How Are APMs Changing The Payments Scenario?
APMs (Application Processors Managing) are financial firms that manage and execute payments for merchants. They provide payment processing solutions which include payment card management, mobile payments, EMV/chip cards, international and domestic money transfers, ACH processing, and loyalty programs.
The APM market is growing at a significant rate in terms of volume and revenue. The global APM market is worth $155.9 billion in 2014 which is expected to reach $363.7 billion by 2019 at a CAGR of 18% between 2015 and 2019!
However, the Global APM Market for payment processors has been severely affected by the increasing popularity of various digital wallets and mobile banking applications such as Apple Pay, Android Pay, Samsung Pay, etc. that have offered attractive incentives for customers to abandon their traditional banking methods in favor of such digital platforms.
According to Mitch Nolen, the chief technology officer of Visa Inc., “customers increasingly expect that any device they use will be able to interact with any other device or service they use”. The world is not limited to only smartphones in accessing the internet as there are many other factors, such as security and interface which still remain a huge challenge.
The digital wallets have to access the customer’s bank account details before making any transactions, meaning that all the sensitive data needs to be stored on the company’s servers. The data stored in the servers is highly susceptible to cyber attacks as any skilled hacker can hack it over a network connection. As the company stores all of its customer’s bank transaction details on the server, it leaves a vulnerable opening to getting hacked and losing sensitive customer information to fraudsters.
Digital wallets are also prone to cyber attacks in the case of a malfunctioning device, as the digital wallet is tethered to the smartphone itself. When there is any malfunction in the smartphone or any breach in its security, the digital wallet can easily be hacked and misused by fraudsters.
Thus, even though digital wallets are popular among customers due to their convenience and flexibility, they cannot provide the same security level as traditional banking or card payments offer.
2. Interface and Perception of Security:
The digital wallets offer a very simple interface that does not require any prerequisite knowledge about the workings or structure of the wallet application. The user can simply use it without worrying about how it works behind the scenes. This increased user-friendliness has led to the popularity of digital wallets over traditional payment methods.
However, there is a limit on how friendly and simple an interface can be as the security needs to be factored in too. As APMs are more familiarized with consumer behavior when paying via cards, they understand how to manipulate and tweak several parameters in the payment process to increase security. This is something that digital wallets aren’t able to do, as they are not aware of how a card payment works in the background.
Thus when we compare traditional banking methods or card payments with digital wallets, consumers perceive them as being less secure due to their simple interface and stringent user validation processes.
Digital wallets have offered a very convenient way for customers to pay by using their smartphones; the user only needs to open the app and authenticate using a fingerprint, iris scanner, etc., before making a payment anywhere within close proximity of a compatible point-of-sale terminal. This has increased the number of people willing to pay via their mobile phones.
However, traditional banking methods still provide the most convenient method of payment in the form of cards as they use a magnetic stripe technology that is totally independent of smartphones. The card can be swiped at any compatible point-of-sale terminal, and all that the user needs to do is input their PIN. Thus the need to carry a smartphone while traveling may not be necessary.
In countries where internet banking is available, consumers can easily make payments by simply logging onto the bank website on any computer and authenticating their credentials using an OTP received over SMS or call. This is another example of how digital wallets are less convenient than traditional banking methods.
4. Control and Flexibility:
The APMs are in an infancy stage as they have only started gaining mass popularity in the last few years. They have a long way to go before providing the same level of control and flexibility as traditional banking methods offer.
Digital wallets are not able to provide the same level of control and flexibility as traditional banking methods due to their simplicity. The user is not able to perform some operations on the digital wallet accounts, such as adding a beneficiary, changing the address, etc., which may be done by simply clicking a few buttons in an app or website.
5. Payment Source:
The consumer has full control over the payment source in traditional banking methods while digital wallets manage it in the other case.
In the case of traditional banking methods, the customer has to make a conscious and informed decision about which payment source they want to use before making a purchase, as they have total control over their bank accounts and credit cards. They can simply go to an ATM or nearby POS to withdraw cash or use their credit cards to make a payment.
However, digital wallets do not provide the same level of flexibility as they are fully in control of where the funds will be coming from. For example, while running out of balance in a digital wallet, the user may be forced to purchase additional balances using his debit card in order to continue making the purchases. This takes away the consumer’s right on how to spend their money.
While traditional banking methods allow free movement of funds across borders, digital wallets are not able to do so due to regulatory limitations put by host countries and international bodies such as SWIFT.
Digital wallets are continuously enhancing and broadening their features to match up with traditional banking methods.
However, they have a long way to go before they can outdo them in terms of security, control, and flexibility. Also, an increasing number of countries starting to recognize APMs as the legal one-sided payment methods is an indication of how these digital wallets are gradually revolutionizing the payments scenario steadily.
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