Last week’s Innovation Project 2015 was all about “Innovation at the Intersections” - a nod to the influence of the many powerful ecosystems that are now shaping the future of payments and commerce. Our two days of discussion focused on the extent to which the individual and collective actions of those ecosystems either create big crashes and traffic jams at those intersections or an orderly crossing to a new, digital payments and commerce future.
Or maybe a little of each.
A lot of what happens, of course, depends on who does what and how – and when. That’s why Facebook’s launch of its P2P payments capability via its Messenger app has made a lot of people a little nervous about Facebook positioning itself to become the “next big thing” in payments.
Until last Tuesday, Facebook was brushed aside by lots of folks, including me, as a social platform that had failed pretty miserably at igniting payments and commerce on its social network. At one time, and not all that long ago, Facebook just seemed like the perfect “walled garden” in which to launch commerce – a captive audience of hundreds of millions of consumers who checked Facebook multiple times a day and spent 20 minutes there stalking their friends, uploading photos and liking pages.
Except that commerce on Facebook – outside of that driven by advertising on Facebook – has had a very rocky history.
As a social network, Facebook is all about broadcasting (aka boasting) updates to friends. Want to brag to your network about hopping on a plane and heading to St. Barts in February when the rest of us slobs are under 11 feet of snow in Boston? Facebook has just the status update for you.
But that same rule applied to broadcasting shopping “updates” can get pretty complicated.
People are funny about how much info about their spending habits they want to share with their network. Maybe they’d like to keep their husband from knowing that they just bought another pair of Jimmy Choos. Then again, maybe they don’t want their friends to know they did either since they’d prefer not to see them wearing the same pair at the next cocktail party they attend together. Or maybe they just don’t think that it’s any of anyone’s business what they buy, how often and how much they spend when they do go shopping. And, since most people don’t really understand how to manage their privacy settings to limit who sees what updates, there’s always this nagging fear that any action taken on Facebook, including buying stuff, would be open to the whole world to see and, therefore, to know.
So, between Facebook’s early attempt at commerce via Beacon (which spoiled an engagement surprise by broadcasting that a guy bought a ring for his girl and planned to propose), the Facebook Credits closure, the shuttering of Gifts, and the change in the news feed algorithms that made it impossibly expensive for merchants to use Facebook to message their fans with an offer to buy something, the notion of commerce on Facebook pretty much came to a grinding halt a couple of years ago.
As did anyone’s expectations of payments and commerce igniting on the social network.
Which is why Messenger, and its payments ambitions, is now such an interesting topic of conversation.
Messenger has 700 million consumers who message each other every day – and a lot. The number of messages sent each day via Messenger isn’t reported, but we do know that What’s App, which Facebook also owns, is said to generate 30 billion messages a DAY among its 700 million user base. Even if Messenger generates 50 percent of that volume, that’s a lotta messages flying back and forth between people – in private.
And between people who span all age brackets.
In 2012, Pew reported that 80 percent of people - young and old- who own smartphones, text. Three years later, that number is probably even higher. Boomers learned to text since it was among the only way to communicate with their offspring –and smartphones with keyboards made keeping tabs on junior simple and fast. And messaging others, an easy habit to develop.
Messenger also has David Marcus, former PayPal President, at the helm. David is a mobile guy who started and sold a few mobile-focused ventures, including Zong, which PayPal acquired in 2011. While at PayPal, Marcus no doubt got schooled on payments and the fact that, payments is above all, a risk business. It’s therefore not a big surprise that Messenger’s P2P capability leverages the existing credit and debit card rails to enable people who are already connected with each other in some way to send money to each other – for free (for now). (I can’t wait for all of the friend requests to come streaming in from Nigerian royalty.) Sending money to friends via existing credit and debit cards is a very clever way to authenticate the identity of the sender and receiver of the funds. By leveraging a network of people who are already known to each other – and who have been vetted by their issuer to have a credit or debit account – gives Messenger a good way to authenticate the identity of sender and receiver and reduce the risk that either the sender or the receiver of the funds aren’t who they say they are.
