I had the chance to be among 160,000 of my closest friends last week when I attended CES and participated in a series of discussions about commerce and payments in the digital age. The day started with a panel on the consumer’s so-called “love affair” with mobile pay via mobile wallets at the point of sale (which I refuted with data that strongly suggests otherwise) and ended with one on the industry’s unequivocal love affair with the blockchain (to which any opinion to the contrary is met with sneers).
As I had a chance to reflect on those discussions, I thought I’d offer my take on what payments and commerce execs might take away from my CES experience — one where the “C” might just as well stand for “change.”
VOICE IS THE NEXT IMPORTANT COMMERCE PLATFORM
Let’s face it. The mobile pay and mobile wallet as form factor at the point of sale has not set the consumer’s heart a flutter. In fact, it may never.
Consumer adoption on mobile pay has been stuck in the mud since about March 2015 — 19 out of every 20 consumers who could use the longest-running mobile pay experiment in the market, Apple Pay, at the physical point of sale (right phone, right merchant) don’t. And it’s hard to see what’s going to change that narrative, especially since there are more places now to use those phones than there were even a year ago. One would expect that, by now, and even in the face of the dreaded EMV dip, that consumers would take the bait. They haven’t, and there’s a dearth of things in the market today that might get them to shake their old plastic card (or cash) habits.
And, as you’ve heard me say many times before, the longer that it takes for consumers to make that change, the more likely it is that a mobile payment solution that solves a real problem will emerge to take its place. Today, that seems to be mobile order-ahead use cases that now have one out of every three of Starbucks’ mobile users hooked and traditional retailers grateful for the opportunity to have it drive precious feet into their physical storefronts. In addition to solving a pain point for the consumer — no lines — it solves a pain point for the merchant — incremental sales. It’s been widely proven that consumers who use mobile order ahead spend more.
Tomorrow, that solution will be voice-activated ecosystems — something that was a big theme of the CES show — and commerce via those ecosystems. And tomorrow will be here before we know it. It’s also something that could potentially be the mobile pay Black Swan.
Last year, I wrote about the power of Amazon’s Alexa and its potential to transform how consumers use voice to initiate commerce. At the time, Alexa had a couple hundred skills, was tethered to the Echo speaker and was very linear in her interactions with consumers. A year and an open SDK later, she now has 7,000 skills, can contextualize requests and is embedded inside of cars, appliances, robots and, soon, on Huawei’s Android smartphone as an app. Alexa has gone from telling corny jokes and building shopping lists to becoming the foundation of whole new skills-based use cases and skills-based ecosystems — like ordering pizza from Domino’s, a ride from Uber, flowers from 1-800-Flowers and food to go via Amazon Restaurants.
All connected, of course, to Amazon’s payment system.
For a skill to be enabled that includes commerce, a person is asked to link it to their Amazon account. Easy peasy. And terrifying — if you’re anyone but Amazon Payments. As issuer brands become as invisible as it gets, mobile wallets become highly vulnerable to disintermediation, and mobile ecosystems run the risk of being subordinate to the other player whose name begins with “A” — Amazon.
Unsurprisingly, Google with Allo, Microsoft with Cortana, Samsung with Bixby and Apple with Siri, have all jumped into the voice-activated commerce ring, with their own variations on the theme and their own “secret sauces” designed to get consumers engaged and on board. But they, including Apple, are all playing catch up to an ecosystem that has been successful at getting developers on board at a rapid clip since consumers have decided to make Alexa their new virtual BFF with payments credentials that eliminates that very complicated barrier to entry.
Most interesting to me, though, is the extent to which Alexa has also done something that most mobile wallets — Apple, Android and Samsung Pay — have failed to do: get consumers — all types of consumers — excited about using it and, therefore, drive the sale of the devices that enable Alexa’s skills.
I was getting my hair cut just before the holidays, and in the course of idle chit-chat with the woman shampooing my hair, I asked her what she was hoping to find under her Christmas tree. “Alexa,” she said, without hesitating — which prompted just about everyone else around me to chime in, unprompted, with a “yes, me too!” What Amazon has done — and what its competitors hope to do as well — is get consumers comfortable with this new platform by doing a number of basic things asked of them by a brand that they know and trust — asking about the weather, answering trivia questions, playing music. Then, leveraging those interests into banking-, commerce- and payments-based skills that address an obvious friction — checking bank balances, paying bills, ordering food and buying things online.
