Innovation Project, or “Woodstock for Payments’ geeks” kicks off in Cambridge, Massachusetts, in just about two days and in the final weekend before the big event, you guys are all likely facing a paradox. The “Woodstock” part of your personality wants to show up, kick back, relax and enjoy two days of peace, love and payments. The “geek” on the other hand just really, really wants to study and get all prepared in anticipation of advanced conversations with some of the most brilliant minds in payments as they converge on the hallowed halls of Harvard.
So, think of this piece as a way for you to do both. It’s a prep document for everything you ever needed or wanted to know about the 12 conversations that we’ve got teed up and ready to roll when we open the doors on Wednesday, including my own POV on the topics. I’ve had the chance to talk to all of the panels, the panelists and the amazing conversation starters that are lined up and ready to kick things off and the mix (and sometimes even the clash?) of perspectives will make for a very interesting two days.
Starting with …
Tim Berners-Lee And Innovation At The Big Intersections
Richie Havens may have opened Woodstock, but the opening acts for the Innovation Project haven’t exactly been slouches - Warren Buffett, Al Gore, Michael Porter in years past. And, 2015 will be no exception.
Sir Tim Berners-Lee, the father of the Internet as we know it, will kick things off along with a 90 minute discussion with execs from Amazon, Intel, Bank of America, PayPal/Braintree, Alipay, Circle, Samsung, Visa, Oxigen and MasterCard. Liz Claman will moderate what will no doubt be an amazing conversation about how Berners-Lee’s creation has shaped the future of our world – a world that is being influenced by the intersections of mobile, digital, search, advertising, retail, the cloud and, of course the Internet, and how relevant it will be in a world that is moving away from the Web to a world of apps. Here’s how I talked about it earlier in the year.
...What Berners-Lee gave the world when he invented the World Wide Web was a foundation that innovators, with vision and ambition and imagination, could use to create the ecosystems that would reinvent and transform and innovate and disrupt just about every single industry there is – and create entirely new ones…
For instance . . .
Search and the ecosystems that made it possible to easily find information online was given life by two (now pretty rich and famous) Ph.D. students Sergey Brin and Larry Page, literally, in a garage in 1998. Sure, they didn’t invent the first search engine, but they did invent, by far, the most successful one...
In 1994, another guy in a garage in Bellevue, Washington, had an idea that consumers should be able to buy products online. His plan was for a “Web commerce” business called “Cadabra.” One year later, in 1995, Jeff Bezos’ Cadabra became Amazon and the multi-trillion dollar eCommerce ecosystem was born.
... The “banner ad” that gave birth to the ecosystem now called online advertising was born at the HQ of a webzine startup called Hotwired in 1994, interestingly, as a way to fund their publishing operation.
Using the Internet to send money and payments to sellers was the puzzle that two innovators by the names of Max Levchin and Peter Thiel thought worth pursuing a few years later. They, along with several others, founded Confinity in 1998 to do just that. Confinity would be acquired a year later by an Internet banking business, X.com, started by a guy by the name of Elon Musk. Three years later, X.com would become PayPal …
Mark Zuckerberg’s “theFacebook” started off as a way for people on college campuses to get to know each other more efficiently.... Later, it became a tool for connecting friends, families, and old classmates and even finding new ones. Zuckerberg’s theFacebook became the foundation of the ecosystem we now call social networks ...
… The cloud computing and the software platforms ecosystem that made it possible for innovation to be done less expensively and faster since technology could be purchased like any other utility and was brought to life in the late 1990s.
All of these things also inspired a series of innovators … to mash-up the features of a telephone, computing power and the computer’s visual display to create portable devices that used their own operating systems to power a variety of consumer functions like Web browsing, email and navigation and of course, telephony ...
Search. Online Advertising. Social. The Cloud. Mobile. Payments. Retail.
Seven massively powerful individual ecosystems that are driving (or being driven by) innovation from within those powerful ecosystems...
