The ancient Minoans were a happy and productive society, which, among other things, was an early pioneer of cross-border commerce and payments.
The civilization that emerged and flourished on the island of Crete from 2000 BC to roughly 1500 BC was defined by artisans, farmers and traders — and a surprising degree of entrepreneurship for a civilization obsessed with Greek gods and fearful of the mythical Minotaur. It leveraged its three most prized assets — its craftspeople, its farmland and its access to the sea — to export its pottery, oil, paper and wine to Western Europe and the Middle East in exchange for things that it wanted or needed back home on its peaceful little island.
Then, one day — and quite literally in an instant — everything changed.
That change came courtesy of a shift in the Earth’s tectonic plates — a shift centuries in the making and unbeknownst to anyone — until it was much too late.
That shift triggered one of the largest volcanic events ever recorded and wiped out the entire Minoan civilization — or pretty close to it — in a single day. Scientists report that the Thera eruption (Thera is now the beautiful resort town Santorini) killed just about everyone and everything on the island. The earthquakes and tsunami triggered by that eruption spread human and physical devastation across its neighboring islands, including Crete.
For anyone needing a geology refresher, the Earth’s tectonic plates are like gigantic puzzle pieces that fit together neatly 500 or so miles underneath the surface of the Earth. They keep all 197 million square miles of the Earth’s surface on a surprisingly even keel — until they don’t.
These puzzle pieces are always moving a little bit — just like puzzle pieces that can be jiggled and still stay connected to keep the puzzle, overall, intact. But when the liquid molten mantle that flows beneath these puzzle pieces forces a more dramatic shift, the puzzle pieces break apart, and volcanos, tsunamis or earthquakes are the result. The level of destruction that ensues depends upon how much pressure has been building — and for how long.
Even though scientists — and now sophisticated monitoring systems — can track what the human eye cannot see, no one — not even those experts — knows when these shifts will happen until they do. Therefore, it’s impossible to predict the severity of the impact of those shifts and extent of the inevitable devastation until it becomes an observable reality.
I couldn’t think of a more relevant metaphor for the tectonic shifts that have influenced the direction of the payments, commerce and retail ecosystems over the last several years.
Like the giant puzzle pieces that keep the Earth’s surface in equilibrium, the ecosystems that represent how consumers pay, how they bank, how they borrow, how they shop and how they decide when, where and what to buy used to be easily defined and neatly connected. Little shifts here and there over the last five or six decades or so have caused those pieces to jostle and jiggle a little — but, by and large, remain intact.
But mobile and other connected devices, the cloud, software platforms, new technologies, data, near-ubiquitous wireless internet and the imaginations of innovators have changed all of that.
And, like the mantle that flows underneath the Earth’s tectonic plates, these fluid and dynamic forces are now testing the strength of the connections between the puzzle pieces that were once so neatly aligned. The more that pressure builds between those connections, the weaker those connections become and the greater the risk that an unforeseen eruption will reset how those puzzle pieces connect to each other, which might never be part of the puzzle again and which puzzle pieces must be reshaped to remain part of the big picture.
Most everyone operating today as part of these ecosystems understands this, too, and feels the pressure points and the tensions building. Each recognizes that shifts are inevitable, and each are actively engaged in strategies to blunt the impact of the inevitable eruptions that are in the offing.
Others are forcing those shifts, systemically and strategically applying pressure to the weaker links in the hopes of being the last man standing in the ashes of an entirely new payments and commerce ecosystem.
There are eight such shifts now happening quietly and forcefully beneath the surface of what we define as payments, commerce and retail today. What’s been fascinating to observe this year is not only the extent to which these shifts are putting pressure on a discrete aspect of the ecosystem but how they are reshaping those ecosystems right before our very eyes.
The Unbundling Of The Bank
Banking used to be about banks, of the brick-and-mortar variety, and a variety of banking services all provided by those banks. The competition was the bank branch near home or the office. Banks differentiated themselves through the bank bundle — minimum balances (if any), interest rates on deposits and savings, fees (if any) and the smiley (or not) faces at the branches — and a bunch products included or available as add-ons.
Today, and to the billions of consumers around the world, their bank is in their hand. The driver of this shift is the mobile device and the competition is the mobile app with the best user experience regardless of whose name is on the app and the depth and breadth of products they offer. Bankers are grappling to take their place next to digital only banks unencumbered by legacy infrastructure and who present a discrete set of services to specific segments of consumers at more favorable economics. The generation of cord cutters who shun content bundles from their cable operators, want their financial services delivered the very same way.