Messenger also has one other important characteristic that the Facebook social network doesn’t – and that’s the ability to enable one-to-one interactions. Of course, groups can chat and do, but for the most part, messaging is done between two people, in private. When Facebook spun off Messenger, it also cut the cord from its social network mother ship – and jettisoned any potential baggage associated with doing activities more appropriate in a one-to-one environment – like paying people and businesses and merchants - from those designed for a much more social and one-to-many setting – like posting pictures of the kids, dogs and grandkids.
Marcus says he has always admired China’s WeChat platform and used it as the inspiration for his vision of what Messenger could become. That suggests that P2P is likely Messenger’s first act.
Like Messenger, WeChat started as a chat platform but over the last several years has evolved to become much more – a network of 1.1 billion people of whom ~470 million are active users. Payments is embedded in WeChat and registered users can send each other money, buy tickets, pay bills, hail and pay for taxis and order and pay for stuff from storefronts that operate on its platform. It can also enable the payment of items in store via QR codes. In a relatively short period of time, WeChat has evolved to become the top influencer of luxury brand preference of Chinese consumers, too. And, it has done this by embedding payments capabilities inside a network that has become an ecosystem central to the lifestyle of the Chinese consumer.
Facebook and its announcement of payments via Messenger also made a bit more tangible a few of the key themes that we discussed last week at Innovation Project 2015.
For instance, Sir Tim Berners-Lee, creator of the World Wide Web (and iPhone owner), stunned the crowd on Wednesday morning when he suggested that innovation in payments needs to be independent of any device. Innovation can only flourish, he believes, when people can enable any commerce opportunity via any connected device – securely. His frame of reference, of course, is the Internet and the World Wide Web, which can be accessed via any device at any time, including the most basic of phones. That, he believes, is why the Web has become so central to our existence and in just 26 years has grown to some 4.58 billion pages. And also why apps like WeChat and Alipay and PayPal have hundreds of millions of users – their dependencies are entirely a function of the value associated with creating an account and using it, not on which devices they own. (I didn’t ask, and he didn’t have an opportunity to explain why Apple, which only innovates on its own hardware, has been so much more successful – by the vote of the people who buy, plus our own Pii360 innovation index, than Google’s Android which adopts the open hardware approach.)
That “software trumps hardware all day long” theme surfaced later that same day when the debate over mobile versus apps in the retail setting was raised. There was a pretty divided camp over apps and the ability of smartphones to accommodate zillions of them and the friction associated with having to ask consumers to download and then use them. The smart money’s on responsive design, and the ability for consumers to have a better Web experience on their phones or tablets by simply having the Web adapt to those smaller screens.
Of course, that will only trigger commerce if payment can be made both easy and frictionless. We all realize that the future of payments is not about payments at all but about making the act of payment invisible and a part of something else – searching for (and then booking) a flight, searching for (and then buying) a concert or a movie ticket, searching for (and then ordering) something online to pick up in a store, even – for example - being reminded to stop into the dry cleaners to pick up clothes when in the vicinity of the store and then having that service automatically charged to the account registered at that store.
That whole notion was debated further during the discussion of the latest Apple Pay adoption results, led by "Hooked" author, Nir Eyal and InfoScout CEO Jared Schrieber. Without ubiquity, it seems pretty clear that consumers have to be given a reason – and a reward - to remember to break an old payments habit to create a new one. The act of payment alone isn’t enough of a hook for most people to go to the trouble – not knowing whether a new form of payment is accepted creates more friction than simply whipping out a plastic card that consumers know works just about everywhere they go.
Making payments invisible also implies a need to take the security game up a few (dozen) notches. The discussion with General Keith Alexander and Kevin Mandia from FireEye was as terrifying as it was enlightening. A shift away from efforts focused simply on authorizing transactions to those that can authenticate the identity of the consumer or business initiating those transactions is the imperative for payments moving forward. And, of course, doing it in a way that doesn’t introduce friction in the relationships that businesses want to have with their consumers.
Friction of course, was a key theme over the course of the two days. Solving for frictions in payments and commerce is what’s giving rise to the emergence of mobile money schemes in developing countries and better ways of moving money across border for commerce and business purposes. But despite the spirited debate over the degree to which cryptocurrency and software could make both easier and cheaper, few walked away convinced that innovators using software to leverage rails and networks already in place and already in compliance was a far better option than ditching them for “free” unregulated crypto-enabled rails.
