The Innovation Project 2013: Igniting Payments Innovation

Visa, Chase Deal Personifies Payments Platform Trend Social Media Sentiments: Who Really Drives (Or Deters) Mobile Payments?

The Innovation Project™ 2013 was an amazing experience from beginning to end. We set out to facilitate a series of C-level-to-C-level conversations about payments and commerce that went beyond the usual conference patter to the essence of the struggles and opportunities that executives deal with every day as they are trying to (excuse the terrible cliché) change the tires on a racecar moving 150 miles an hour.

There’s a lot to share but here are a few of my key takeaways. Each will be addressed in more detail over the coming weeks.

The Big Picture

There were many interesting conversations teed up at the start by both Warren Buffettt and Al Gore. Buffettt’s advice was as simple as it was profound – don’t assume you know what the consumer will want. He cited Geico Auto Insurance, one of his portfolio companies, as an example, saying that he and many people like him would rather do anything than fill out forms on line, but it turns out that there are tons of people who would prefer that to calling an 800 number (their first version of the product). He emphasized that making it easy for consumers (like Amazon has done with its massive online marketplace and payment options) is also how you add value. That’s why, in my view, a lot of mobile payments still flounders – it isn’t easy, it doesn’t add value and while en/intrepreneurs think they do, they don’t really know what the consumer wants from a retail payments experience or how to make it better from the great experience consumers have now.

Gore proved to be a knowledgeable student of payments. I was struck by his command of its nuances, like rightfully crediting M-Pesa’s ignition to regulatory exceptions (like not having to deal with bank regs), to take one example.  Several provocative things came out of the discussion led by (but not necessarily endorsed by!) Gary Flood from MasterCard.

One is the general sense that “smaller” (aka regional) payments networks might be more plausible than global ones – at least until they get traction and can then leverage their way into larger systems. I found this interesting, not only because of its application to developing economies and the potential need to get smaller M-Pesa-eque schemes launched that can become interoperable but because of what we are seeing in the developed economies too. For instance, Chase Merchant Services (CMS) has the makings of becoming a “regional “ (aka U.S.) three party system with the utility of Visa acceptance worldwide.  So could Visa Europe with the news last week of its potential to exercise its sell option to Visa International and then have its banks go start their own system in competition. Certainly, that is the ambition of MCX if that ever sees the light of day, and whatever might come of ClearExchange and some of the other stealthy schemes that are simmering beneath the surface. It’s also the core of Western Union’s Global Share Platform announcements – big global platform powering niche use cases in specific countries that also have the tandem benefit of acceptance globally given the platform assets that power it.

The second point of interest was the discussion around the future of  bricks and mortar retail. There was a hearty debate about that, with the consensus that bricks and mortar retail will undergo a huge transition away from what we know today to something very different but won’t disappear entirely. The rationale is that shopping satisfies a lot of other things than just buying stuff – it is also a highly social activity. For that reason, the need and desire to “go shopping” will always remain but just how consumers will adjust that activity given the mobile devices they take with them remains to be seen. Surprisingly though, there were several very smart people who thought, actually, that traditional retail is going to die very quickly.  And if you look at the shuttered Borders stores maybe they aren’t entirely smoking something.

There was a hearty discussion about the power of “the global mind” to bring financial inclusion and empowerment to the billions of consumers who need and want it. With that opportunity comes great responsibility – a responsibility that isn’t just up to the innovators to address. Regulation has to play a role in making it easier for innovators to serve those consumers and to build business models that allow them to monetize those investments without disadvantaging the consumers that must be served.

The 411 on Consumers and Commerce

There were many interesting discussions over the two days about how to get inside the hearts and minds of the consumer. A couple of interesting hypotheses surfaced including the fact that the consumer doesn’t really care about innovators and their innovations – they just want stuff to work and they don’t always know what they need until they see it.  To the earlier point made by Buffett, it’s why so much “innovation” in payments has fallen flat and why the iPhone is such a screaming success.

That’s why it is essential for innovators to know where to look. For example, who knew that 75 percent of mobile device owners admit to using their tablets while on the toilet? That stat, compliments of PayPal’s Don Kingsborough gave the audience a whole new meaning to the term T-commerce (ba bum bum) and a whole new data point to the notion that the offline world truly does follow us wherever we go today, expanding the more “conventional” time frames associated with accessing the internet. Now, this factoid may not expand how much people actually spend while they are in their virtual worlds (since what they have to spend probably remains fairly constant) but certainly can and will influence how and with whom they spend it.

