03 March 2014
We’re T-minus two weeks and a few days until the March 19 kick off of Innovation Project 2014. It’s been a real thrill over the last few months to get inside the heads of the innovators who will be speaking, participating in the Expo, vying for one of the 2014 PYMNTS Innovator Awards and/or being recognized as a significant contributor to payments by receiving a special award at the 2014 PYMNTS Innovators Awards dinner. Stepping back and looking at the “Best in Class” innovators that we have recruited for Innovation Project this year, I’ve observed 10 things about their approach to innovation from which I think we can all learn.
Here they are, in no particular order:
Rule number one for any innovation in payments (or anywhere else for that matter) is that it has to solve a real problem and/or create real value for someone. In payments, the tricky part is that every payment transaction has at least two parties, and you can’t solve one person’s problem while inflicting pain on the counter-party. As a networked ecosystem, the value-add and/or problem-solving has to include multiple parties. We’ve seen lots of road kill where payments innovation has been good for one party but wrought with complexity for the other. These “innovations” then end up simply dying long, expensive and agonizing deaths millions of dollars and people hours later.
The innovations coming to IP2014 are solving problems for all sides and don’t look like road kill to me (ok, famous last words). Innovators that are revolutionizing the alternative lending space, such as On Deck; or innovating the cash ecosystem, such as Pay Near Me; or making it easy for consumers to get access to credit information, such as Credit Karma, didn’t reinvent these areas by introducing some shiny new whiz-bangy technology artifact and then attempting to persuade consumers or businesses to stand on their heads to adopt it. Instead, they used technology to create a very practical solution to really big problems for both sides of the ecosystem: borrowers and lenders, payors and payees, consumers and credit reporting agencies. In all of these cases, the sexy technology is on the inside, and what the ecosystem sees is just a very practical solution to big, hairy problems.
The famous Confucius quote “Life is really simple, but we insist on making it complicated” couldn’t be more true when describing a lot of the innovation in payments. Simple is sort of the flip side of practical and speaks to the actual user experience in taking advantage of the innovation. How many examples come to mind of innovation that, in theory, solved a problem or created value but was so darn complicated to use that the only ones who did were (a) the family of the Founder (because they sort of have to) or (b) the hard core early adopters who will try anything. Take some of the early P2P innovations, like Obopay, for instance. The notion of being able to send money to each other was a niche-y use case to begin with, but those who wanted to do it had to go thru a zillion steps and get a prepaid card to actually be usable. Thanks, but no thanks!
But innovations like that, which AuthenTec (acquired by Apple in 2012) pioneered around biometric authentication that is now Apple’s TouchID; or the transfer of funds from one person to another using just an email and mobile phone number that is clearXchange; or using a smartphone’s camera to snap a picture of a check and having it deposited to a bank or prepaid card account that is Mitek. They are not only innovative but transformational because of the simplicity of the solution and the power of what it enables.
If something is practical and simple, then by default it will more than likely be usable. Usability is defined as something that is easy to learn, easy to implement, and efficient. One could say Facebook Credits was an innovation that should have been usable and was easy enough to use. But it ended up becoming totally unusable because it simply didn’t, in the end, offer people enough places to use their Credits and was ultimately shuttered.
The “ask” of innovators in payments is for the various parties in the ecosystem to ditch what they use and use today and is familiar and proven and instead use something they don’t know and isn’t. But Walmart’s Bluebird alternative checking account product is igniting because it is highly usable by the “unhappily banked” consumers that are used to bank DDA products but want an alternative to their banks. Paydiant has created an agnostic technology solution that leverages what consumers and merchants have today – phones and POS systems – and enables payment by phone in-store with little change to the existing POS environment. And Shopify makes it possible for those who wish to sell things online to do so easily by using their Web turnkey storefront.
There’s an awful lot of “me too” stuff in payments innovation that may respond to an opportunity or a perceived problem, but it devises a solution that really doesn’t dig into enough of the core of the issue they are trying to solve for it to be sustainable.
Take one of my all-time favorite topics, loyalty, for example. It’s a big area of focus for the payments ecosystem since merchants really, really, really, really have a laser focus on initiatives that help them attract and retain loyal customers. So as a result, we have seen (and still do see) a bazillion flavors of offers, coupons, deals, clubs and the like, all intended to one-up the last guy or gal who launched the “loyalty” solution. The result is an undifferentiated blob of players that don’t really move the needle for themselves, the merchants or consumers they intended to wow.