BANKERS TURN THE TABLES ON FINTECHS
They almost have no choice, when it comes right down to it. Regulators have cast a pox over their houses just about everywhere in the world. What budget line items aren’t going to support the infrastructure that assures their safety and soundness on behalf of their customers, goes toward dotting the “i’s” and crossing the “t’s” of the growing compliance checklists that regulators hand to them. And even if banks might like to think about blowing it all up and starting from scratch — as someone at the conference advocated that they do by channeling their inner Elon Musk’s First Principles — they can’t. Banks operate in a highly interdependent ecosystem where their actions and interactions have important ramifications outside of their own four walls.
Yet, panel after panel ragged on traditional banks and their traditional way of thinking and operating. “Bank infrastructure is no good, and only the blockchain can save it.” “Bank branches are no good, and digital-only banks will eat their lunch.” “Bank products are too expensive, and new banks with new products will make them irrelevant.” “Bank lending models are no good, and alternative lenders will save the day at their expense.”
Ignoring, of course, how few of these alternative models have scaled and how most of them rely on access to bank assets to scale — not to mention just get off the ground in the first place.
That’s not to say that banks shouldn’t find ways to innovate — just as they have done over the years. Online and mobile banking, along with mobile remote deposit capture, are all innovations that were launched, and made massively popular, by banks often relying on technology innovations by others. As banks move forward in 2017 and define the bank of the future, they’ll continue to pursue collaboration with FinTechs where there is a mutual exchange of value — and problem to be solved for their end users. At the same time, they’ll double down on innovations and investments in “RegTech” as a way to sharpen, shore up and monetize their risk management and authentication expertise.
But the folks who claim banks aren’t innovative really need to take a hubris pill. When it comes to mobile phones, it’s the bank app that folks are often opening and not one of the gazillion apps that sound great but haven’t scaled.
COOL APPS NEED TO BE MORE THAN COOL
There was a fair amount of discussion over the course of the day about the next big consumer crisis — the inability for baby boomers to retire with financial security, for Gen X and millennials to save and for most consumers to come up with a paltry $400 in the case of an emergency.
I wrote a piece before the holidays in which I suggested that the Coming FinTech Crisis would have vast implications to the payments and commerce ecosystems since consumers that don’t have money can’t spend that money, save to buy a house or a car or even access credit in the traditional sense. A groundbreaking piece of research out of Stanford suggests that 50 percent of millennials from middle-income families will never make more than their parents, and for lower middle-income families, those statistics look dramatically worse.
There are, of course, a plethora of tools that innovators have put into the market to help all consumers address these financial shortcomings. We have robo-advisors that can create a budget. We have online platforms that create investment plans based on retirement (or other) goals. We have savings platforms that use “round-up” programs to help consumers to save. We have transactional credit programs that help consumers establish credit one purchase at a time. And while some of these programs are getting a little traction, all but a very tiny handful have gotten critical mass, while most struggle with how to monetize them as standalone apps. All of which suggests that building it is just not enough to make them come.
What’s needed, in addition to cool tools, is educating consumers on why they they’re needed and then giving them an incentive to get them into the habit of using them. Who’s best positioned to partner with innovators to do that is an interesting question, and where collaborations between banks and employers and even retailers will likely emerge to fill the void.
THE BLOCKHAIN HAS REPLACED THE BITCOIN AS THE “IT” GIRL OF FINTECH
If I had a dollar for every time the blockchain and bitcoin were mentioned over the course of the day, my closet would have a few new pairs of Louboutins in them — and as you know, they aren’t cheap.
What’s crystal clear is that the blockchain contingent is dead serious about their mission to replace every bit of existing infrastructure that powers payments, commerce and financial services with a distributed ledger — globally. The blockchain is positioned as no less than the silver bullet to all that ails our global financial systems. Every Fortune 100 company, we were told, has a blockchain project on the table — and those that don’t are rushing to get one in play. It was asserted that the blockchain and bitcoin ecosystems will unleash trillions of dollars in innovation over the next several years. And once we get the central bankers on board, you know, we’ll be well on our way.
I’m telling you, sliced bread wasn’t even this great back before carbs got a bad name.
But at this point, who’s really to know? It’s very early days, and while there are plenty of experiments, the blockchain is still very much a science experiment. The notion of moving trillions around the world on public blockchains running over bitcoin rails has now shifted to private blockchains and other digital currencies. And while the notion of distributed ledger software that enables instant clearing and settlement worldwide is certainly appealing — who would be against that? — the reality of making that happen runs right up against the practicalities of creating a new set of trusted, regulated and secure global rails. Ambitious is an understatement.
Then, there’s bitcoin.
