Every Monday, this column space is dedicated to the musings of Karen Webster and her take on all things payments, commerce and retail. The goal: to start a conversation by taking a fresh look at how the ecosystem is changing, innovating and disrupting — all at the same time.
Today, we thought we’d set the table for 2017 by reprising seven of the, ahem, more controversial topics of conversation. OK, there were actually a lot more than seven, but here are seven that might help ground your thinking about the big shifts in 2017 that she spoke of a few weeks ago.
It’s as if the retail world is really coming down to Walmart versus Amazon. When Webster wrote this, it was around the “Rumble in the Jungle” analogy that highlighted how a battle between the two could play out in 2017.
“A powerful incumbent champion who was strong and dominant for years [versus] a nimble challenger with a new game plan,” wrote Webster then.
“Walmart’s revenues of nearly half a trillion dollars ($485 billion in 2015) and 2.2 million employees — half of whom are in the U.S. — makes it the largest retailer in the world in terms of revenue and number of employees. One hundred million people step foot in a Walmart store every week, and $36 million are spent in a Walmart store every hour. We estimate that $0.08 of every dollar in the U.S. is spent at a Walmart. There’s no doubt about it, Walmart is a big and powerful incumbent that’s historically delivered knockout punches to a host of challengers over the years.”
“So, why then do so many think that Walmart is on the ropes? While Walmart may have four times the revenues of Amazon, the market seems to be betting that it’s the younger, more nimble challenger who’s best prepared to capitalize on the digital waves that are transforming retail and commerce more broadly.”
“Who wins the rumble in the jungle remains to be seen, and as all of these things go, it will be decided by the consumer who’ll ultimately deliver the knockout punch. For physical retail, that fight will be fought — and won — well before she ever gets to your physical front door. That means that every single physical retailer better think about their business in the very same way that Jeff Bezos does: ‘We don’t make money when we sell things. We make money when we help customers make purchase decisions.’”
Increasingly, as the holiday data shows, online and at Amazon.
Millennials Are In For Some Hard Times
The data is grim — 2017 and beyond don’t bode well for the financial future of the millennial generation. And the implications for every single player in FinTech could be profound.
“For all of you wishing you were still 29,” wrote Webster, “think again.”
“While they enjoy many FinTech innovations, most millennials don’t have a snowball’s chance of earning more than their parents — ever. Not even half of millennials born to middle-class families and a third of millennials born to families in the middle to lower middle-income brackets have a shot at making more money than their parents. Not surprisingly, the hardest hit are the kids born to middle and lower-middle-income families — so, roughly 70 percent of the U.S. population.”
“Some economists attribute at least part of this disappointing financial picture to an increase in the rise of single-parent households. Others attribute the problem to millennials entering the workforce during and/or in the immediate aftermath of the 2008 financial crisis. Those kids took lower-paying jobs just to have one — the undergrad in art history from Colby who took a job as a barista at Starbucks or underpaid member of a starving startup team — while others stayed in school longer since they couldn’t find even so much as that. A large portion of them work as part of the gig economy, and many rather like it that way. Regardless, experts say, millennials will be hard pressed to make up the income deficit (and pay off the additional student debt for those who stayed in school) that’s been compounding over those last eight years.”
This Year Won’t Be So Easy On Banks, Either
While Donald Trump ended up winning the election, Webster’s assessment of the next four to eight years before the outcome was known was a mixed bag for banks.
“The scariest real-life scenario playing out now in financial services is the bipartisan attack on banks and the services they provide to consumers,” wrote Webster. “Regardless of who’s sworn in as president of the United States on January 20, 2017, it’s a near certainty that life for banks — large and small — in this country will only get worse than it is today. And it’s already pretty bad.”
“Not only is there a bipartisan consensus that something needs to be done to smack the banking industry publicly on the heels of the Wells [Fargo] fiasco, but those who most staunchly defended their interests feel as though they can no longer do so. The Wells Fargo scenario has really only poured gasoline on a fire that’s been raging on Capitol Hill since the financial crisis.”
“The bipartisan assault on the banks and the business models that underpin the delivery of banking and payments services were punctuated with the regulation of interchange under the Durbin Amendment to the Dodd-Frank Act. That piece of legislation had bipartisan support under the guise of lowering prices to consumers since merchants would pay less to those — all together now — ‘greedy’ bankers.”
Stock market performance notwithstanding, the tradeoffs will be interesting to watch once President Trump is sworn in.
Contextual commerce has been at the vanguard of payments and commerce at least since Webster wrote about it in the beginning of 2016. Its future effects on the space will be more relevant than ever in the coming year.
“Making Pins buyable inside of Pinterest is something that I called Contextual Commerce 1.0,” wrote Webster. “Inserting buy buttons inside of a marketplace — in this instance, a marketplace of ideas and inspiration — is interesting. But it’s not the game-changer that contextual commerce could really be. Contextual Commerce 2.0 will make it possible for new relationships between brands and consumers to be established and for the retail playing field to be defined differently and on the consumer’s terms.”
“And those who master Contextual Commerce 2.0 will do so because they are able to create value by making commerce accessible ‘in the moment’ and across any operating system, channel or buying environment. In each of the instances that I described here, the contextual platform is an app or software that can go anywhere the consumer takes it on their mobile device, one that is enabled by secure digital account credentials that flow with that context.”
“For those ecosystems, the imperative is to provide the context that will trigger the commerce impulse, add value to that consumer experience and remove the friction from making payment difficult.”
“For issuers, it raises the decibel level of making sure that their products are attractive enough for consumers to want to stick inside those apps. Platforms that are about creating context do that by bringing in more third parties to add that value and leverage the account credentials they have ‘on file.’ The more options that these ecosystems provide to those consumers across the platform and the easier it is for those consumers to use those stored credentials, the fewer opportunities issuers will have to influence those choices downstream.”