And, of course, we learned on Thursday morning that the most innovative players in payments aren’t traditional payments companies at all. The results of the Pii360 Payments Innovation Index revealed that 6 of the top highest ranking companies are technology companies - Apple, Amazon, Facebook, PayPal, Google, and Alibaba - companies whose core business isn’t payments but are interested in payments because it’s complementary to their commerce capabilities. What’s also stunning is how many traditional payments companies, including some of the giants of the industry, didn’t make it into the Top 10 or even to the top of the 10 segments we examined as part of our work.
I suppose if you wanted validation of the relevance of the “innovation at the intersections” concept, Pii360 sort of spells it all out for you.
Which brings me full circle to Facebook.
We got a hint of the potential impact that Facebook could have on payments when we reviewed the initial results of Pii360 about six weeks ago. At that time, we saw what most of you did a few days ago – Facebook beating out three existing payments networks, all of the issuers and even PayPal. It was, at first, a puzzle.
But in addition to scoring highly on market/company indicators and the expert survey, Facebook has been methodically investing in payments patents, as evidenced by the massive war chest of patents it has accumulated. Facebook’s patent war chest is only slightly less valuable than Visa’s and Amazon’s who, combined, have been in payments about 10 times longer than Facebook has been in existence.
Their high scoring also reveals an incredibly valuable takeaway from our work in benchmarking payments innovation.
Payments innovation is like an iceberg, it’s what you can’t see that’s critical.
In other words, Facebook probably isn’t the only company that should keep you up at night, sweating bullets. There are undoubtedly others who are making investments in payments that aren’t all that visible yet, but will pop up when they feel the time is right.
Which for Facebook and Messenger was last week – and well timed to coincide with its F8 Developer Conference and PayPal’s impending IPO.
Of course, all we have at the moment is an announcement.
As we all know, the proof is in the execution. If Messenger can execute on its payments ambitions, it could become an interesting new player at the intersection of payments and commerce and maybe even cause a few multi-car pileups in the process.
In the U.S., P2P is a crowded field and the domain of a bunch of players - some more established and entrenched than others - PayPal, Venmo, Square, SnapCash and bank-led clearXchange, not to mention WeChat which has 100 million users (including me – it’s great!) outside of China and Alipay. And Facebook has tried a number of prior payments experiments that have fumbled badly in the payments and commerce space.
But embedding payment inside of messaging is also an interesting way for merchants to explore the one-to-one, personalized, commerce relationship that they seek with their customers. Texting is being used now by businesses to confirm appointments, message about statuses and send useful information that typically generates an immediate action, often 25 to 30 percent higher response rates than via email.
So don’t be surprised if at Facebook’s F8 developer conference this week, you hear Marcus invite developers to write commerce apps for Messenger that can leverage the registered payments card accounts that it hopes to create – or even act as an incentive for consumers to register them in the first place. It’s a short hop from sending money to friends to enabling the purchase of things that people do socially with their friends – tickets to movies or concerts, taking trips, pitching in for group gifts, going out to eat and splitting the check, etc.
But it’s not a slam dunk.
Unlike WeChat, Messenger has the headwinds of building a user base in the U.S. (which is where it is launching) alongside others that have tens and even hundreds of millions of registered users and that offer P2P alongside a portfolio of payments and commerce services that create additional value and utility for consumers, merchants and businesses. WeChat’s success – and even Japan’s Line – is the result of filling a void by eliminating the friction of doing basic things like payments and commerce in a connected world. The environment in the U.S. is vastly different as are the expectations of its consumers who increasingly find friction in having to use multiple, different apps to do similar things.
For Messenger to be successful, it will have to solve a problem for consumers that isn’t being addressed today by any existing solution. Will just offering P2P payments capabilities be enough for them to build a payments business? Well, it wasn’t for Square, which found that P2P did diddly-squat to build its own consumer wallet platform which it shuttered a while back. Or Amazon which shut down its P2P capabilities less than a year after introducing it. Or even Google which continues to struggle to ignite payments on or offline.
Messenger will have to quickly introduce something that solves a problem or unlocks other value to capture the consumer’s interest - and as we learned from the "Hooked" discussion last week, getting consumers off of one thing that works for them today and onto another isn’t ever easy. Even if you have 700 million users in your sandbox.
But having a new player in the space with a different approach makes being at the intersection of payments and commerce and innovation a whole lot more interesting, don’t you think?