And speaking of how and with whom, there was considerable discussion over the two days about the role of cash in a world that is trying to kill it off. Data shows that cash in circulation, not necessarily the right way to measure cash usage, is on the rise. In fact, there was, in 2012, $1.2 Trillion of it swirling around the US. And, thanks to a bunch of innovators, it is getting easier and easier or merchants and consumers to access and use. Cash can be used to conveniently pay bills electronically the same day they are due, shop on line and pay in store, store conveniently in secure safes if you’re a small merchant and accept cash and access via ATMs just about everywhere. If anything, innovation is making cash as easy for consumers to use and merchants to accept than just about every other electronic payment method. And, we all know, as long as merchants like it and consumers want to use it, cash will stick around as a method of consumer payments.

The topic of adverse customer selection was also discussed. This is a fancy way of describing the commerce road-kill that retailers are dealing with thanks to deal sites that have bred a whole new generation of deal seeker rather than merchant/brand loyalist. Consumers and their follow the deal mentality has now persisted well beyond what was once thought of as a “temporary” reaction brought upon by the financial crisis. This big takeaway is that retailers must get and use data and the tools to mine that data so that they can identify and target profitable customers – and innovators can help them find and keep them (and keep existing customers in the tent.)

This discussion motivated another important point – the need for offline retailers to leverage the appropriate online methods to do one very basic thing – to know who the customer is who walks in the door – or out, in the case of the many emerging self-payment options that basically enable consumers to move in and out of stores fairly anonymously. Caution is the watchword here since the very tools that enable such transformative experiences for consumers around shopping and buying also has the potential, if we’re  not careful, to completely disconnect that consumer from the merchant and the meaningful interactions that can only come when there is engagement.

What Can Startups offer Merchants?

Well, if you are a really small innovator and a really large merchant, probably not much. At least that is what a few large merchants said anyway. Instead, the best course of action for startups is to start with smaller merchants who are eager to get an edge (or to have parity) with the big guys, gain experience and then work your way up into a well-defined pilot with a large merchant that can be measured.

Over lunch and a rapid-fire discussion between merchants and innovators, one cold hard truth surfaced:  the big guys probably won’t be all  that keen to be your testing ground even if you are cool and innovative unless you are pretty far along. And, if you get up the gumption to call on them, at least visit their web site first so that you can talk intelligently about what they do. It is stunning to hear that the cardinal rule of walking into a meeting knowing more about the prospect than they do is broken routinely by startups!

One final point: Sometimes what startups offer merchants are new business models. Those new business models sometimes tie monetization schemes to incremental customers. That works so long as there are incremental customers OR there is a way to discriminate against those who aren’t loyal customers who drive more incremental spend. We didn’t have time to get into the discussion of what happens when new business models become the new standard, and are then commoditized and incremental spend/customers harder to prove. I have some thoughts, which I will share very soon.

Simmons the [Payments Innovation] Sage

In The Innovation Project’s Shark Tank meets Top Chef, 11 entrepreneurs each had eight minutes to engage with Russell Simmons, Founder of Uni-Rush and Rob Rosenblatt, RushCard CEO.  It was a really interesting peek inside the ultimate entrepreneur – Russell Simmons – perspective on startup success. Here’s what I took away from this session based on how the innovators were rated.

    • Believe in your idea. This is important because for a very long time, until it is successful, as the innovator, you’ll be the only one. People only think you’re genius when success is evident. It may be lonely at the top but it is also really, really lonely and frustrating on the way there.


  • Be clear. If you can’t use plain English to explain what you are doing, then either (a) work thru it until you can or (b) give it up since you will only be prolonging the inevitable train wreck of failure.



  • Timing is important. There were several innovations that Simmons thought were promising, but feared would be squashed or rendered irrelevant unless they were far enough along to have traction. The fear was that bigger players with bigger checkbooks and teams could easily see replicate it and do it faster.



  • Scale is critical. Technology can enable lots of things but competitive advantage requires that innovators deliver more than what might be regarded as a marginal improvement to what exists today and to do it in a way that can scale. If the problem is too small or solution too complex to scale, you’re DOA.