They’re doing that at the same time regulators seem to be working overtime to put traditional banks at a competitive disadvantage.
This shift is forcing traditional banks to not just amp up their mobile and digital game and rethink what it means to be a bank, who consumers now trust to deliver their banking services and what services they want and need from those providers. That will no doubt include a reexamination of how to leverage their assets and reputations as trusted guardians of their financial assets at the same time they harness new technologies and partner with innovators to bring banking into a mobile, digital age.
The Commoditization Of Retail
In 1995, retail’s biggest competitor was the store next door, or across the street or at the other end of the shopping mall. The biggest threat that had emerged was Walmart — which made it hard for the small mom-and-pops to compete when it came into any town, first in the U.S. and later in many other countries around the world.
Now, retail — like banking — is being challenged by a new competitor: that small mom-and-pop online bookseller that, 20 years later, has become the world’s most valuable retailer (as measured by market cap). Unlike banking and its many digital challengers, Amazon has achieved scale over that period of time and, in the process, has shifted how retail is done. Amazon didn’t just ride the online wave; it created it and inspired a whole generation of online sellers to do the same. It — and the innovators that emerged since — have changed how consumers shop and use physical stores in profound ways.
For instance, consumers no longer have to visit stores to discover things to buy — the web is their storefront. The stuff that people used to trek to the store each week and dutifully buy, like laundry detergent, paper towels, cleaning supplies, light bulbs, shampoo and pet food, are all a click and two days from being delivered to the front door. Things that consumers may visit a store to try and buy once are now refilled online — and often on Amazon.
That’s forcing retailers of all stripes to figure out ways to get those feet back inside those stores – or at a minimum, those fingers tapping “buy” on their sites. Retailers are being challenged daily to rethink what it means to be a retailer and how consumers now decide where to start and end their shopping journey – and why. When their mobile-toting customers have access to near-perfect information about any product they may want to buy, and where they can get it the cheapest, technology can be retail’s enabler but can’t be counted on solely to be their savior. Navigating the shift from physical to digital retail will mean taking a good hard look at the experience that consumers want and increasingly expect from their favorite brands, and then deciding how technology can make that experience a personalized and value-added and secure reality
The Democratization Of Credit
At a time when Americans have racked up nearly $1 trillion in outstanding debt, it’s hard to remember a time when credit wasn’t widely available. In the “old days” of the early to mid-1900s, credit was doled out by shopkeepers who extended small amounts of credit to their best customers and the bespectacled local banker who extended equally small amounts of credit to people who mostly didn’t need to borrow the money.
The general purpose credit card, which became increasingly widely held after the start of Mastercard and Visa 50 years ago, changed all of that. Just about any consumer who wanted credit could get it and use it to buy the things they wanted and needed at any store that accepted the card.
It’s a model that innovators, with access to a variety of data inputs to fine tune their risk models and reach any consumer with access to a mobile device, are looking to not only challenge, but displace.
Transactional credit offered by fintech innovators takes the “good old days” of shopkeeper credit model to a new level by offering credit options for people and retailers – one transaction at a time. Online lenders give consumers and small business loans new outlets and options to borrow money – in some cases refinancing the loans that banks initially extended to them and sapping that fee income from traditional lenders. P2P platforms in developing countries offer access to new funding and people access to credit , likely for the very first time. In the face of regulators who are putting the squeeze on small dollar, short term lending products, innovators are creating new ways to extend credit to middle class consumers in a compliant and consumer-friendly fashion.
But, like retail, technology alone isn’t the savior – but an enabler for incumbents and innovators alike. Navigating this shift to a new way of extending credit with their bottom lines intact though, will require a healthy respect for what it means to both democratize access to credit and manage the risks that go along with doing so. Digital Payments Redefines In-Store Acceptance
Once upon a time, and not all that long ago, acceptance and ubiquity — at scale — was the winning formula for getting a new payments scheme off the ground. Just ask Discover, which managed to get a fourth scheme off the ground three decades ago. If your plastic card wasn’t everywhere that a consumer wanted you to be in a store, you were more or less nowhere. Getting to scale was expensive and took a very long time.
Digital payments and connected devices are beginning to turn the notion of acceptance and ubiquity on its head.