“For mobile wallets and buy buttons, the challenge will be to get consumers to register a wallet inside of an app. And that will be a function of making sure that enabling platforms make it easy for retailers and other third parties to accept that method of payment and for consumers to use it. Since where context will drive consumers, it will also pull along their payments preferences.”
Something that we’ve seen as payments now lives inside of entirely new ecosystems, like messaging and voice-activated platforms.
Apple’s Future Up In The Air
2017 could end up being a defining year for Apple — whether it’s triumphant or something else is still up in the air.
“We’re seeing a pattern with Apple,” wrote Webster. “Apple introduces a new product. The hype machine goes into overdrive. Early evidence points to problems with sales. A cone of silence over actual data on adoption comes down combined with dribbles of positive but largely irrelevant information. Apple’s fans in the media start talking about how the adoption of the iPhone or iPod was slow, too, and they became successful, so this or that new product will, too.”
“It’s not just this or that product that’s been a disappointment; it’s been the whole string of them. It’s becoming increasingly clear that Apple can no longer draft off the genius of Jobs. His road map has run its course — as it was bound to do — and is no longer capable of keeping the revenue engine humming the way it once did. Device sales are only as good as the utility that its apps and ecosystem delivers. The vision that drove Apple to think differently about what would really ‘make a dent in the universe’ seems to have gone missing.”
“Apple Pay, I think, illustrates this best. It was introduced in 2014 as Apple’s big hope — a cure for the many failed attempts by many others before it that tried to get consumers to use mobile devices to pay for things in a physical store. That experience, Apple and Tim Cook surmised, would make the iPhone an elegant and essential solution for the group of customers who drive a disproportionate amount of consumer spend. And Apple Pay is elegant and is a very slick way of integrating payment into a mobile device. But there’s just one problem. Apple misjudged the degree to which in-store and plastic cards weren’t very big consumer payments pain points — and how merchants activating NFC was. They also forgot what matters most to merchants — getting consumers to buy from them — full stop.”
“As the next decade begins the shift to connected devices — billions and billions of them — capable of conducting commerce, the endpoints capable of playing music and getting news and reading email and paying for things will become more and more diverse.”
“Just ask Alexa and the voice-activated ecosystem that she is powering. Or Facebook or Amazon or Google who are bringing more and more apps into their ecosystems that can go anywhere any device or endpoint will take them. And payments apps like PayPal that are becoming the enabling payments and financial services rails for apps and ecosystems worldwide. Apple, now wouldn’t be a bad time to show us that ‘one more thing.’”
IPhone 8 anyone?
The Chatbots Are Coming! The Chatbots Are Coming!
Whether you’re ready or not (and whether they’re ready or not … I’m looking at you, Poncho the weathercat), chatbots will be a defining feature of 2017.
Webster wrote: “Facebook — through Messenger — is going all in on chatbots as a tool to engage consumers and give businesses new tools to reach them. Its chatbot platform, they hope, will spawn an ecosystem of developers who will find a variety of use cases to make bots a better (and more lucrative) use of their time than developing apps for the Apple and Android ecosystem.”
“Hey, brand, want a better way to engage with your customer? Find a developer and let them grab Messenger’s bot API. Then you, too, can have a presence in an ecosystem with a built-in audience of 900 million monthly users.”
“Chatbots will leverage advances in artificial intelligence to make the human-to-machine interactions inside of that ecosystem both conversational and natural. And [Messenger’s] big bet is that its chatbots will provide a mechanism for brands to strike up those conversations with their community faster, cheaper and as well as — if not better than — a live person can do now.”
“Chatbots are very much in beta today — and still somewhat very rudimentary in their interactions, as Microsoft can attest. Microsoft, too, is doubling down on chatbots, and its CEO believes that they will soon displace apps as the enabling platform for organizing and accessing information. But as their first public foray into that world with Tay shows, there’s a lot for these chatbots to learn — or, in Tay’s case, unlearn.”
Will 2017 be the year that chatbots go back to school and teach us a thing or two?
As it becomes easier than ever in 2017 for developers to create platform business models, Webster warns that many startups hoping to be the “Uber of X” will end up becoming the Uber of Nothing in 2017.
“Devising the platform business model that underpins the successful deployment of an Uber, a PayPal and a Venmo-esque business looks way, way easier and takes way, way longer to accomplish than innovators think,” wrote Webster. “In other words, invoking those brand names is probably the first and last easy thing that those platform wannabes will ever do.”
“Technology, cloud computing, the diffusion of mobile devices, the many location-based technologies that mobile enables and an ever-growing supply of APIs and SDKs all make it incredibly tempting and even easy to start a ‘platform’ business.”
“The tools available to innovators today make platforms easier than ever to create. There are lots of places where developers can even get a ready-made template. One enterprising entrepreneur launched a do-it-yourself Uber for X toolkit for $400. Now, 48 hours and $400 later, you too can be the proud owner of a platform ready to launch your very own ‘Uber of X!’ But all the $400 toolkits in the world can’t magically get all of those Uber of Xs to ignite and scale.”
“There are four things that all successful platforms share. One: They make it incredibly easy for different groups of customers to get together and do business. Two: Platforms have to operate at scale. Three: Platforms need a business model that can make money. Four: A platform’s work is never done.”
“A lot of entrepreneurs are more likely to be the Uber of Nothing and burn up a lot of VC cash, because they think platforms solve all problems and ignore just how hard being a platform is. If I only had $1 million for every payments platform that has gone up in smoke in the last 10 years, I’d be writing this, or maybe not, from my very own island in the Caribbean.”
Happy 2017, everyone!