EXCLUSIVE: “A Tangled Web” – Guillaume Leclerc, HPS in ‘The Paytech Magazine’

Bringing together customer demand and payments orchestration is tricky but an unavoidable priority says HPS Senior Consultant Guillaume Leclerc

The point of sale is changing. Or rather, everything around it is.

How people pay involves an increasingly complex web of systems. The technology needed to ensure a payment goes ahead as quickly and safely as possible is becoming increasingly sought after as a result. The payments orchestration market is estimated to be around $1.2billion and could reach as much as $3.5billion in the next two years. So, why the complexity?

To give us a better understanding of the behavioural trends driving growth in this area, we spoke to payments expert and consultant at HPS, Guillaume Leclerc.

One major payments sector trend he identifies includes the rise of alternative payment methods such as BNPL. eMarketer forecasted total BNPL spending in the US in 2024 will grow 12.3 per cent year-on-year to $80.77billion and The Motley Fool found that amongst BNPL users, 53 per cent use it more often than their credit card. Leclerc says there is now a mandate to offer these platforms without additional cost, however, acknowledges that it clearly requires the integration of new systems and onboarding processes.

With more people doing their banking and shopping online, the e-commerce checkout area is prime real estate. Consumers are increasingly using digital wallets in physical stores too.

“We see Gen Z increasingly using their phone to pay. They do not carry plastic as much anymore,” he says.

Indeed, the latest research indicates there has been a shift. The debit card is still the most popular method of payment at the point of sale, but 2024 research from J.D. Power found that 48 per cent of consumers now use digital wallets, up from 36 per cent in a previous survey. ABN AMRO reported that “young adults (aged 18 to 25) are using their bank cards less and less to make point-of-sale payments. In [2023], this group has increased their use of smartphones and smartwatches for such payments from 61 per cent to 73 per cent.”

The payments sector moves fast. It wasn’t that long ago we were making the transition to contactless payments, whereas now many UK consumers feel confident leaving their physical wallets at home. McKinsey also predicts that more than two-thirds of Americans will have a digital wallet within two years.

“Plastic card issue in the coming years may become optional, reserved for use cases, such as travelling abroad”

A cardless future?

In theory, this is all in service of a more seamless customer experience, but it also means that merchants need technology that can process a more complex payments suite. Banks also need to respond to the potential cardless future that Leclerc hints at. “

When it comes to card issuing in the coming years, plastic may become optional, reserved for use cases such as travelling abroad,” he says. “We observe a ‘digital-first’ approach where banks can issue a card immediately, such that it can be used in e-commerce and be deployed on digital wallets such as Apple Pay and Google Pay.”

That’s not to say the physical card is dead and HPS is straddling this transition. HPS offers, adds Leclerc, “a bundle of two cards. One is virtual and can be used in digital commerce. It’s safe and secure. And the other one is plastic.

“But because you have details on one, the physical [card] itself doesn’t bear the name of the customer, or the number, aiding security. If someone finds the plastic somewhere, you can hardly do anything with it.”

Leclerc points out that orchestration is also being impacted by an increased imperative for financial institutions to “offer value-added services during purchase.” This could be paying a bill, gaining loyalty points or withdrawing cash at the POS terminal.

As Sean Gelles, senior researcher at J.D. Power, says: “To remain relevant, debit card issuers will need to convince consumers their product is indispensable.”

This can be accomplished by “focussing on value-added experiences related to budgeting, security, or rewards, all of which have a strong influence on debit card user satisfaction.” All of this requires integration with third parties, banks, and the merchant and requires customer data being more freely accessible through Open Finance.

With more banks onboarding customers digitally, Leclerc says “very specific orchestration technologies are needed because you have to score your clients, get the customer information, go to KYC and so on, all in real time.”

Microservice technologies and low-code/ no-code tools may increase the ease with which this can be achieved, whether that’s building those services in-house or collaborating with specific providers to add to the existing stack.

It might seem like a big change but according to Leclerc “banks have a business case to move to this new technology.” In other words, can you afford not to orchestrate?

This article was published in The Paytech Magazine Issue 15, Page 35