Access to the World Wide Web makes these singularly powerful ecosystems, incredibly dynamic, capable of creating entirely new businesses where they overlap and leaving behind the remnants of those incapable of keeping up.
And, payments and commerce is at the heart of this massive transformation.
With the Web transforming our lives, and transformed by the ways it changed us - the next question is about payments plays in that new ecosystem.
From Payments To Commerce
Next up is a conversation about how payments will become more critical the less visible they become. Mobile and the cloud give innovators an amazing opportunity to embed payments into just about any app, creating an “Uber-like” experience that blurs the on and offline worlds in a way that also delivers new value to consumers and merchants and the ecosystem more broadly.
Liz Claman and CEOs from Paydiant, Chase, First Data, WorldPay, Vantiv, NACHA, PayAnywhere, WEX, and the Fed, will share their experiences in meshing, mobile, data, the cloud, and apps to make payments important and invisible.
[Jack Dorsey noted] the best technology is invisible – that it basically does what it does when it needs to without anyone really knowing it is there. I wanted to know what aspect of mobile commerce needs to be invisible and what each panelist was doing to make that happen. There was pretty much the consensus that just about everything needs to be invisible. The end state that everyone is working hard to achieve is one where a mobile device simply prompts a consumer at the point of sale with the appropriate card type and the appropriate set of offers as a result of past behaviors and future indicators – without being creepy. I’ll settle for now for actual payment transaction being invisible. Anything that a wallet or an app can do to make payment invisible I am all for.
And making the payment more invisible and seamless is getting to be increasingly a skill on demand, especially as commerce branches across the face of the Earth. Our next panel is focused on navigating the change to deliver more incremental revenue to merchants.
From Global To Local
Cross border commerce is one of payments’ hottest topics. Trillions of dollars of unlocked commerce potential await those merchants who are able to serve a global audience by addressing their local preferences, customs and payments preferences. Aaron Goldman, Principal from General Atlantic, will lead a conversation with the leadership from cross border leaders Digital River, PayPal, peerTransfer, hyperWallet, Align Commerce, Bitnet and BBVA who will describe how they have cracked the code on going global by respecting local preferences and customers.
One of the interesting cross border commerce use cases that has emerged since Innovation Project 2014 is ShopRunner, with its focus on enabling the Chinese consumer to use their Alipay accounts with U.S. merchants that participate in the ShopRunner branded mall.
Speaking of the network, ShopRunner is also an online mall.
Today it has nearly 100 merchants, including Neiman Marcus, more than 1 million members and a run rate that will exceed $1 billion across the network. When a member logs onto ShopRunner.com, they can see all of the participating merchants and what offers they have available. If they see something they like, they click through to the merchant’s site and shop away, checking out with their ShopRunner credentials that automatically append any offer or promotion offered and free two-day shipping...
So, just like a physical mall that has a physical structure that makes it efficient to actually shop at individual retailers where brand and customer relationships are preserved, ShopRunner has established an infrastructure to do that same thing, except digitally. Instead of hawking free shipping, ShopRunner is delivering customer acquisition, engagement and incremental sales, wrapped around a convenient way to pay that preserves the relationship that the merchant has with the retailer since they are actually shopping on the retailer’s site…
If I were connecting all of the Alibaba dots here, and I have absolutely no inside knowledge here, I might be inclined to suggest that we have the makings of a nice ShopRunner retailer-centric mall for Chinese consumers to visit and buy from using their Alipay accounts. ShopRunner today includes the great luxury brands that appeal to Chinese consumers, like Neiman Marcus which has a strong interest in tapping into the Chinese consumer – last year they purchased Chinese fashion site Glamour Girl. With Alipay as a payment option, ShopRunner also has a potentially attractive value proposition for retailers who wish to reach Alipay’s 800 million consumers but who don’t want to go to the trouble of setting up a storefront in Tmall.