Rising above all of the noise requires a more thoughtful approach to solving a real problem or creating real value.
ShopRunner, for example, isn’t about free shipping, even though that’s the bait. It’s about driving high-value (and incremental) customers to merchants via a branded storefront and making it easy for them to pay when they check out.
Klarna ignited the ecommerce market in Sweden and then Europe by adopting a Bill Me Later-type approach to using analytics on the back end to approve consumers who didn’t have to disclose sensitive personal information to buy something online, thus removing the friction in transacting online.
TrialPay innovated a clever way for merchants to get paid for the things that people needed but didn’t want to spend money on (e.g. security software, credit reporting services) by offering an incentive for them to “trial” those products when they actually bought the things that they like.
These guys have all launched clever and thoughtful ways of addressing a real issue without getting lost in the “me-too” innovation whirlpool.
If the three biggest attributes for selling a house are location, location, and location, then the three biggest attributes to getting a consumer’s attention via marketing promotions are personal, personal, personal. Innovators get this. As a result, there is a whole raft of them trying to mash up the power of data, mobile devices, the cloud and new technology to deliver that to consumers.
The really clever ones, though, don’t stop there. They actually don’t trust that consumers always know what they want, understand that what others think is now very material to the consumer’s decision process and that relevancy is a non-negotiable part of an effective promotional strategy. Their innovations then deliver something richer and, as such, have a higher probability of customers initiating a sale.
Take, for instance, Lyst. It curates fashion sites and has teamed with PayPal to mash up online curation with in-store purchasing, serving fashionistas with the latest and greatest based on what they say they like, what they have purchased and what others are also buying.
InMarket is also leveraging Beacon technology to bring promotions to consumers in more than 200 grocery stores while shoppers cruise the aisles and stand in front of the items they might want to buy.
Wisely is curating offers based on what consumers buy and what others with similar preferences are also consuming in the hopes of creating wiser consumers and making merchants wiser to the spending habits of their potential customers.
Touchpoint is making it easier for restaurants to personalize the upsells they make to customers to take them from “you want fries with that?” to “how about a medium Odwalla lemonade to wash down your favorite chicken sandwich?"
For innovation to ignite, it actually has to enable the end user or a member of the ecosystem to take an action that delivers a measurable result. The history of innovation in payments, and just generally, is that sometimes innovation is too clever for its own good. Take iCache, for instance. This (very first) reprogrammable mag stripe card was clever, but the networks hated the idea that it also could be skimmed, so it stalled.
Innovators such as InfoScout, Billtrust, and Piper, for example, have seen the “don’t-get-too-cute” movie and don’t plan on producing its sequel. InfoScout has innovated an ingenious way of getting POS data from consumers, resulting in 10+ million data points that are actionable by merchants and brands in designing promotions to promote more usage and purchases. Billtrust has created a way for businesses to pay multiple vendors from a single portal, saving them time and money and delivering faster payment to those who want to be paid. And upstart Piper has developed an ingenious way to seamlessly integrate across all merchants to someday put an end to the paper receipt, enabling receipts to be stored digitally and in a way where the data can be used to help consumers make better shopping decisions.
The innovators’ holy grail, of course, is being able to track and measure the impact of their innovation and to be able to tout that information to potential partners or end users. Whether it’s the number of cyber attacks thwarted, the economic impact of loans extended to consumers or borrowers, increased efficiencies in the ways businesses pay each other, or volume of incremental sales, the ability to actually say “this innovation of X delivered X * Y impact” is what everyone really, really, really wants to validate. What gets measured gets monetized, and that is really, really, really the holy grail of innovation.
And those sorts of queries usually invoke a whole lot of smoke and mirrors and waving of the hands. Sometimes that’s for good reason – the innovation is just too new and hasn’t had a legitimate chance to ignite but has a dashboard in place for quantifying the impact of their innovation. But beware the innovator that’s been around for a while and simply says, “don’t worry about it, we’ll figure out how we actually quantify the impact of our innovation at some point down the.” There’s only so many billions in the world to soak up those sorts of claims, and $19 billion of them just went to buy What’s App.
But there are innovators in payments who are serious about documenting their ROI. Take LevelUp, for example. It positioned its mobile app from Day One as a loyalty and promotions engine wrapped around an easy way to pay with the mobile phone. Its proposition to merchants was to increase incremental sales and customers, and it produced evidence that it’s delivering on that proposition.Chase Merchant Services soon will deliver Chase-credentialed offers reflecting merchant and consumer preferences that also enable and empower merchants and consumers to interact in a safe and secure way across all sales channels (digital/mobile and in store), and Chase is prepared to back that up.
