Commentary

You Heard It Here First: Best Of 2018’s Monday Conversations

PYMNTS Monday Conversations

There has been a lot of concern in recent years that conversation, as an art form, is dying. The BBC has written a think piece or two on it — as have the Guardian, the Citizen, the Huffington Post and MSNBC. What exactly is killing conversation depends on the writer of the think piece — and what year it was written. Text messaging, social media, Pinterest and memes have all been offered up as avatars of destruction — and the general consensus seems to be that the death of conversation is a direct result of the digital age and probably has something to do with millennials.

We’re here to tell you that these concerns are at best overblown and at worst complete nonsense. The art of conversation is far from dead. And we’re definitely sure it is very unfair to accuse digitization of killing conversation entirely, especially when it has given us so many interesting new things to talk about.

And talk about them we have — every Monday for the last year we’ve been joined by a range of payments and commerce luminaries for conversations that dig deep into tough topics.

Sometimes we hear surprising things, other times we are outright shocked — but we’re never bored because the Monday Conversation is an opportunity to test-drive ideas that don’t often get nearly enough conversational exploration. It’s also a good place to learn the off lesson or two.

Lessons like …

#1: Anything can be done — one step at a time. Nothing gets done all at once.

“When most players go wrong trying to build to scale, it isn’t that they get their five-year plan wrong. It’s that they try to do everything at once and at the same time, and not in a sequence they’ve set about, because it’s hard to do that. It will involve making trade-offs.”

Tide is a mobile-first digital banking service for small and medium-size businesses (SMBs) in the U.K. that offers both banking products and an easy connect point for third-party partners to tightly integrate and distribute administrative or financial services products to Tide members. The platform specializes in micro businesses with one to nine people, and works with firms at all stages of business development, including the ultra-new, just-putting-out-the-shingle sole proprietorships.

The firm’s focus right now is building out scale, both in the scope and depth of the financial services products it offers to SMB clients. That, he noted, will be a very paced process — since the mistake startups often make in attempting to scale up is biting off more than they can chew operationally.

The smart play, he said, is controlled expansion, even if it feels like slower growth.

“You have to put the resources and the focus behind [to] determine the sequence of your offering, and then always [stick] to delivering the next item on the agenda,” Prill explained. “That’s 50 percent of the secret to success in scaling a platform.”

#2: Omnichannel dining requires a full reset of restaurant infrastructure — not a few tweaks.

“The idea of being a truly omnichannel restaurant even five or 10 years ago was still a confusing idea in food and beverage. The reaction was mostly in the family [of] ‘I’m not going to ship my food. This is more of a thing for, like, Target.’ It was hard to put their arms around. Now, it is much more of a question of how are they going to do this, not whether or not they are going to [do this].”

While everyone in the restaurant industry understands that “going digital” needs to be on every establishment’s roadmap, there is no clear consensus on exactly what that should look like. Which, Lloyd noted in his conversation with PYMNTS, isn’t much of a problem, since there is no one right path to omnichannel; there are many paths that make sense (or not) depending on on size.

Starbucks can spend hundreds of millions of dollars and nearly a decade perfecting its digital platform — but your local coffee shop probably can’t. Going  digital might be necessary, he noted, but it won’t be easy or a fast process.

But whatever path is chosen, Lloyd says that the evolution of dining toward omnichannel means that it is time to say goodbye to legacy POS systems that make it incredibly difficult for restaurants to integrate with third-party apps that make those experiences — and data gathering — possible and run efficiently. The real challenge in making the omnichannel leap is the ball and chain of legacy technology holding the industry back. Until it, and all the infrastructure that supports it, is gone, omnichannel dining won’t be quite ready for prime time.

“This isn’t about just switching out some older POS systems for something new,” Lloyd said. “This is about rebuilding the infrastructure and ‘piping’ that undergirds these systems so that they function differently than they do today.”

#3: The future of driving is Automobiles-as-a-Service, not car ownership.

“Right now, we have a system where people take on a whole bunch of debt to finance an asset with depreciating value. That’s obviously just not a very good financial plan — and one we think we can improve on.”

Modern digital consumers don’t tend to like being sucked into long-term commitment in anything they do — but when it comes to purchasing a car most don’t have a choice. The vast majority of customers buy their car via a long-term loan or lease.

A loan has to be paid off in full or else there are serious consequences for the consumer. Leases can be turned in early, but there are generally fairly stiff penalty payments for premature termination.

Fair wants to change that story, by taking ownership out of the equation. Instead the startup buys the vehicle and enters into an agreement in which the driver will pay for that car on a month-to-month basis. That payment bundles all the costs of car ownership, including insurance, maintenance and repair and wear and tear (both normal and excess). Along with that one monthly payment, there is a non-refundable “start payment,” which, Painter said, is the equivalent of the first and last month’s payment.