But it’s not enough for retail to have gone global – it has to also go digital and mobile. We’ve all heard a lot about how the device-carrying world opens the door to omnichannel as a game-changer, but as it’s rolled out a lot has changed about what we once “knew” about it.
From Retail To Omnichannel
Maybe it’s now time to rethink what omnichannel really means. When the buzzword was first conceived, it was used to describe the imperative for retailers to follow the consumer across the physical and mobile/digital channels as they went about their shopping journey. The implications were that inventory had to be accessible, pricing had to be transparent, preferences and payments portable and offers and loyalty programs seamless. And, all of those things are clearly important.
But that’s just the starting point.
Don Kingsborough, retail pioneer and payments innovator, and Mark Lavelle, GM eBay Enterprise, will get this panel of omnichannel aficionados, payments experts and merchants to wrap their heads around the notion of omnichannel as it relates to how the consumers are forcing retailers toward the retail model of the future, faster than they might otherwise be ready to move. The C-suite from Vantiv, Staples, Poynt, Rakuten, Cover and RetailNext will all debate ways in which omnichannel can be harnessed to add value to the shopping experience, including to the physical shopping experience in store.
Because, survival, as I noted earlier this year, is going to depend upon it.
Traditional retailers, going into 2015, are faced with a pretty different reality than what they were faced with a couple of decades ago when satisfying customers was all about location, location, location in a brick-and-mortar world. Location is still critical, but location is increasingly defined by a consumer that’s increasingly mobile and increasingly less brand loyal. Location is now a function of where consumers need their products delivered (or picked up or consumed) and who can accommodate those preferences and deliver what they want when they want it, whether that’s a second, a minute, an hour a day or two days from when the purchase was made...
...Over the next decade and maybe more, we’ll see this trend continue as consumers buy just about everything they don’t feel like they have to go to the store to inspect before buying online, including a bevy of consumer products once only purchased at grocery or drugstores. The savvy retailers will embrace this trend, improve their websites and make it easier for consumers to access what they need there to make a better purchase decision – reviews, sizing recommendations, inventory availability, etc.
Is every retail category at risk?
It would seem not, if retailers can figure out how to really hook consumers in. Our next conversation picks up where this one left off - as we try to figure out how to bridge the gap between luring customers in the first time, and keeping them engaged.
From Acquisition To Engagement
Every innovator's dream is to hook a consumer on their idea, to get them to give it a try, fall in love and get hooked for life – or at least a very long time. In payments, that turns out to be harder than it sounds because of the ingrained habits of consumers and the ubiquity of the merchant acceptance of plastic cards.
"Hooked" is also the title of one of the most interesting and useful business books on the psychology of getting consumers to break old habits and form new ones that I’ve ever read. Its author, Nir Eyal, will lead a conversation with CEOs of companies that are working hard to get consumers hooked on mobile and digital payments – Gimbal, Index, Reserve, and PayPal.
And, perhaps at the top of that list is Apple and Apple Pay, which has made the conversations about mobile payments a whole lot more top of mind for consumers now. Jared Schrieber, CEO of InfoScout, has collaborated with PYMNTS to ask consumers with iPhone 6’s about their Apple Pay payments habits and whether Apple Pay has caused them to seek out merchants that accept it and/or to spend more when they shop at merchants that do. We’ll get those results at IP – for the first time. And, we will find out how – or if - Apple has managed to get consumers hooked on mobile, a concept I explored last summer when I introduced Webster’s Habit Forming Theorem.
Getting consumers hooked on something new is every innovator’s dream. There’s only one big problem: Consumers don’t break old habits easily.
Psychologists say that consumers are just hard-wired to resist change, believing that whatever they’re doing today is vastly better than any value they could get from making the switch to something new. And, as consumers, we’ve all exhibited that behavior ourselves, whether it’s always ordering the same entrée at your favorite restaurant (that’s me) or buying the same brand of car (my father). Said simply, we all sort of prefer the devil we know to the devil we don’t….
