After Steve Levitt’s (Freakonomics) and Don Kingsborough’s (PayPal) CEO panel on consumers and the adoption of new payments and commerce innovations, you’ll never believe anything you hear ever again on what it will take for consumers to break their old habits and make the move to mobile (or whatever else you have up your sleeve).
Payments is a two-sided business. It requires the engagement of both merchants and consumers. So, anything that is intended to “innovate” payments better deliver enough value to both sides so that both merchants and consumers have the incentives to move away from what they know works today to the promise of something that might work better in the future.
Payments Innovation 101.
Turns out, that’s a big deal — otherwise, the thousands of “payments innovations” that have been put into the market over the last several years would have gotten traction, and we’d all be living happily-ever-after in our payments innovation nirvana. Consumers and merchants have ingrained habits that dictate their behaviors including where they shop, how they decide what to buy, and how they pay. Some say that those habits are irrational — sort of like I happen to think my mother’s budget envelopes are — but they help people cope with the complexity of their financial lives and so, who’s to really judge? Merchants have ingrained habits too, resulting from investments in training a high turnover staff and point of sale equipment, and standards that are expensive to swap out.
So, all of the innovation that sounds so cool has to actually interrupt those habits – and basically get consumers and merchants to invest in creating a whole new routine – and deliver the reward that makes all of that time and effort worthwhile. This is where, in the words of Steve Levitt, author of Freakonomics and one of the seven of The Innovation Project 2013’s interactive keynote leaders, “the conventional wisdom is often wrong.” Hate to break it to you, but “cool” doesn’t solve any more problems or create a better value for most consumers than implementing a new technology on the merchant side solely because it is cheaper. For example:
- Square wasn’t about the dongle; it was about a new business model that made it possible for micro merchants to get a merchant account – and use the dongle as a way to convert their phones into acceptance devices.
- Starbucks’ mobile app wasn’t about payment via mobile; it was about using the phone to give people better information about their prepaid card balances – which was then bundled with payment.
- LevelUp wasn’t about zero interchange to merchants; it is about giving consumers a credit pegged to the frequency of visits to their favorite merchants – which created the basis for a new business model that, in turn, pegged merchant payments to a percentage of that credit.
- M-Pesa wasn’t about replacing cash with the mobile phone; it is about giving Kenyans a safer way to send money to their relatives in the villages – which in turn, increased the amount of cash circulating in that economy as money was transferred from person to person in a safer, easier and more reliable way.
In every single one of these cases, trusting “conventional wisdom” would have gotten these innovators very little and probably into a heap of trouble (and debt).
Innovation Project 2013 Shoponomics 101
Finding the hidden clues that can unlock those behaviors is one of seven CEO panels that are a part of The Innovation Project 2013. Steve Levitt, economist, University of Chicago professor and author of Freakonomics, and Don Kingsborough, VP of POS Innovation at PayPal and former CEO of Blackhawk, will lead four of the most dynamic (and probably even battle scarred) payments innovators in a discussion about what happened when they turned conventional wisdom on its keister and gave consumers something new to use when shopping or paying.
- Dan Henry, CEO of NetSpend, says that it “provides something that better meets the financial services needs of its customers than a traditional bank account” — which is a noble and valuable mission — yet prepaid remains one of the least sticky financial services products on the market. While most of its competitors had their clocks cleaned earnings wise in 2012, NetSpend has done remarkably well — well recently, that is. NetSpend may have seen its share of tough times, but may be on to something now, and is definitely into the sort of innovation that gives its customers a reason to stick with its product. Dan will share the good, the bad, the ugly and the behavioral economics of the alternative banking product that few have managed to make pay (for themselves) and that NetSpend now seems poised to deliver.
- Alex Rampell, CEO of TrialPay, kicked conventional wisdom to the curb years ago, at the ripe old age of 26. TrialPay was born because Alex figured out that many people like to buy many things, but few people like to buy all things — especially the stuff that may be good for you but not all that exciting. TrialPay, at its inception, was all about getting people to acquire the stuff they may wanted but didn’t want to pay for (or pay full price for) like software – by throwing it in with stuff that people were willing to pay for, like red roses on Valentines Day. I say truly pay attention here to the man behind the curtain whose ingenious business model has the rose guy and the software guy being compensated for sharing leads, and the consumer scoring great products. Find out how he did that, moved beyond that to leverage the online/offline trend and much more,but only if you’re an Innovation Project 2013 delegate.
