This Week In Payments: Retail’s Digital Shift, Uber To Buy Postmates, The Digital Yuan Advances

There was no shortage of news in payments and commerce this week, but perhaps the biggest news that didn’t make a headline was that this week marks the first full business week of a second half to what’s already been an incredible year.

Jim Robinson, co-founder and partner at RRE Ventures, told Karen Webster during our latest This Week In Payments conversation that it’s hard to believe the pandemic has only gone on for a little more than four months, despite feeling in some ways that it’s been a lot longer. How is Robinson handicapping the rest of the year and the industries and companies that will likely see it through to the other side? He told Webster that there’s one fundamental question to be answered: “What’s their staying power?’”

Staying power, Webster said — that will depend upon how and when consumers feel comfortable re-engaging with businesses, given that their health and safety is driving nearly their every decision. And although many firms have reopened, consumers aren’t comfortable getting back to their pre-COVID behaviors even if they could — and might not until there’s an effective COVID-19 treatment or vaccine.

Something, Robinson pointed out, that might take even longer to play out, explaining that half of the second quarter occurred at a time when much of the country had yet to truly experience much of a rise in COVID-19 cases. Skeptics wondered, even as recently as a few weeks ago, whether the pandemic was even real, but many have now become convinced as the disease spread from just a few hot spots like New York to more and more of America.

“Going into this quarter, we have a lot more people that are going to be reticent to go out even [as] things open up in Phases 2, 3, 4 and so forth,” Robinson said. “So, the impact could be quite a bit greater [in the third quarter] than in Q2.”

Other developments that Robinson and Webster saw this week included:

The Retail Digital Shift

This week saw new traditional-retailer casualties, with Brooks Brothers, Sur la Table and Bed Bath & Beyond shutting down stores or declaring bankruptcy. That brings the number of retail stores that have closed since January to some 9,000.

Robinson said some of the retail digital shifts that we’ve seen in recent months will unquestionably become permanent. “You'll never return to a world that’s 100 percent the way it was,” Robinson said.

A great economy and a bull market over the past decade masked many of traditional retail’s ailments as consumers shopped till they dropped across retailers’ physical and digital channels and had plenty of income and credit to buy things.

As a result, consumption reached all-time highs over the past decade, and especially in the last five years. “We did have an abundance — an overabundance — of retail and overbuilt physical infrastructure for retail,” he said. “A lot of that won’t necessarily come back in [the same] way.”

But he added that even before the pandemic, “what we were also getting used to … was buying things without touching them or seeing them or feeling them first,” a nod to the comfort that consumers had — and now have even more of — to buy things online.

That even extends to some surprising categories. For example, Robinson noted that even buying home furnishings that way was something that the catalog industry knew worked “for decades.”

Delivery Platform Consolidation 

One of the other newsmakers this week was Uber Technologies’ bid to buy delivery platform Postmates Inc. in an all-stock deal valued at $2.65 billion. Uber plans to run Postmates as a separate company after the deal closes, but with a more efficient combined delivery and merchant network to support it.

The agreement came just weeks after Uber’s attempt to buy Grubhub fell apart, with Grubhub accepting a $7.3 billion buyout offer from Just Eat instead. The Uber/Postmates deal also comes even though Uber is losing money and analysts say that privately held Postmates is likely to be unprofitable, too.

Robinson said the mindset behind such deals is to acquire customers as loss leaders today to create a combined company with enough mass to eventually make money.

“That's a great idea if you’re the only one that thinks of it and executes on it, [and] it's still a good idea if a couple of people do it,” he said. “But as you get into many vendors … you end up with too many players and none of them can make any money. And the bigger ones — the stronger ones — tend to be the ones that acquire the smaller ones and have more staying power. But the goal ultimately is to get it down if you’re an Uber to just a few players so that you will have more price control.”

However, restaurants don’t want to pay for these services because that cuts into their already thin margins, Webster observed.

They’re also afraid of losing control of their customers. Robinson pointed out that restaurants worry that they’ll lose direct connectivity with new and existing customers through the aggregators. “What you would expect to see in food — but we're not really seeing yet — is the ability for the end nodes to be reached by the businesses themselves,” he said.

There are companies providing that service now. For instance, Robinson said he’s an investor in OLO, which is empowering restaurateurs to have direct connectivity with their customer base.

Coming Soon: A Digital Yuan For Transportation

China has been toying with the idea of creating a digital currency to replace physical cash in circulation for some time. This week, news broke that China’s central bank would pilot that digital currency with Didi Chuxing, the Chinese ride-hailing giant. Didi said in an announcement that it would work with the People’s Bank of China’s Digital Currency Research Institute on the effort, with a rollout reportedly in sight for 2021.

The idea, Robinson said, was to eliminate the intermediaries — payments players, banks — and enable central banks to have a direct connection to the consumer via the digital yuan.

Asked about whether this represents a template for how — or if — other central banks might consider the deployment of digital currencies, Robinson predicted that the G-12 and maybe the G-15 will eventually have a central-bank digital currency. There might be, say, a Euro coin, or a dollar digital coin.

And while Robinson said there are about 83 currencies in the world, he said countries that want to have digital versions need the “wherewithal to survive a $100 or $200 billion mistake … because you may well get one, and there aren't that many nations that can do that.”

However, the government sovereign-crypto model has its downsides as well.

“The central-bank currencies will be centralized,” Robinson said. “They will have a lot of data, they will have a lot of information and they will at least in theory — and actually, really, all of them in practice — have the ability to shut things off at a moment’s whim. And it won’t be that many years before almost all of those decisions are made by AI, with the exception of reporting.”

Robinson said that could impinge on the “three freedoms” that people enjoy in the United States — freedom of speech, freedom to travel and the ability to generally buy and sell services freely. If a government-control layer exists in the future, authorities (or an AI proxy) could potentially be positioned to judge an individual based on behavioral characteristics and dial back on the person’s freedoms based on those algorithms.

“For most people, they won’t really be that concerned about it,” Robinson said. “[Americans] in particular, [are] not generally concerned that much about privacy, [but] it can be a pretty alarming thing. And it’s a very easy thing by degrees to find all of a sudden, you’ve lost control.”




About: Accelerating The Real-Time Payments Demand Curve:What Banks Need To Know About What Consumers Want And Need, PYMNTS  examines consumers’ understanding of real-time payments and the methods they use for different types of payments. The report explores consumers’ interest in real-time payments and their willingness to switch to financial institutions that offer such capabilities.