So what’s the shortest path to producing the habit-forming behavior that every payments innovation is seeking? I’d like to introduce you to Webster’s Habit-Forming Payments Theorem.
If the two big variables that really determine whether people form a habit–or get hooked–is whether they can (are able) and want to (are motivated). If so, then highly motivated, highly able consumers are, therefore, the innovator’s ultimate prize.
So what’s the best way to position an innovation to win the ultimate prize?
Here’s where Webster’s Habit-Forming Theorem might help. The x-axis measures ability and the y-axis measures willingness – both from the consumer’s point of view. An innovation that has lots of willing consumers with no ability to use that innovation is a lost opportunity. Lots of ability to use an innovation without willing consumers is an uphill battle....
Speaking of uphill battles, financial inclusion for the underbanked seems to the problem that is resistant to any thought of solution. Our next panel takes up the few successes - M-PESA - as it attempts to figure out how to get the 2.5 billion who are outside of the financial ecosystem today, inside it.
From Outside To Inside
Two hundred-plus mobile money pilots with success stories so few that one doesn’t even need two hands to count them. Many ideas have circulated about how to make financial inclusion a reality for the millions of underbanked in the U.S. and around the world but few have really emerged to help those who need it the most.
The one success story that sticks out in everyone’s mind is M-PESA – and we have the father of M-PESA with us to discuss how he was able to ignite the only mobile payments scheme in emerging markets that has ignited and scaled. Michael Joseph and Liz Claman will engage a panel of passionate innovators from Mozido, Bitreserve, MasterCard, Money on Mobile, and Stellar who have created companies and schemes that they hope will beat the odds and bring 2.5 billion people from around the world into the financial mainstream.
But first, we’ll hear from Economist and MPD Founder David Evans, who will share the results of a yearlong study of mobile payments schemes around the world. To use his words, the results are so striking and conclusive that if we were testing a drug, we would immediately stop giving people the drug that the results so clearly show would kill them. And, Innovation Project delegates Evans’ prescription for financial inclusion first.
But here’s a hint, giving people mobile access means giving them access to cash. That 3,000 year old payments innovation isn’t going away anytime soon. Here’s why.
Walmart’s customers like cash and use it. In fact, Walmart says that a lot of them use a lot of it in their stores. That’s consistent with the research that me and my colleagues did at Market Platform Dynamics last year. We found that the total demand for cash in the U.S. and elsewhere isn’t going down—in fact it’s going up. In fact, one of the greatest needs globally is for more cash-in/cash-out networks because more people want to use mobile to put cash in and take it out of accounts, especially in developing markets where cards are not at all practical. By running toward cash instead of away from it, Walmart is making the smart play.
Walmart-2-Walmart, then, is what any good customer-driven company would create – an easily affordable new service that responds to a customer need. It’s also a pretty smart way to recycle the cash that it has on hand in its stores. Rather than paying armored cars to haul it away, with Walmart-2-Walmart, it has created and now monetized a cash-based P2P service. It’s also worth noting that this isn’t the first service that Walmart has launched that’s focused on cash. Its “Pay with Cash” service introduced in April of 2012 allows customers to shop on Walmart.com and settle that digital transaction in cash at its stores.
Perhaps most interesting of all about this new service is that while everyone else is trying to force this cash-centric U.S. customer segment to go digital for money transfer and other services, Walmart has decided that if its customers like using cash for whatever reason, then they’re very happy to abide by their wishes.
But it’s not just about having a good idea, but about an idea that is actually innovative enough to ignite. Which is where our next discussion will pick up, as PYMNTS looks at what really goes into an innovation, and who is really doing the innovating out there.
From Commodity To Value Added - The Pii360 Payments Innovation Index
Innovation is one of those things that is easy to talk about but really hard to define and deliver. And, in payments, it is a word tossed around so much that it has become hard to separate what’s truly game-changing from what’s simply interesting. Pii360, The Payments Innovation Index was developed to fill that void; it is the most comprehensive and exhaustive analysis of innovation ever conducted of any industry and the first one ever done for payments.
