The App Economy Is a Growing Threat to Legacy Payments

Uber's ride sharing app is generally considered less of a threat to payment processors than to the Taxi and Limousine Commission, but the ease of Uber's payment process may prompt consumers to grow frustrated with any process that forces them through a traditional checkout page.

And it's not just Uber. Order a meal on GrubHub's Seamless app and it arrives paid in full, including the delivery driver's tip. Another app, called Push for Pizza, streamlines things even further by making the entire order a one-click process (provided, of course, that the user wants only pizza). Airbnb has brought the same kind of disruption to the hotel industry.

"The point about companies like Uber and Airbnb is they take friction out of a task," said James Burroughs, a managing director for Accenture Payment Services. "The focus is turning to pre-transaction, and post-transaction…and the concept of the customer's journey."

As mobile wallet options proliferate, the tendency of consumers to use fewer cards and "automatically pay" for a service without much thought will pressure merchants, issuers and card networks to rethink the age-old practice of pushing everything about the payment process to the the very end of the customer interaction.

To respond, payment companies are investing in technology that improves customer experience and places the payment closer to the mobile product, a trend that will accelerate in the next year.

"Just take a pre-Uber cab experience and compare it to an Uber experience. The payment is a subset of what drastically improves the customer experience," said Penny Gillespie, a research director at Gartner.

The Uber model is a particular threat to card issuers because the app is designed in a way that does little to remind the consumer of which payment method is being used and thus discourages the use of multiple cards.

"If anything, these apps will hurt bank wallets because with Uber, for example, you pay and you enroll through Uber. The app makes it simpler and streamlined," said Andy Schmidt, a research director at CEB TowerGroup's commercial banking service.

Payment companies are already responding to the app economy's disruption of payments transaction processing.

Visa has taken a stake in Stripe, a company that allows merchants to build digital payment interfaces. Visa and Stripe will focus on "buy buttons," which enable purchases directly from apps and mobile websites. The Merchant Customer Exchange, which is testing a merchant-driven mobile wallet called CurrentC, and Dwolla, which enables fast digital channels, are among the other companies working to streamline traditional digital payments processing, Gillespie said.

Another example, BankAxcept in Norway, is using a national identity scheme to seamlessly fund mobile wallet payments directly from bank accounts, as opposed to the traditional credit, signature debit or stored-value accounts, she said.

As simple navigation becomes common elsewhere in the mobile world, e-commerce has to keep up, said Ralph Dangelmaier, CEO and board member at BlueSnap, a payments technology company that provides technology for checkout and in-app purchases.

"The experience is everything. We have literally invested all of our product resources into making that happen for merchants," Dangelmaier said. "The concept of 'one click' is something that all of these merchants are moving toward over the next couple of years."

On Dec. 16 BlueSnap announced an integration with Zuora, a subscription billing provider. The integration covers shoppers in 180 countries. Zuora sells technology that helps businesses launch or move products to a subscription model. Its clients include Financial Times, Schneider Electric, Box, Honeywell, NCR, RTL, lynda.com, The Guardian, YP.com, BlueJeans, Shutterfly, TripAdvisor, Vivint and Trulia.

Zuora also partners with WorldPay to enable digital content providers to customize subscription offers for specific users and markets, linking payments to customer relationship management software.