Starbucks remains the most successful in-store mobile payments scheme to launch so far, capturing roughly 25 percent of transaction volume in five years by wrapping loyalty around payment and making the app available at every Starbucks. Mobile pay-at-the-pump apps have surpassed credit card volume in some independent franchises — saving consumers money on every gallon and reducing payment friction while pumping. Walmart Pay reports results that exceed expectations in its first year of operation — its hands-free payment at each of its 4,000 stores leverages the habits of the 22 million consumers who use the Walmart.com app in its stores every month.
What Apple Pay and its contactless “Pay” archetypes have shown is that designing the in-store mobile payment experience to replicate the plastic card experience at the countertop isn’t going to win the digital payments game.
What will win is wrapping other value around that digital payment by reducing a much more painful point of friction for that consumer. Buying online and picking up in store, offering mobile order ahead, giving consumers the option to push “buy” on an app while standing anywhere in the store to checkout, or having an app check in a consumer and assemble relevant promos and discounts before they are ready to checkout are experiences wrapped around payments — and examples of the kinds of things that offer consumers something of much greater value than just touching a phone to a countertop checkout terminal: respect for their time and the ability to control the buying experience.
Navigating that shift, therefore, will require that payments players shift their thinking to how consumers begin their shopping journey instead of only how they end it at checkout. And how they can use their assets and infrastructure to create a valuable experience beyond simply striving to achieve ubiquitous physical store acceptance. Being everywhere in a digital era may not be about the race to win acceptance on countertop terminals in the store, but online, increasingly, where nearly all of the consumer’s shopping journeys begin and will, over time, enable a much more streamlined instore payment experience.
Messaging Apps Vie For Commerce’s Pole Position
WeChat showed the world that there was much more to a messaging ecosystem than sending cute emojis and endless texts to friends. WeChat became the iconic example of how to turn a critical mass of 700 million sticky users into a living and breathing commerce platform.
Messaging apps all over the world have taken a page out of the WeChat commerce platform cookbook. This, of course, is coming at the same time that these platforms are exploding in growth and usage, outpacing time spent on more “classic” social media apps by a country mile. It’s been reported that more than 2.5 billion people have a messaging app on their phone, and more than a billion people each month hang out on Messenger and WhatsApp. WhatsApp users alone are said to spend 3.5 hours a week inside the app.
But WeChat in China started from a bit of a different place in getting users hooked on commerce inside its app. Apps were introduced inside of that ecosystem that weren’t available outside of it. That made using them much more attractive and valuable and consumers more forgiving with user experiences that may have started out life a bit rough around the edges.
In developed economies, messaging is used today for — messaging. Consumers have access to a number of apps and the web to manage their commerce personas. Sure, shipping confirmations and chats with sales associates can and often do happen over text, but booking a vacation, or browsing for what to wear to the office holiday party or even making a restaurant reservation inside of Messenger, WhatsApp or iMessage doesn’t come second nature to most consumers.
Innovators are working hard to change that. Tens of thousands of payment-enabled chatbots have been turned loose inside of messaging platforms. Most are in very early stages of development but remain incredibly tedious to use. For consumers to decide that messaging apps are their new commerce point of entry will require that the apps within them get much smarter and the user interface much slicker.
Commerce Gets Conversational
Voice is the most ubiquitous commerce form factor that exists. Literally everyone has one and uses it to engage with merchants and commerce – it’s second nature. Voice is also the most friction free commerce form factor there is, too – no typing, no clicking and no buy buttons makes transacting a simple voice command away.
Recognizing that, a variety of new players and platforms have emerged to become that consumer’s voice activated command center and brands are lining up to get in on the voice activated action. More than 5,000 skills are now part of Alexa’s ecosystem, making the world wide web and the internet searchable, ubiquitous and contextual. Want to know how to make Hummingbird Cake for your holiday dinner party next weekend? Just ask Alexa who’ll not only call up the recipe and read it to you out loud, but add the things you need to make it to your shopping list, order them and have them delivered, maybe even the same day.
Alexa and her voice activated assistant buddies from Google, Apple and Microsoft, also make brands – all brands – invisible.
If banks and payments providers felt vulnerable when payments credentials were tucked inside of apps living in apps stores, voice activated ecosystems have taken that to an entirely new level. Apps and web sites called up through a voice activated assistant will leverage those accounts registered with that site or app months or years ago.Navigating the shift to conversational commerce will challenge how everyone – payments providers, banks, networks and retailers – remain top of mind. And while today’s efforts are designed to get consumers comfortable with a new way of initiating commerce, new models with new incentives will emerge to give brands the opportunity to establish preference – administered and monetized, of course by these new voice-activated commerce gatekeepers.