It was developed by Market Platform Dynamics in collaboration with leading academic experts on innovation, survey methodology, economics, and R&D and patent valuations. Pii360 rigorously measures 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.
Its authors and architects – David Evans, Gloria Colgan, and me will present the results of the full Pii360 report which will be made available for the first time ever during a special on-stage discussion moderated by Professor Josh Lerner, Jacob H. Schiff Professor of Investment Banking and Unit Head, Entrepreneurial Management at Harvard Business School, who was our advisor on this study.
But if you really can’t wait a few more days to find out for sure, reread my hints on who the top scorers are.
… Here are [a few] 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 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…
Perception Isn’t Always Reality in Payments Either
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…
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.
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!
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.
Stepping up the game will also be a hot topic during the next discussion, where panelists will take on the increasingly problematic field of cybersecurity - and how to stay ahead of extremely innovative and adaptive cybercriminals.
From Authentication To Identity
This panel will explore the range of issues that are emerging as payments move from physical to digital. Mobile, data and new technologies, including biometrics, make it possible for issuers to authenticate not only the transaction but the identity of the person making that transaction, and improve the overall security and integrity of the payments ecosystem.
PYMNTS has been talking about securing data and guaranteeing identity for since we launched - and has been ranking the options ever since. As is well known, I’ve had my questions about the application of EMV onto a plastic card with a chip on it for a while, now, a conversation that I reprised with Oberthur’s Philip Andreae a couple of weeks ago.
KW- If EMV wouldn’t have prevented that breach, or many of the others we’ve read about that have followed, why are we rushing to deploy a standard that doesn’t solve that offline problem – and the online problems that we will face as we ride the bullet train to the mobile and digital future?
PA- “If fraudsters had read a chip and tried to replicate a chip transaction, they could not. That’s the power of EMV – they can copy the data, but they cannot create the cryptogram. They cannot find the secret inside the chip. The problem we have today is that we – the merchants, issuing banks, acquirers, media, regulators – were never willing to spend the time to educate the merchant and most importantly the consumer of the need to secure this new virgin territory called the Internet.”
KW- So the “tokenized infrastructure,” in this case meaning infrastructure that renders data useless at the point of sale, is supported by EMV. The token that holds the randomized middle set of numbers on a given card is carried on the EMV chip – EMV, therefore, is a necessary first step.
“Tokenization itself isn’t solving the card not present problem – it’s just a piece of the puzzle. It does an excellent job at solving what’s called a ‘data at rest’ problem,” said Andreae. “If you think about First Data, Braintree, Heartland and many of the acquirers and merchants, they are already using tokenization solutions to render the data in their databases (at rest) useless.”
Which leads to an all important question - what is the best thing to do “right now.” And, as it turns out that is a question that’s much bigger than just security - and one about the expansion of the payments and commerce ecosystem in which a lot of different types of interplaying partners compete and collaborate.
That interplay will be on display in our next discussion.
From Banks To Non Banks
Banks are opening Internet cafes in an effort to reach millennials. New platforms have emerged that match willing lenders with in need borrowers to fill the gap that traditional bankers created when their lending spigots turned off in 2008. New Internet-based players are bundling traditional banking and merchant services – transactional credit, P2P payment, invoicing, merchant cash advances, card processing – in a single platform that takes the place of what a more traditional financial services provider would typically offer. In the meantime, banks are forced to keep up with regulation that makes it difficult, impossible or costly to offer the portfolio of services that they once did.
And, the man who created the seminal piece of legislation that many believe opened the floodgates for these new innovators to emerge, Michael Barr, will be on hand to lead a conversation with many of the innovators who have emerged over the last few years to fill the service and product gaps that this legacy legislation, Dodd Frank, created. Barr and the CEOs of OnDeck, CAN Capital, Intuition Systems, Level Money, LendKey, FastPay and Pitney Bowes Financial Services will share their views on how they are both disrupting and transforming the financial system and adding value to consumers and businesses.
