiences. Blockchain and biometrics hold promise, although they have yet to be implemented on a large scale.
Another exciting area of innovation that we work on at Parkofon is Vehicle Present payment. Thanks to connected vehicles, it is now possible for drivers to make payments directly from their car. The car can be paired with a mobile phone for additional functionality and security.
Vehicle Present payment avoids many of the pitfalls of other digital payment systems, providing security that’s comparable or even superior to Card Present payment. Think about it: Stealing a car is much more difficult than swiping a phone, credit card, or payment info. The car itself serves as authentication. If there is a dispute about the validity of the payment, it’s easy to demonstrate that a particular car was or was not present at a particular time and place.
With Vehicle Present payment, we can enjoy all of the convenience advantages of mobile payments without the inherent risks.
As we begin to roll out Vehicle Present payments, it makes sense to begin with transactions that are clearly tied to the vehicle. Paying for fuel, parking, and tolls are all great places to begin. Going forward, it is also likely that we will see Vehicle Present payments in fast food drive-throughs and ATM. Paying with the car itself is much easier than finagling with a credit card or phone while driving.
Payment is a complicated process. But there are ways to make it less complicated and better for all stakeholders.
