Karen Webster

Payments Innovation Rankings Soon To Be Unveiled

Have you ever looked up “innovation” in the dictionary?

I did and here’s what I found.

Innovation | the act of innovating.

I always thought that there was a rule that you couldn’t use the same word to define a word but maybe that’s old school.

To be fair, the second part of the definition refers to “the introduction of new things or methods.” But that’s part of the problem with innovation. Anything that’s “new” is automatically labeled “innovative.”

And, that’s exactly what’s happened over the years. This chart looks at the number of times that the word “innovation” has been used in books through about 2008. Everything is, more or less, “innovative” now!

As a result, things like the invention of the World Wide Web by Sir Tim Berners-Lee, our Innovation Project 2015 keynote, and Clinkle, the dud of a debit rewards program that sprung out of its former dud of a failed experiment to turn sound waves into a payment authentication scheme have both been described as “innovative.”

And if all that you used was the dictionary definition as your guide for what’s “innovative,” then you wouldn’t be all that wrong.

Except that you’d, of course, be totally wrong.

So here’s where one Webster – Karen – is going to challenge another Webster – Daniel – (the Daniel Webster who wrote the original Webster’s dictionary) over what really defines innovation in payments.

And I’m going to do it by introducing you to the most sophisticated innovation index yet devised and the only one for payments.

Pii360The Payments Innovation Index

Pii360 is a massive effort on the part of the Market Platform Dynamics team over the last nine months to measure rigorously what more than 100 companies across 10 segments have done to develop innovation and how experts in payments view the success of these companies in executing and engaging those innovations. Pii360 uses highly objective data-based methods to calibrate real and significant innovation across businesses, and segments, in payments. The 100-plus companies we studied have all been in market with their products or solutions for at least five years so represent the established players in each of the segments we examined. The segments we looked included the obvious ones like networks, issuers and processors, and those that increasingly touch payments such as loyalty, security, commerce/technology, prepaid and money transmission. We collaborated with leading academic experts on innovation, survey methodology, economics, R&D and patent valuations in order to devise and calibrate an index would be solid, defensible, consistent and accurate.

And, most important, an innovation index that we would be proud to put our name on and share with the industry that we are both a part of and serve.

The result is the most comprehensive and exhaustive analysis of innovation ever conducted of any industry and the first one ever done for payments.

The results are now in.

I guarantee that you will be amazed at our findings when we unveil them at the Innovation Project 2015 on March 19, 2015, at 1:30 p.m.

For now I’m going to show you, figuratively speaking, enough skin to keep you intrigued.

Here are nine of the many insights that have come out of this work:

The Future Of Payments Probably Won’t Be Defined By Payments Companies
We ranked all 111 companies that we studied and I would bet you the price of 10 bitcoins, priced according to the PYMNTS Bitcoin Index today, that you’d never be able to rank, in order, those who ranked in the Top 10 of the most innovative companies overall. I’ve been in this space for a long time and believe that I have a good sense of the degree to which companies are innovative. And even I was surprised, at first, at how the list came together. But then it all made sense to me. It will to you too.

But as telling as who made the Top 10 is who didn’t. And what that means for the future of payments and every single company in the payments space today. Once you see this list, you’ll have a crystal clear picture of who’s best positioned to dominate payments in the decade to come and you’ll understand why. You’ll also understand how the players in payments will need to adjust their strategies to compete, collaborate or both.

Or merge or acquire their way out of their misery.

Perception Isn’t Always Reality in Payments Either

The survey that we did of experts in payments provided a rich source of information on how the payments community viewed innovation by companies in payments.

But even experts only know what they can see.

By and large we found that there was a high correlation between what the experts perceived and the value of patent portfolios and other objective measures.

Not always though.

There were a number of cases in which companies were secretly stockpiling key innovations and experts hadn’t apparently accounted for these, and others where the experts perceived a company as being more innovative than objective data suggested.

Anyone following payments will want to take a look at our report on “perception deviates from reality” scores because it identifies some companies that are doing innovation under the radar, and some companies that aren’t nearly as innovative as experts might think.


Players (And Segments) Pay When They Don’t Innovate

As telling as who’s in the Top 10 is who’s at the bottom of the list.