The cars are all pre-owned, and Fair itself carries no inventory beyond what it has under contract with drivers. The supply is managed through a network of local dealers, and when a car has lived out its useful life, it is liquidated. When consumers are finished with the cars they return them to Fair. On average, Painter noted, customers tends to keep their Fair cars for 12 to 18 months.

And, because Fair does not underwrite loans, but instead operates a subscription car rental service, it does not check a consumer’s credit.

“If you are a customer who goes to a rental counter, you just get a rental car. You don’t pay more because you have bad credit. It doesn’t matter to the rental company — and we take a similar view. Taking people who are just starting out and have little credit, or who have had had a spotty payment history in the past, or who are on the edge, and then saddling them with expensive sub-prime debt to purchase a depreciating asset is not a good or a smart experience.”

#4: The best AI is a naive AI.

“We already have a bias for thinking ‘the computer told me to do it, so I did.’ But the computer is only as smart as what it was fed upfront. We always need to be able to talk about the data that was actually coming in.”

The term “artificial intelligence” (AI) has become so often used in 2018 that it has become something of a buzzword — and the catchall solution named for every problem from cybersecurity to more frictionless checkout. And while the enthusiasm is good, according to Bresniker, the usage is sloppy and tends to obscure the fact that 1) there are many different types of AI, and the one to which we are specifically referring matters; and 2) AI is all math, and its outputs are only as good as the data sources it draws from and the programmers that set its rules.

The future of AI, he said, are algorithms that can essentially program themselves. The moving-forward future of AI is to give it what Bresniker called “naive learning techniques,” where the AI is wandering unsupervised over the large data set, looking for correlations. The goal is to use naive AI, partnered with human researchers, business leaders, operations managers and a host of others, to create “Ah-Ha!” moments when participants are looking at their own data sets and seeing the things they know, but perhaps don’t know that they know.

The AI future to look forward to, according to Bresniker,  is one where smart computers can find data insight “hiding in plain sight.”

“When you do those new things, what does that open up? What new information can be admitted? How many conclusions are out there in all of the past accumulate set[s] of data? How many keys to health and human understanding, and human wisdom, are out there (and the experiment has been already done), but we’ve never put the right facts together at the same time in the right sequence?”

#5. Being a PayFac is much, much harder than it looks.

“ISOs are basically in the business of selling merchant accounts to merchants. And the problem is, merchants aren’t buying merchant accounts anymore — they are buying solutions.”

For  ISOs, ISVs and platform businesses it has become almost trendy to become a payment facilitator, or PayFac. It solves for the difficulty of changing merchant preferences — and offers benefits like easier merchant onboarding, better control of the experience, a new payments revenue stream and greater internal control.

For ISOs, he noted that the comparison between their current flagging model and the PayFac model is pretty stark — and for some, the PayFac model is obviously the better choice for staying relevant.

And for larger ISO that have become “quasi-acquirers themselves” that choice makes sense. But for the bulk of what Aberman called “feet-on-the-street retail ISOs,” the move to PayFac doesn’t make as much sense — as the benefits are quickly outweighed by the costs of  monetary expense, risk management, compliance, funding, infrastructure development and technological integrations.

The future of these firms, he said, isn’t becoming a PayFac, but becoming more of a merchant solutions consultant. These retail ISOs, Aberman noted, are well suited to serve that role, because they already know quite a bit about their customers and the niches they serve.

The situation for ISVs and platforms, he pointed out, is a bit more varied — becoming a PayFac is often a matter of completing their offerings to their customers. Not to have payments as a piece of the solution they are offering can hurt the value proportion to the business. Moreover, he noted, these firms have a vested interest in both controlling the end-to-end-payment experience — so they can improve it or tailor it to their user needs — and making money on it.

For all of its advantages, however, that path becomes very, very expensive to build on their own, he added — and it increases risk for the acquirer, who now has to trust the master merchant. Aberman’s position now, as it was before the Chase acquisition, is that most ISVs and platforms would be best served by not being a PayFac process, but instead taking advantage of the PayFac-in-a-box solution (like the type WePay offers, for example).

“What we hear is that knowing we can serve as an on-ramp to becoming a PayFac is more important than becoming one today. We hear a lot of ‘that’s great, but no need to rush into that right now,’” Aberman said.

So, what did we learn in a year of Monday conversations?

Things are rarely what they seem; there are almost no silver bullet solutions to any problem; most ideas, even good ones, are works in progress; don’t believe the hype — there are all kinds of lessons you could take from this year’s conversations.

But the most important one is that change is coming, from a lot of different directions, meaning there will be no shortage of conversations for next year.

See you on Mondays — until then, have a Merry Christmas and Happy New Year.

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