“There is a full spectrum of small businesses – we service thousands of [SIC] category codes – that are perhaps too small to get capital through other financial organizations and those for whom traditional bank products perhaps don’t fit. We work quickly, we work with real-time approvals and with fast funding so business owners can get back to running their businesses instead of searching for capital,” CAN Capital CEO Dan DeMeo told MPD CEO Karen Webster in a recent discussion. “We are able to collect information, use proprietary technology to power and provide access to funding that small businesses can’t find elsewhere,” DeMeo offered. “Yes, there are more entrants now – not that long ago, we were on the track primarily by ourselves. Now with others in the race, it’s made us stronger. We’re one of the few in the category that’s figured out how to do this in a profitable way.”
Ah, yes profits. The other “P” word in payments. Finding those profits often involves another “P” word – pivot, the course corrections that are often the result of market shifts and reactions to a product or service in market. Learning from the pivots is something that is often overlooked but vitally important. It is also the subject of our next panel.
Learning From The Pivots
Jimi Hendrix wrapped up Woodstock back in the day, but Innovation Project has not one but two “Jims” and a “Tim” who will headline the discussion that will wrap the Innovation Project 2015 – Jim McKelvey, the co-Founder of Square and Jim McCarthy, Head of Global Innovation at Visa and Tim Attinger, Head of Global Development at Monitise. They will engage the CEOs of some of the most interesting disruptors in the space on when to pivot, why and what you can learn from doing it. The C-listers from BoomTown!, LevelUp, PaySimple and EVO will let you in on their secrets to being nimble enough to switch gears when it’s needed, and being smart enough to know exactly when to do it.
Of course, all under the guise of shaking up their little piece of the ecosystem – disrupting the status quo in an effort to move us ever closer to the end game – transforming the way that consumers shop and buy and merchants get paid.
Disruption has become the catch-all word used to describe just about anything that anyone is doing that’s new. No one (but apparently Clay Christensen in 2007) would dispute that the iPhone is a massively disruptive innovation. But the word “disruption” loses a little of its luster and a lot of its credibility as a concept when used by every new startup or business to describe their idea. Yes, there are lots of good ideas and some really innovative ones. But there are very, very few truly disruptive innovations. Nielsen hands out innovation awards for products that are not merely a slight change to an ingredient or an overhaul of packaging or portion sizes. And whether an innovation is disruptive or not is sometimes not apparent for many years or sometimes longer. Yet, the halo now associated with bringing “disruptive” ideas to market and the market’s expectation that everything worth doing now has to be disruptive to matter creates a pressure to describe everything as disruptive – nothing less now will satisfy investors, CEOs and boards.
But is that the right way for companies to think about innovation?
Disruptive innovation is really, really hard to deliver, much less sustain and profit from. Most of the startups that attempt innovation of any kind fail, never mind the disruption innovation of which Christensen writes. So, unfortunately, do most of the established companies that try it.
“Vague but interesting.”
That was the first review of the idea that would later grow into things we all know as the Internet today and a remark given to its inventor, Sir Tim Berners-Lee by his boss at the time at CERN.
Twenty-six years later and the Internet is no less interesting than it was in its early days of conception – though perhaps more interesting now is the completely transformed information and commerce infrastructure that it has given birth to.
And those ideas – which will prominently on display for two days in Cambridge this week – are anything but vague. From data tokens, to cross-border commerce, to Uberized refrigerators that do their own shopping completely independent of their owners, to the next generation fraud fighters to really seeing how and what is hooking consumers to grab onto the innovators we are all putting into market – the best and brightest will share the most specific, the most innovative and the most promising ways to eliminate old pain points in totally new ways.
Are you ready to greet those new ideas and meet those innovators?
Fantastic! I look forward to seeing you on Wednesday.