NRF 2017: The post-EMV payments renaissance begins

This year's NRF showed that the air is gradually beginning to clear, meaning 2017 could mark the beginning of something of a payments renaissance, with growing market opportunities for payment technologies – such as mobile point of sale – that were put on hold due to EMV.

North of 34,000 attendees stormed the Javits Center in New York for the National Retail Federation (NRF) Big Show, an annual event best known for showcasing the latest and greatest in retail technology. While from a payments perspective, the 2015 and 2016 shows were almost entirely dominated by announcements tied to the US EMV liability shift, this year's event was marked by broadened horizons and a noted pivot away from the EMV migration.

The 451 Take

With an industry-wide investment measured in the billions of dollars, EMV had cast an ominous, dark cloud over the retail sector for the past several years. This year's NRF showed that the air is gradually beginning to clear, meaning 2017 could mark the beginning of something of a payments renaissance, with growing market opportunities for payment technologies – such as mobile point of sale – that were put on hold due to EMV. In particular, we're seeing retailers refocus their payments strategies around identifying opportunities to improve shopping experiences for their customers. As a result, vendors with offerings on display that demonstrated their ability to wrap added value around a particular payment function – such as by delivering new engagement opportunities at the point of sale – were positioned most attractively at the show.

The onset of the October 2015 liability shift necessitated an all-hands-on-deck effort for retailers' payments teams. Much of the past two to three years has been dedicated to prepping for – and executing – EMV implementations, which were soaking up valuable resources and forcing any non-mission-critical payments projects to be tabled. The result, for the past few NRF shows, was a constant stream of announcements tied to EMV certifications, integrations and products.

Fortunately for many tier one merchants, EMV has now been rolled out across their organizations. While EMV is not fully in the rear-view mirror, more merchants are coming up for air and beginning to reallocate time and capital toward other initiatives that were placed on the back burner prior to the liability shift.

In our conversations with vendors and merchants, along with countless laps around the convention floor, we found that there was notably less attention given to EMV this year. Instead, the theme of 'intelligent, unified experiences' permeated the show. Payments are at times an overlooked component of this concept, and payments vendors on display made it a point to focus on their role and capabilities in facilitating it. With EMV becoming less of an obstruction, we believe that 2017 will be the year in which many retailers will reallocate resources toward payments technologies that improve the customer experience. When integrated correctly, payments should remove friction from the shopping experience while serving as an anchor that unites customer interactions across physical and digital touchpoints.

Point-of-sale transformation

One of the most significant focal points over the past few years at NRF has been the point of sale (POS). While EMV has been a component of this, the bigger picture has been the evolution of the POS from an unintelligent hardware device into an intelligent, cloud-connected platform – in particular, from a device whose sole purpose was facilitating transactions into one designed to address an expansive set of operational needs. This has meant not only growing hardware support for Bluetooth Low Energy, NFC and high-resolution screens, but increasing integrations into third-party applications. This transition is tied to the growing aspiration of POS vendors to become software and services providers with more predictable, recurring revenue streams.

Aside from launching its new M400 device, Verifone showed off several interesting collaborations through its Commerce Platform and App Marketplace. It announced the Verifone Points Redemption app via a partnership with FIS and ModoPayments, enabling merchants to accept credit card rewards points as a form of payment at the POS. Verifone also demonstrated an integration with TruRating for shoppers to provide real-time feedback on their in-store experiences through the POS terminal. These partnerships underscore the role that app ecosystems will play in building out the utility of POS hardware and creating new opportunities for customer engagement.

Ingenico also had a major presence at the event. On the first day, it unveiled its new Lane/7000 device, marking the introduction of its Telium TETRA payment suite, which includes an application marketplace, to the US market. Ingenico has pushed aggressively into the US by riding the coattails of the liability shift, adding new customers such as Staples, Cabela's and, most recently, Jenny Craig. Ingenico also flexed its omni-channel muscle with the integration of payment-enabled messaging bots into its e-payments division. The bots offering is tied into major messaging platforms such as WeChat and Facebook Messenger, enabling merchants to integrate Ingenico e-payments' international payment methods into their bots.

