The 1 Thing the Evolution in the Payments Needs to Succeed

Change is coming in the payments industry, but there is one group many people often forget when considering how Visa, MasterCard and others are going to revolutionize how consumers make payments.

Apr 13, 2014 at 12:00PM

As a result of the theft of data from millions of consumers at Target, many have understood changes are coming to Visa (NYSE:V) and MasterCard (NYSE:MA) and countless other firms in the payments industry.

A coming revolution
The headlines surrounding the data breach at Target are easy to remember. Millions of card numbers stolen. Improper security practices revealed. Countless questions raised. And apprehension and nervousness from consumers seemed rightly in place.

As a result, many have come to see more needs to be done in order to protect consumers and their data.

But the changes to the industry have been quick, and the revolution is here.

By Guerrilla Futures Jason Tester

Source: Flickr / Guerrilla Futures | Jason Tester

Rapid change
Just last month, investors learned MasterCard and Visa have formed a group to allow for the changes in payment security to be accelerated. The group has membership and partnership from firms across industries -- from banks, credit unions, retailers, and countless others -- and is aiming to ensure the industry itself is safer.

"The recent high-profile breaches have served as a catalyst for much needed collaboration between the retail and financial services industry on the issue of payment security," noted Ryan McInerney, president, Visa, in the press release announcing the partnership. "As we have long said, no one industry or technology can solve the issue of payment system fraud on its own. These conversations will serve as a useful forum to share ideas, break down barriers and spur the adoption of next generation security solutions for the benefit of all."

It's easy to see the partnership and collaboration between Visa, MasterCard and others is a clear indication there will soon be major changes in the entire payment landscape, and it is easy to think these could occur within a monumentally short period of time.

Yet there is one thing investors need to be aware of about the changes ahead in the payments industry.

The important thing to remember
The payments industry is not a collaboration between just the firms which process payments -- the banks, credit card firms, processors. Merchants lie at the heart of it.

Visa

At the recent TRANSACT14 payments conference by the Electronic Transactions Association, Visa's Executive Vice President of Corporate Strategy, Mergers and Acquisitions, Government Relations and Europe, Bill Sheedy highlighted why large and small merchants -- who consumers purchase goods from -- too must buy into the changes that lie ahead.

After all, if the changes result in new technology to process the payments in a more secure way, merchants will likely have to pay for new terminals used to process the payments.

Following Sheedy, the vice president of product management at Google Payments, Ariel Bardin, concluded his keynote presentation by noting that partnership with more merchants is critical for the future of Google Wallet and its corresponding technologies.

The exciting future
There is no denying the payments industry is poised for monumental change in coming years, but the evolution of the payments industry will require buy in from not only consumers and processors, but the merchants, both large and small, as well.

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Patrick Morris has no position in any stocks mentioned. The Motley Fool recommends MasterCard and Visa. The Motley Fool owns shares of MasterCard and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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