Although you may be surprised at first about who’s in the Top 10, I don’t think you will be surprised at all when you see who’s dragging along at the bottom. In fact, I believe you will be nodding your head in agreement since these companies all represent segments undergoing massive disruption, consolidation and marginalization. The players on the bottom of the list are the ones who, in those sectors, have perhaps taken the Daniel Webster definition of innovation a bit too literally and simply opted for more of a marketing approach to innovation – introducing “new stuff” without truly investing in the kinds of things that add true and lasting value to their customers.

So, who came out dead last?

I’ll give you a clue. They’re in the POS space. The runners-up in the best of the worst category include a couple of banks and household names in alternative payments and the processing space.

Putting Lipstick On That Pig May Make It Pretty But It Doesn’t Make It Innovative
To make the prior point a little stronger, we took a look at the segments in which there were the largest number of players that ranked near the bottom. The segment with the largest number of bottom-ranked players is one where the barriers to entry are relatively low and, as a result the products – and there are a massive number of them – are largely undifferentiated. The standard operating procedure in these segments has either been more about using marketing and positioning and spin to create the aura of innovation or failing to recognize and then respond to the sea-changes brought about by the innovators outside of their segment that upended them.

This particular category is also ripe for disruption in a number of ways.

First, it’s a segment in which massive amounts of VC money has been invested over the last year. Assuming that those dollars are invested in something more than buying lipstick in a variety of shades, it’s quite possible that a disruptive new player or set of players will emerge to further deepen the hole in which these established players now find themselves.

Second, this is a category that, hands down, will play a critical role in moving payments from what happens at the end of a sale to part of a process that can drive sales for merchants.

So, in other words, watch this space.

Payments Innovation Is Like An Iceberg – It’s What You Can’t See That’s Important

The most innovative players in payments overall – and in each of the 10 segments we looked at—may actually not be the most visibly active in payments right now. What makes these players innovative is that they’ve been strategically investing in and developing innovation that leverages their technology and platform assets and their customer bases. And they’ve been doing it over a period of time, perhaps way under the radar, maybe piloting a few things here and there, but may not be in market with a full-blown product or with any announced plans in the near term.

One of the biggest drivers of this insight is the patent analysis that we did, which is the most exhaustive and economically robust assessment of the value of patents ever done for payments. What we discovered when we looked at this particular measure of innovation is how much of an impact it had on the overall score of an individual player and contributed to the collective scoring (and therefore the collective measure of innovation) of a particular segment. It’s also not something that, absent such an analysis, one would necessarily get by looking at what people are doing today, or even how many patents they have.

The big insight here is that innovative companies, and segments, should be measured not by what they do, but what they have – of which most others can only see a tiny piece.

It’s Not How Big Or How Old You Are, It’s How Valuable Your Patents Are

One of the ways in which people mistakenly measure the degree to which a company is innovative is by counting their patents. After all, the more you have, the more ground you must cover, therefore the more valuable and innovative you must be, right?


The real measure of innovation isn’t how many patents there are in anyone’s patent portfolio, or even how long those patents have existed.

What matters is how important those patents are.

Here’s why. You can spend a few bucks with a patent attorney, wait out the process, and you can patent just about anything. But economists have shown that the option value of most patents is less than it costs to buy your next fancy schmancy cuppa joe.

What matters is how valuable patents are.

We worked with some of the world’s leading experts on patent valuation, who have access to all of the patents in every country that grants patents, to value the portfolios of more than 100 payment players. This analysis is exclusive to the work that we did for Pii360.

When looking at this aspect of our innovation rankings, perception is truly reality since perception fuels the value of these patents. This helps to explain why some of the names on the list of top innovators overall and by segment may, at first, seem surprising, and why so many of the sectors and players that are being disrupted today are, well, being disrupted.

But it’s a critical insight and one that is highly correlated to what drives innovation overall in payments.

The Innovation Riches Are Not In The Niches

Disciples of Blue Ocean Strategy will tell you to go where the competition isn’t – those nice calm blue oceans – where you can find your niche and win. Our analysis will tell you that what the most innovative players do overall and by segment is to look thoughtfully and strategically at the bigger picture and make their innovation investments and choices accordingly.

