“It’s better to be a dog in a peaceful time, than to be a human in a chaotic period,” is the literal translation of what has been proffered over the years as English translation of the Chinese saying “May you live in interesting times.”
That, of course depends on who you ask.
I recently asked Paul Galant, CEO of Verifone. From his days as CEO of Enterprise Payments at Citi to now CEO of the world’s largest electronic POS technology provider, Galant has seen and lived thru a number of interesting times in payments and commerce.
When we last chatted at the Innovation Project 2016, Galant and Verifone had just blown away analyst’s expectations, reporting earnings and revenue that exceeded guidance. Then, two and a half-years into the role, Galant had steadied the Verifone ship and capitalized on the transition to EMV in the U.S. and in other markets worldwide and the innovation that moved Verifone’s focus from “just” a terminal manufacturer to a commerce enabler. Scale, Galant told me then, was the litmus test of what would pass muster at Verifone – if an idea or an innovation couldn’t or didn’t it got axed. Scale and focus, Galant said, was the discipline he and his team at Verifone used to get its bottom line back in shape after years of uneven performance.
Fast forward a few months.
The two quarters that followed, Galant told me recently, underscored how even scale – on a global level – in “interesting” and “chaotic” times driven by macro-economic forces, may not be enough to insulate any company from the ripple effects that they create.
In theory, of course, the advantage of scale when the world becomes both “interesting” and “chaotic,” is that it insulates businesses from one-off shocks – or even a cluster of unfortunate events. Equilibrium, on balance, is achieved overall since the markets that get a little too interesting are balanced out by those that are truly interesting for all of the right reasons.
In practice, we both agreed, the digital age – and the interconnectedness of systems and economies –combined with the extremely fast flow of information around the world and back –means that messiness in one corner of the map has a tendency to spread rapidly. And, this year, 2016 has been a particularly good year for making this point. Between Brexit, Chinese economic uncertainty, the collapse of Brazil’s economy and Turkish coups, country-specific events undoubtedly impacted the global stage for everyone.
Global scale, therefore, can become as much of a challenge as it is an advantage.
“The world works in such a connected way now, when Brazil goes down, the rest of South America isn’t really insulated. When terrorists strike Brussels or Turkey falls to an attempted coup, suddenly everyone with concerns over the possibility of an internal conflict thinks that can happen there.”
The ripple effects loom large since where there’s economic uncertainty, Galant explains, there’s an impact on commerce, and, worse, any downstream decision related to investments in commerce.
Galant speaks from a position of knowledge and credibility here since no matter where “here” is, Verifone is probably there, too. One half of all the payments transactions on the planet Earth run through their terminals and platform – as in $7 trillion every year. (Just to put that in perspective, the 2016 budget of the United States stands at an estimated $4 trillion.)
So, the strain of operating at global scale in a world that’s spent much of the last ten months acting – well, oddly, to put it mildly – has taken its toll. Verifone’s two latest earnings reports disappointed analysts and stock prices have taken a hit.
Now, three years into the job as Verifone CEO, Galant told me that he’s less focused on what went wrong those last two quarters – particularly given the large portion of things beyond Verifone’s control – and more focused on what’s next, because what’s next is where it gets pretty exciting, he says.
“We’re in the best industry in the world. Payments is truly interesting and I think payments is also evolving very rapidly but not in the sense of just paying for something. Payments is now able to inform the entire consumer experience,” Galant told me. “And I think ultimately we are going to see the world do more, not less with electronic payments. But it won’t be linear – and can’t be.”
A Different Challenge
The payments space is often “interesting” because it is so complicated – a complexity defined by legacy systems that have grown up over decades.
These rails may be “old school,” Galant said, but they work pretty darn well. They operate at scale – authenticating consumers, authorizing transactions, plus clearing and settling those transactions in a nanosecond, billions of a time a day. That means that changing anything in payments, even the most seemingly small thing, involves essentially rewiring the DNA of a hardened infrastructure. And, at the same time, the system has to operate at scale, safely.
Which makes the transition to EMV in the U.S. one of the more “interesting” developments facing everyone in the ecosystem, including Verifone.
“The scale of payments is amazing – it’s become the core infrastructure of life – think of anything that you do that doesn’t involve payments in some measure,” Galant remarked. “Digital pure-plays who have no legacy can invent, legacy players have to reinvent.”
Which, Galant told me, explains why the EMV rollout in the U.S. has taken longer than expected. Retailers are using the opportunity presented by EMV to not only to upgrade terminals, but to “crack open the hood” to reinvent their POS environments, including examining how to up the ante on the security issue that ushered in EMV in the first place – the Target breach.
“When merchants opened up their payments systems, most of them used the opportunity to look at a lot of new things, including encryption, which is good. But in doing so, they upended the IT department’s entire way of doing payments,” Galant said.
In other words, EMV provided retailers and the entirety of the payments ecosystem with the opportunity for a good “rewiring” – the merchant, the network, the acquirer, the private label processor and the terminal manufacturer.
“When people say that EMV has taken too long, they are absolutely right. But it’s not just EMV. It’s using the opportunity that EMV created to re-engineer, re-imagine and then re-certify the entire payment architecture of some of the biggest merchants in the biggest commerce center on the planet.”
As the payments system evolves, and as retailers continue to re-engineer, re-imagine and then re-certify, Galant says that Verifone’s job is as the enabler of that opportunity for merchants. To do that, Galant says, Verifone must go beyond its core product set to those that allow retailers to manage their business as a single unit from end-to-end: commerce platforms, offers marketplaces, and enterprise payments and commerce management programs
Galant emphasized that these solutions will look different in different parts of the world. In the developing world, they will likely be “leapfrog” solutions that really do allow merchants and consumers to skip from a cash-only economy to one based on mobile technology.
In the developed world, they will be about expanding Verifone’s purview past payments hardware and into the world of software, services and assets that it will offer as a full payments solutions provider, including helping retailers move to a world that isn’t defined simply by the channel – physical or digital – that the consumer shops. Galant sees initiatives like that which Verifone has done with Visa and Cybersource as important stepping stones to helping retailers blur the lines between the physical and digital shopping domains.
Galant told me that transformations of any kind are not easy, of course, nor without growing pains– but these “interesting times” will mean a world and a firm that’s much better for the wear: More stable, more secure and more accessible to everyone.
“We’re here to stay, we’re here to grow, and we’re going to be more and more relevant everywhere and to everyone we serve, Galant said. “We see how the various payments threads are coming together across the globe into a new, interconnected and actually ubiquitous architecture that changes financial services and commerce for the better for all the players involved – and Verifone is well positioned to be that commerce change agent.”
And a CEO who sounded to me over the course of our chat, who’d pick the challenge of being a “human in a chaotic time” in payments every day of the week.