  • Can you make money? I know, seems obvious. But unless the business model is bullet proof, give it up. Now  Simmons doesn’t believe that you have to make money on day one, but you do have to have a clear path to revenue that can be seen by everyone, including the innovator on day one.



And the winner? CSI and its globalVCard. Why? It solved a real problem for lots of use cases that were big enough to scale and be profitable.

Igniting Payments Innovation

There were two related and fascinating roundtable discussions about what it takes to get innovation off the ground – whether you’re a startup or a big company that wants to act like one. A couple of themes emerged.

First, perfection is the enemy of the good, at least that is how I interpret Eric Ries and his Minimum Viable Product principles. MVPs are good enough to be credible, not perfect, in the market so that you can learn from the experience. Ries poo-poos multi-year product development cycles and instead challenges teams to look for clever ways to leverage existing things so that they can get into the market quickly. As for the fear of client complaints? Embrace it. The best thing that a startup can  get is feedback from customers, even if it is rabid complaints since it means that (a) products are getting into the hands of the right people and (b) they care enough to complain. Alas, this though is relatively rare – most of the time, products are launched and all that can be heard is crickets.

Speaking of enemies, it seems that often the real enemy isn’t the competition – if you are large or small – it is one of two other things. First, it is the company itself. (Ries went so far as to tell “large company” people to look in the mirror and that the person looking back is the problem standing in the way of innovation!). Companies, by and large, understand this, and are doing a number of things to try to make things better including hiving off separate teams and business units that are unencumbered by corporate rules, metrics, reporting, etc. Perhaps the most interesting set of insights came from the President of Korea Telecom who was pretty candid in his assessment of KT’s impact on innovation and innovation  – unless it is directly related to its core business, having KT supervise or try to do innovation itself is a death warrant. That’s why KT’s approach to innovation is to seed innovators outside of the KT mother ship and to invest in them until they are large and stable enough to survive when brought inside of KT. Until then, it is strictly corporate hands off!  The toughest part, he says, is making sure that they still feel like a startup, since “desperation” is the best motivator even though KT is paying the bills.

The  second enemy is regulation. There was a very lively lunchtime discussion about regulation and both the spur to innovation that it is (e.g. lots of new players with new schemes pop up to fill the void) and weight it has become (e.g. forcing old rules on new situations). It also surfaced during several of the roundtables and cited as one of the reasons that innovation in some areas has stalled. Everyone agrees that state-by-state regulation of money transmitters is a big problem and most seem to agree that banking regulation is a sure-fire killer of mobile payments schemes.

Meet the Innovators

The capstone of The Innovation Project 2013 was the PYMNTS Innovator Awards Dinner where 47 awards for innovation were distributed. Sixteen categories, including the NACHA Award for Best Innovation via ACH produced bronze, silver, and gold winners. About 75 percent of the categories were decided by a margin of 100 or fewer votes, in spite of each finalist having received several thousand votes. One category was decided by a single vote with votes for the top two finalists topping 4k each. The biggest takeaway for me that evening was the fact that not a single incumbent placed as a finalist much less won an award, even in the categories where one might expect that to happen – Best Debit, Best Credit, and Best Check. If you wanted more evidence that traditional banks have a problem this was it: not only were they not innovating, but the winners had innovations that were designed to steal customers from the banks.

Maybe perfection has become the enemy of the good in the large incumbents or regulation has kept new ideas in check.  But if an alien spaceship landed in Annenberg Hall at Harvard on Thursday, March 21, 2013, they would conclude that the future of payments and commerce is being blazed by innovators who (admittedly) are standing on the shoulders of those incumbent giants and even riding their rails in some cases but who are completely in charge of reinventing what happens when consumers and merchants meet at the point of sale – where ever that happens to be.

The Best Off-Color Remarks of The Innovation Project

Third prize goes to Russell Simmons and the many two-second delay buttons we might have used had we had them at our disposal during the Ultimate Entrepreneur’s Challenge.

Don Kingsborough gets second prize with his toilet stat and the inevitable discussion that kicked off as to what the other 25 percent were doing or whether they were just lying.

The grand prize goes to Vice President Gore who observed that mobile transmitters were being inserted into cows to alert farmers when they were going into heat and how that was the first known example of interspecies sexting. Don’t forget that before the Nobel Peace Prize, the sale of Current TV, the Apple Board….there was the VP’s appearance on Saturday Night Live. :)