How Amex determines what makes or breaks a payment method and how it chooses the right payment tech 

From the wearables hype to the in-car payments fad, the past few years have seen many payment methods rise and many fall.

The success of any specific payment method is strongly affected by macroeconomic factors, consumers’ perceptions, and technology. Take debit cards. Despite their first pilot coming out 1966, they didn’t become mainstays until the late 1990s and early 2000s. A big reason for this delay was that the debit card technology needed the ATM network to spread out and gain traction among consumers. In this way, both ATMs and debit cards rode the adoption wave together.

And when the right payment technology finds the right use case, the effects can multiply and impact societies. A great example of this comes from India, which used to rely primarily on cash up until recently, but a government-led push into digital payments is helping those who operated in the informal economy to build transactional histories and receive payments more securely.

Understanding barriers to adoption

Investigating what makes or breaks a payment technology can help us understand what future tech like CBDCs and still nascent tech like RTP needs to do to gain widespread traction. Too many fish in the sea: Payments options have gone from being fairly limited to credit, debit, and contactless to suddenly ballooning to include wearables, QR codes, and in-car payments. “It’s a fragmented space – for changes to happen and be widely adopted, they need to happen across multiple layers of technology and industry providers,” says Matthew Robinson, EVP Payment Network and Acquiring Solutions at American Express. Balancing online and offline modalities: New payment methods have to balance and support consumer behaviors in both online and offline environments, according to Robinson. Because customers can fuse both environments by starting a transaction online and then finishing it in a physical store, new payment methods either have to gel well with other payment options particular to an environment or be flexible enough to perform in both.

At the risk of the merchant: When evaluating a new payment method, merchants face a choice that has the power to impact their bottom line. “Merchants facing the various emerging payment options must make strong bets and the investment hurdle can be huge – both capital investment in equipment devices, but also in training and back-office functions,” Robinson said.

Research also shows that implementation costs play a very critical role in whether a payment method will reach ubiquity. If merchants perceive the cost of adoption as high, they eventually find ways to refuse a payment method, and transactions continue to happen using methodologies that are already in use.

This issue is currently impacting biometric payments where 33% of merchants report expense as a deterrent to adoption, according to data.

Global interoperability: A payment method’s ubiquity depends heavily on how a particular method functions across markets. Debit and credit cards have this all figured out. But new payment methods face varying regulations and standards that may impact how well they travel. Recently, the industry was able to overcome this challenge for mobile wallets and contactless cards by standardizing the EMV Contactless Kernel and establishing a global standard for contactless payments across various devices and payment networks, said Robinson.

Establishing trust: Customers trust in the security and reliability of a payment directly impacts its likelihood of use, but establishing consumer trust is harder than it looks. Biometric payment methods have yet to convince customers that they are safe to use, with 39% of customers who report not wanting to use biometrics also reporting concerns about personal data collection.

How to encourage adoption

As payments technology evolves, it’s important for FIs, merchants, and fintechs to understand which payment methodology will be determining how consumers move their money.

The following factors can play a major role in driving adoption: Improve the fit between the use case and the tech: Familiarity with a payment mechanism can impact adoption, according to Robinson. For example, digital wallets and contactless cards both use tap-to-pay, making it easy for customers to transition from one method to another without significantly changing their habits.

“The ability to tap your contactless card or digital wallet at the turnstile without needing to purchase a separate ticket is a good example of how a familiar, consistent payment experience (tap-to-pay) can be paired with an everyday activity such as your morning commute. This creates even more convenience for consumers, which in turn drives more adoption,” he added. Center consumer perceptions: Consumer understanding and perceptions about any particular payment method can be varied. For example, data shows that consumers are more open to using biometric payment methods on their own devices rather than using in-store devices provided by the merchant.

This means FIs need to do a better job at educating customers about how and what data is collected through biometric devices, inform them about their data policies, and what actions can be taken in case of edge cases like breaches or data theft.

Similarly, ongoing projects are investigating how well customers understand terms like “pay by bank” and “open banking payments”. These projects find that awareness and understanding strongly impact use. While only 13% of consumers were familiar with the term “pay by bank,” over half report using it once they understood its meaning.

Align with merchant needs: Building trust with merchants can be an important step in encouraging adoption, according to research. Factors like reputation of the brand offering the payment tech, safety guardrails, and how much the merchant believes in the payment technology providers’ ability to safeguard her interests impact the overall levels of trust.

Beyond trust, new payment methods also need to have a low barrier to entry for merchants, ensuring that they do not have to spend too long retraining their employees and implementing tech that takes them away from their everyday business tasks, according to Robinson. Education and awareness building is important with merchants, too. Research finds that 47% of merchants report that they are very likely to implement a SoftPOS (tech that allows merchants to accept payments directly on their phone) after reading the definition of the term.

Merchant and consumer adoption are highly interdependent and firms need to target both when thinking about new payment methods. “Consumers are more likely to pay with a method that is widely accepted – and merchants want to be equipped to accept the payment methods their consumers prefer,” said Robinson.

Sidebar: The design impacts adoption

Sidebar is a member-exclusive section that dives into stories tangential to the main story above. In this sidebar we discuss how different payment methods perform for differently abled communities. If you would like to keep reading, please consider becoming a TS PRO subscriber by clicking below.