Which means their oceans are blue, red, purple and every color in between.

One segment in particular, stood out. This particular segment is a pretty critical segment for the overall health and well-being of payments. What we learned is that those who poured innovation dollars into niche solutions that solved for a particular payments industry use case, thinking that would float their revenue and profit boats forever, are out-innovated by those who looked at the segment and its issues much more strategically. The industry dynamics of this segment reflect a constant shifting of issues and pain points and narrow niche players can’t adapt quickly enough to remain relevant. Those with a broader and more strategic view can – and do.

The results prove this out. And this is totally independent of size of company, length of time in the industry or size of patent portfolio.

Innovators Sometimes Look Like David And Not Goliath

OK, so far you’re probably saying, I must be screwed unless I’ve invested in amassing valuable patents and used them to create barriers to entry.

Not at all.

Our analysis also weighs the financial impact of innovation already in market to assess the degree to which companies are able to make their innovation operational.

And there we have found another interesting insight.

If you want to be a top innovator, you better know how to execute.

There are many incidences of companies that have acquired companies, people and other assets or filed patents out the wazoo, all in the spirit of advancing innovation in their organizations. And, they just can’t execute, so they fall behind.

The other side of that coin are those companies that haven’t been as good at investing in patents but are great at execution. Those companies rise to the top of the rankings in their segments because they can leverage their assets and execution prowess and drive innovation for themselves and for the segment in which they operate. They are organizationally more nimble and can move more quickly to leverage market opportunities.

And, those companies are able to out-innovate those that, by all other objective measures, would be the obvious leaders in their segments.

Investments In Innovation Isn’t A ‘One And Done’ Deal

One of the questions that comes up when we talk to people conceptually about Pii360 and what we are trying to establish with this research is whether the results next year will be any better or could it get worse.

Our answer is …Yes!

And that’s what makes life in payments so much fun.

The present is just the sum of what companies have done in the past. Those that have more to show for their investments in innovations in the past, such as valuable patents, and those that have shown the market that they can execute, as reflected in our survey of experts, will do well today.

But each year what companies did in the distant past is less important and what they do in the coming year gets credited. As a result, some companies might do better next year just because past investments are beginning to pay off or because they’ve stepped up the effort this year. Some companies might fall down the list as a result of sitting on their laurels, thinking that what they did last year or last decade was good enough.

We saw plenty of evidence of that in our results this year.

Pii360 provides a rigorous methodology for updating the innovation index every year consistently so that companies can compare how their performance is changing and also how they are doing over time relative to their competitors.

And, as we’ve also observed, competitors that don’t always look and act like traditional competitors. Innovation in payments, and the segments that represent the payments ecosystem, is being influenced and defined by the ecosystems that now intersect with payments and are transforming it in profound new ways.

We expect that Pii360 will become a critical asset in helping companies think more strategically about innovation and the innovation roadmaps they are creating for their organizations. We also believe that it will get companies to accelerate their innovation now that they’ll have an objective way to compare how they are doing.

Because even (maybe even, especially?) payments companies will want to “Keep up with the Joneses.”

As I mentioned earlier, some of the results of the full Pii360 report will be made available for the first time ever, at 1:30 p.m. on March 19, at The Innovation Project 2015.

Professor Josh Lerner, Jacob H. Schiff Professor of Investment Banking and Unit Head, Entrepreneurial Management at Harvard Business School will lead a discussion with several of the companies who are profiled in the report. The complete report will be made available to Innovation Project 2015 delegates exclusively after that session concludes. The broader payments community will be able to purchase the report starting Monday, March 23.

If you’d like to join me on March 19 to be part of this historic unveiling, please send me an email with a note to reserve your copy of the report. Space permitting, it would be my pleasure to extend a special VIP offer for the Innovation Project and an opportunity to participate in a closed door roundtable briefing with MPD and Professor Lerner later in March.

See you in March!



The PYMNTS Cross-Border Merchant Friction Index analyzes the key friction points experienced by consumers browsing, shopping and paying for purchases on international eCommerce sites. PYMNTS examined the checkout processes of 266 B2B and B2C eCommerce sites across 12 industries and operating from locations across Europe and the United States to provide a comprehensive overview of their checkout offerings.

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