- Ed McLaughlin, CPO of MasterCard, is all about moving MasterCard and its customers toward a world “where the physical and digital worlds are converging” and where “mobile will shape the way consumers shop for goods and services.” Except that consumers and merchants aren’t quite ready to go all the way – shop and pay – using their mobile devices – even if that’s the yellow brick road that Ed and team would like them to follow. As an early adopter of NFC mobile payments, P2P, mobile prepaid, offers, deals and other engagement experiences, Ed and MasterCard can also attest to another Steve Levitt Freaknonomics truism: “Information is a beacon, a cudgel, an olive branch, a deterrent — all depending on who wields it and how.” Ed will delve deep into his (and MasterCard’s) deep dark information pockets about how MasterCard’s various pursuits in payments innovation has shaped, reshaped and recast MasterCard’s payments consumer innovation agenda.
- Troy Carrothers, Head of Financial Services at Kohl’s, will tell the story from the retailer’s point of view and from one that, like many, are working hard to keep up with the changing social and financial circumstances of its customers. Kohl’s, which in 2009 tied Nordstrom’s for the top spot as retailer of the year, has seen its powerful formula of price + product quality + promotions waver a bit since. The 2012 holiday season was okay, not spectacular (was anyone’s?), and its exclusive fashion forward lines like Jennifer Lopez, Derek Lam, Narcisco Rodriquez, and others haven’t really driven consumers to whip out their Kohl’s cards and rush to the registers just yet. Nor has the slump in JC Penney sales – Kohl’s says that it hasn’t really seen many of those customers come their way either. Says Carrothers’ boss, Kohl’s CEO, Kevin Mansell, “How do we reconnect with the customers, so we quit disappointing her? We keep her engaged and give her a unique experience.” Sales and coupons and promotions have been a core part of how Kohl’s does that and create the demand for its “highly discretionary” items – and they have extended that to the mobile platform. We’ll hear how mobile and digital are destined to change the Kohl’s retail experience first-hand from Troy.
- Don Kingsborough, VP of POS at PayPal, has been in retail for 40 years. Don’t forget, before PayPal and even Blackhawk, Kingsborough was the King of Hasbro and inventor of its blockbuster toy product, Teddy Ruxpin. Kingsborough is all about “giving the consumer what she wants” and not what they or the merchants want them to have. As the creator of Blackhawk’s prepaid network, Kingsborough also knows first-hand the complexities of igniting a new network of any kind. “Getting consumers to adopt any new thing and having retailers adopt at the same time is difficult,” he says. But PayPal has a lot of the chickens lined up with its 135+ million digital wallets and its recent deal with Discover gives it the 7+ million merchant eggs those consumers need to use those wallets. But that’s not enough – PayPal still needs consumers to develop a habit of using PayPal offline just as they do off eBay today. Easier said than done. Not only will Don share the tricks and traps of cracking chicken and egg dilemmas in a payments environment, he’ll share new brand new insights from PayPal’s massive global test and learn experiments related to mobile payments. We’ll get his take on how much consumers like and use mobile, why in the world they are issuing plastic cards, whether “empty hands” has been the success they had hoped for and why everyday spend is in their sweet spot — and how they plan to dominate.
Innovation Project 2013 Delegate 101
And, around all of this insight, Steve Levitt will push, prod and poke them all to uncover the hidden clues for how we can all leverage the assets we have (or could acquire) to get consumers to shop and pay the way we all imagine it to be – a world where mobile makes it frictionless, seamless and painless. Some of the key questions he will pose include:
- If consumers like plastic so much and don’t seem to mind using their phones in stores to look up stuff and then walk to the register to pay with a plastic card, why do we think we need to change things? What clues are we all missing that you see?
- For whose benefit is the mobile payments solution being pushed – the consumers or the merchants or the networks? Whose problem does it really solve – and if that problem is so large, then why is there so much difficulty getting everyone to agree to move now?
- What is the real value of the deals and promotions and loyalty programs that all of you seem to thrive on and use with great frequency? Are the right incentives being applied to the right set of actors? How do you know and what should you be doing instead? What clues might you have misinterpreted or just plain missed?
- What lessons can be taken from the JC Penney experience? Why does everyday pricing work for Walmart and not JC Penney? And, can daily deals sashay into something else and survive that transition in the consumers mind?
- PayPal is an interesting poster child for how consumers parse their loyalty when using a digital wallet. They chose the wallet – PayPal – and the merchant – but not the underlying payment method. As a merchant and as PayPal, you smile, but do you if you’re the bank, or a competing network. How do you break through – and what incentives do you need beyond the typical coupon and promotions menu?