There’s always that fine line here between clever and crazy, and there are always innovators who want to push the boundaries and break open the doors for new ways of doing the things we do today in payments and commerce. And many times, the innovators who start at the far end of “unconventional” end up pivoting to a place where the big idea gives birth to something more practical, simple, usable, actionable, etc.
Take Pave. Pave is cracking the problem of student-loan debt by taking what can only be called an unconventional approach to funding college tuition. Students decide how much they need for college, and investors “crowdfund” the amount of the tuition needed and are paid back on an income-adjusted payback period.
And speaking of unconventional, the Bitcoin protocol seems the poster child for this and although, in my view, is unlikely to survive as a currency, has ignited a series of conversations about how the existing networks (and new ones) can be innovated to move money around the globe and from person to person with ease. Cortex MCP and Ribbon are both creating new digital-payments standards that leverage new technologies to reduce the cost of transacting, and improve the consumer and merchant experience.
Sometimes the solutions to the hardest problems in payments are sitting right under our very noses, but we overlook them because they, well, are sitting right under our very noses. How many times have you looked at an innovation in payments, or anywhere, and said “Wow, why didn’t I think of that? It’s such an obvious thing to do!"
But so often the tendency is to “disrupt” by completely blowing up what exists today. Obvious doesn’t necessary mean easy; there’s a lot of work under the hood to make these innovations workable. But the starting point is typically something that eliminates friction without requiring a massively huge sea change in the ecosystem as a condition of its innovation.
Mag-stripe cards and the terminals that process payments are a great example. The entire industry now is poised to junk it all in favor of EMV under the rubric of keeping card transactions more secure at the physical point of sale. Loop’s technology, though, takes the mag-stripe transmission and tokenizes it so consumers using its app and merchants using the same POS terminals they use today can transact in a highly safe and secure way.
Tabbed Out has been beavering away on a cardless solution for restaurants so consumers can settle their checks without presenting a card at the end of the meal, a ritual that no one, including the wait staff, is in love with. The Clearing House’s Secure Cloud initiative is designed to keep the authentication process in the control of the issuer of the payment product and behind the secure firewall of the banks, which have invested hundreds of millions of dollars in security solutions, while creating a new security standard in the process.
The real test of innovation is whether it has stood the test of time and has ignited, gained momentum and even inspired others to innovate. And judging by the number of acqui-hires taking place in payments versus acquisitions, there seems to be an awful lot of innovation that just won’t cut it. So what we see companies doing is rather than buying the pig a poke, they’re buying the brainpower to refine and sustain the innovations already in their pipeline.
The challenge for “sustainable” innovators, though, is staying in step with innovation and using their scale and assets to continually outmaneuver the competition. PayPal, after 15 years as a digital-commerce leader, certainly checks that box, and it is introducing a whole portfolio of innovation around its app – Beacon, wearables, offline payments, biometric authentication, payment, retail innovation and demand generation – to not just sustain but supersede the innovation of others.
mPesa and its mobile-money solution has not only ignited in Kenya, but versions of it (sometimes by competing telecoms) are beginning to move into other countries as well. Intuit, a company that’s also been at it for a long while in supporting small business payments, could be considered a sustainable innovator as well.
For many innovators, though, it’s just too early in the game to know how sustainable they’ll become. But the checklist above might offer some clues as to who might actually be viable a few Innovation Projects from now.
Perhaps the most amazing insight that I’ve had in looking at the slate of hand-picked delegates and innovators is just how little innovation is originates out of the players that got the payments ecosystem this far. Now, to be fair, absent their rails, their infrastructure and many of their assets, payments and payments innovators would be in a very different place (a better one if you ask the Bitcoin crowd, but no one I know is….). And there’s been a lot of momentum around mobile solutions that haven’t ignited that diverted focus away from other things.
But perhaps one explanation for this is that the established players have decided that the best way to innovate is to acquire those who have innovation as their core competency, as part of their DNA.
Could it be that the 11th thing that innovators are teaching us about innovation, that being acquirable is the best outcome of all?
Regardless, if you want to meet your future acquisition target (or suitor), then, you’ve only a little time left to actually get on the list and join us at The Innovation Project 2014 and actually meet these (and many more) innovators and see them walk the talk.
Could March 19-20 be the two days that could change the rest of your [innovative] life? There’s only one way to find out! Repeat after me, get on the list!