Merchant-branded wallets: a conversation with Kohl's

One of the more interesting sessions at NRF was an interview with Kohl's CTO Ratnakar Lavu. Lavu spoke candidly about the challenges retailers face in transitioning to the cloud, hiring IT talent and transforming the in-store experience. Kohl's has taken an interesting approach in tackling the latter challenge with the launch of Kohl's Pay in Q4 last year. Built on the OmnyPay platform, Kohl's Pay taps into the retailer's 25 million private-label cardholders, 40-million-member strong Yes2You rewards program, and 14 million app downloads to create a unified commerce experience that integrates loyalty, offers and payment within a single scan.

Lavu noted that while Kohl's accepts NFC-based wallets such as Apple Pay, there are limitations when it comes to integrating offers at a SKU level with these wallets. Kohl's Pay, therefore, is an experience directed at Kohl's most valuable customers – namely its private-label cardholders, which drive roughly 60% of revenue. The long-term philosophy of Kohl's Pay, according to Lavu, is to continue offering it exclusively as a payment option for those customers with its private-label card and not integrate general-purpose cards such as Visa-branded credit and debit. Moving into Q1, the retailer is beginning to market Kohl's Pay more aggressively with in-store signage.

We believe that large merchants with existing private-label, application and rewards assets should consider the merits of offering a branded wallet in addition to accepting 'the Pays' (Apple Pay, Android Pay, Samsung Pay, etc.) because they accomplish different operational goals. We see merchant-led wallets as an effective way for merchants to build customer relationships, instill loyalty across their customer base and address unique business goals, such as tender steering. Many merchants have already invested heavily in their own apps and rewards programs, and the enablement of in-store payment functionality can enhance that investment by offering a more immersive and enriching omni-channel commerce experience for their most loyal customers. Acceptance of the 'the Pays,' on the other hand, is a wise move that can help to support both customer acquisition and choice.

IoT's retail implications

NRF helped to reaffirm that IoT is becoming an inescapable component of commerce. Large tech vendors dedicated significant booth space toward showcasing their in-store IoT demos, providing a glimpse into what a connected storefront could look like. Intel made the most IoT noise with the launch of its Responsive Retail Platform, designed to convert sensor data into real-time inventory and customer preference intelligence. Intel backed up its IoT commitments by announcing plans to invest more than $100m into the retail industry over the next five years. IBM was also among the more active on the IoT front, demonstrating its cognitive IoT capabilities via IBM Watson.

While the intersection of IoT and payments is nascent, it is undoubtedly a critical component of bringing to life the unified and intelligent commerce experiences often associated with IoT. One of the most pertinent examples of this discussed throughout NRF was Amazon Go. Payment is a critical component of the 'checkout-less' shopping experience set to be delivered by Amazon Go in that by moving payment to the cloud, the need for the POS is eliminated. One vendor we spoke with, Everseen, is in the process of implementing a similar experience at a grocery store in Cork, Ireland. For the payment component, it will leverage a card-on-file database tied to the store check-in process to remove the need for POS terminals. This is just one of many ways we anticipate payments will enable IoT commerce experiences.

As more connected endpoints gain commerce capability, security remains an adoption inhibitor. According to our November 2016 Voice of the Enterprise Organizational Dynamics, The Internet of Things report, 49.7% of survey respondents cited security as the greatest challenge facing businesses in deploying an IoT initiative. From a payments standpoint, tokenization is emerging as the technology that will secure the account number as it becomes increasingly accessed and distributed by various connected endpoints.

While the role of payment tokenization in IoT is top of mind for players in this card-issuance ecosystem, merchant-centric vendors at the show, such as Cayan, ​Shift4 and Aurus, were more focused on marketing tokens. This is a technology that enables a retailer to securely use the payment instrument as an ID to track a customer's behaviors across channels and locations. We anticipate payment and marketing tokens will merge to enable secure yet traceable transactions across any channel or platform.

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