Commerce Goes Anywhere There’s An Internet Connection
A couple of years ago, making the point that commerce could go anywhere was likely a discussion about giving a micro-merchant a dongle that could connect to their phone. And connecting a consumer’s intent to buy with a completed transaction happened only when a consumer took action directly at that point of sale — in a store by handing the clerk a card, or online or in an app by clicking buy.
The advent of wireless ubiquity is changing all of that – making commerce a connected device away. And while today that’s pretty much relegated to the mobile phone and a handful of wearables, in five years, analysts estimate that there will be as many as 30 billion devices – all connected to the internet in some way. All capable of conducting commerce.
AI and machine learning are paving the way, enabling better decision-making in real time and without the need for humans to intervene, including the requirement that consumers have to directly initiate a commerce transaction. Data, can now be captured and programmed inside of smart devices and commerce can go on auto-pilot. The hot water heater can call the plumber before it goes on the fritz, , the water cooler can order a new supply of water when supplies are running low, smart frigs can assemble a shopping list based on how bare Mother Hubbard’s cupboard is looking, the washer can order laundry supplies before it’s too late, and the car becomes the penultimate smart mobile device that can find and pay for parking while driving into town, among other things.
Digitizing payments is the catalyst for turning these myriad of connected devices into new commerce hubs. But, so too, is that data that’s now captured and shared. Not only does commerce become independent of a consumer or business directly initiating a transaction, , data becomes the foundation for new business models and monetization opportunities for connected device manufacturers, and the software platforms they leverage, to enjoy.
Navigating this shift successfully, however, isn’t just about monetizing data and maximizing the digital payments opportunity. Securing transactions that happen over a variety of devices in the age of the sophisticated fraudster is a non-trivial task. So, too, are addressing the data privacy issues that result from machines sending data to each other, independent of a directed consumer action.
Digital Identities Become The Ultimate Fraud Fighter
Validating the identity of a consumer is where commerce begins — and where it can grind it to a screeching halt. In an analog world, physical documents can be matched with the physical person standing before the shopkeeper or banker. Today, as the famous New Yorker cartoon suggested, on the internet, no one knows you’re a dog — or worse, a fraudster.
Establishing the digital identify of a person is, therefore, the essential passport that consumers need to do anything — and everything — safely in a digital world. And unlike the physical documents that can be tampered with, lost or stolen, digital identities can be accessed and protected with a variety of cutting-edge protocols and technologies.
They can also be tailored for the specific relying party’s needs. More than just authenticating a consumer for a particular transaction, creating a secure digital identity will mean capturing a variety of attributes about that consumer that then can be selectively presented as needed. Cutting edge technologies and protocols give banks and payments players the opportunity to think of a consumer’s digital identity as not one thing but many variants that can be called up to reveal only as much as is essential at any one point in time. Proving that it’s Joe when Joe is applying for a mortgage or a new credit card requires a different depth of digital identity verification then proving that it’s Joe logging into Twitter or renewing his driver’s license online.
As with most things in payments, that’s not as easy as it may sound. Experts agree that there are many layers needed to create and then verify a person’s digital identity along the commerce journey. Today, the battle lines are being drawn over who’s best positioned to enable those layers, make identities interoperable, how digital identities are “issued” and who performs that function. Will consumers have a “digital identity” in the same what they have a physical identity? There’s a consensus that passwords should go the way of the doo-doo bird, and that having a reliable digital identity is among the industry’s highest priorities. What that new digital identity will be and how it gets created is very much TBD.
The very dynamic nature of our payments, commerce and retail ecosystems all but guarantee that these shifts will reshape the payments, commerce and retail ecosystems over the coming decades. The tremors we’ve felt so far have been survivable and the eruptions fairly muted — at least so far. And unlike the shifts happening underneath’s the Earth’s surface, there are a number of clues that offer insight into how the puzzle pieces are coming together — or being pulled apart.
But these eight shifts are so critical — and there’s so much more to say about each of them — that I decided to make them the theme of Innovation Project 2017 — March 15–16, 2017, on the campus of Harvard University.
An incredible group of CEOs think it’s pretty important, too, and have already committed to joining us to share their thoughts. The off-the-record fireside chats that we’ve planned will offer their insights on how they’re navigating — and driving — these eight tectonic shifts.
I hope you’ll join us to share your insights on a set of topics that will point to who’s most at risk of going the way of the ancient Minoans and who was smart enough to set sail months before their fate was sealed.
Just register here if you’d like to reserve your spot.