Someone at the conference referred to Bitcoin 1.0 as the currency of drugs, intimating that Bitcoin 2.0 has moved well past that reputation. And it has. Bitcoin 2.0 has graduated to become the currency of cybercrime and ransomware, making its prospects as a global currency absolute fantasy. Bitcoin’s biggest use case at the moment, in addition to the two that I already mentioned, is as a way to avert the capital controls in China and move money into other countries. Bitcoin’s death knell will come in the form of the Chinese government cracking down on the miners since they cannot be too happy with vast amounts of capital disappearing that way — and 80 percent of the mining activities take place there.
Hey, they shut down the New York Times app and made Apple remove it from the App Store.
THE GRASS ISN’T ALWAYS GREENER
And, if I had a dollar for every time I heard that if only the U.S. was as advanced as China with regard to digital financial services, I’d have the matching handbags to go along with my new shoes. (Of course, 20 years ago, the experts told us Japan was racing ahead of the U.S. and would soon rule the world.)
There’s no question about it — China with Alipay, Ant Financial and WeChat are incredibly innovative. WeChat’s digital ecosystem, which enables a variety of commerce use cases, including P2P, inside of its virtual walls where more than 400 million people hang out, is masterful. But its success is the result of solving a big friction for the Chinese consumer — easy access to financial and payments services — by leveraging a well-engrained habit — instant messaging inside a social network where the Chinese consumer spends a lot of time. Embedding and enabling commerce inside of that ecosystem was not only a logical thing to do but was transformative for its users.
But one size does not fit all. Mobile payments were introduced to the U.S. consumer inside of a very well-developed physical payments ecosystem where nearly 100 percent of commerce was conducted in physical stores, stores that consumers could easily access, to make purchases using the cards in their wallets. The big friction for consumers was paying online at sites that most accessed via PCs either at home or at the office — frictions that Amazon and PayPal initially set out to solve in the mid- to late-1990s.
So, moving consumers into “mobile payments” meant asking consumers to break well-engrained habits that worked well for them, “just because” it was new. And, given how well things worked, the something new also had a much higher bar to clear. That’s why mobile payments in-store remain a slog, and cloud-based mobile payments are gaining traction. It’s why commerce inside of traditional social networks hasn’t taken off even a teensy bit, commerce inside of messaging apps is an uphill climb, but mobile payments inside of apps, especially those that bridge the on and offline worlds, and one-click buying via the mobile browser have.
Now, that’s not to say that the world can’t learn something from the innovators who, in every part of the world, are solving problems that exist for those consumers in that part of the world. We should — and we are. Which means that instead of saying X country is better or worse than Y, maybe we should talk about what can we can all learn from X or Y country that can help us solve the problems in those countries that consumers actually have.
IT’S THE EXPERIENCE, STUPID
One of the most interesting conversations of the day was about the age-old retail/consumer conundrum: What makes a consumer loyal and keeps them engaged? The discussion was centered around mobile payments and what might help to spark usage in the physical store environment. Rewards was the overriding consensus — integrate a merchant’s loyalty program into the mobile payments app and you will have a winner. In other words, adapt the Starbucks mobile payments model to every retailer on the planet.
As Samsung reported during my panel on mobile payments, it’s seeing great results by rewarding consumers for the sheer act of using the wallet at any merchant. Samsung Rewards is a program that is intended to get consumers into the habit of using Samsung Pay at any merchant down the road by rewarding them for using it today at all merchants. USA Technologies talked about the power of rewards integration using Apple Pay for unattended retail purposes — building affinity for the products and the vending kiosk by making it worth their while to use that mobile wallet.
But I posited a different question to the group: Does building loyalty always have to be about such a tangible quid pro quo? Do we really have to give people a bribe to make them do what we want? And what happens when the bribe is taken away? Do the customers go away, too? Are we building a house of cards on top of a “Groupon Effect” phenomenon that builds consumer loyalty to a deal or a point instead of the brand?
I asked the panel whether experiences, instead, can build loyalty by asking them whether they thought that Starbucks’ mobile app customers would be just as loyal to the app if the rewards were taken away now that fully one-third of them have migrated to mobile order ahead. Are apps users, I asked, in it for the free coffee or the convenience of not having to stand in line to order it?
They said that experience — the right experience, of course — trumps points. I think they’re right. And an assessment that I think should cause everyone to step back and ask themselves — what experience should I be creating for my customer that will bring them in and keep them engaged? Maybe it is an offer or a reward, but maybe it’s something richer and more meaningful — and something that money can’t buy, so to speak.
At the end of the show, someone asked me for my big takeaway. Here it is: follow a big enough friction. If you do, you’ll have a shot at driving real change and, with enough hard work, see it scale. The connected hairbrush that was launched at CES that tells me how great (or not) my hair is every time I use it doesn’t do anything that a cheap mirror can’t do and has for thousands of years — unless, of course, it tells me every morning that I really am the fairest of them all.