Payments Innovation

Sleepless In Payments

The world is increasingly sleep deprived.

Nearly 70 percent of adults in the U.S., 75 percent in the U.K. and nearly a third of the world’s population say that a good night’s sleep eludes them at least once a week. Sleep experts contend that people just sleep less than they used to, maybe even as much as 20 percent less than even a few decades ago.

That is unless you live in Melbourne, Australia, where things seem pretty chill. Those guys and gals sleep the most of anyone in the world – about six and a half hours a night – and pretty peacefully.

Everywhere else, though, there seems to be a lot that keeps people tossing and turning – and that was before the 2016 Presidential race in the U.S. kicked into full meltdown mode.

Innovators, for the most part, are probably the most sleep-deprived people of anyone, anywhere.

There’s always a lot to do and never enough time to get it all done.

Lately, though, they’re probably tossing and turning over the difficulties with raising capital coupled with the simultaneous descent of their venture’s valuations. Yes, the sobering reality of having to really make money has become an unwelcome wake-up call for those who masked the real value of their business with the never-ending piles of VC cash that just kept underwriting losses and kicked the revenue can way down the road.

If you’re an innovator in payments and commerce, there’s actually quite a bit more these days that will keep you from getting a good night’s rest.

At least six things, in fact.

Introducing The Sleepless In Payments Six


A lot of the offline world is in a world of hurt.

Take physical retail.

Big brands are closing stores right and left because shoppers don’t visit them as much as they once did. The ability for busy people to shop 24/7/365 via a mobile device trumps the serendipity that everyone says is one of the great benefits of shopping in a physical store. Who hasn’t gone into a retailer with the intention to buy one thing, only to see a few others that you never knew existed and then end up buying those things instead – and probably also spending more? But that, coupled with the value of interacting with real human beings who can help “close the sale” and treat loyal customers like VIPs, is among the reasons that physical retailers want nothing more than to have consumers step foot in their stores. And paying for stuff was a breeze, too.

So what would physical retail look like if it were run like the best online etailers?

Store shelves would detect shoppers’ movements and dynamically change pricing based on demand and inventory on hand.  Recommendations would be easily accessible — as would lists of top-selling products – since we all know that people love to buy what other people have. The shopper’s purchase history would be available to remind them not to buy what they just did, or suggest things that might work with what they just bought. Coupons and discounts would be applied at checkout automatically – no paper coupon stuff to fumble with — and would maybe even be triggered by a device that a consumer has in her hand or her pocket just like she experiences when she checks out online.

The ability to track shoppers as they move around the store – like online merchants can do on their websites — would help store operations rearrange merchandise to maximize the opportunities of a sale, or ditch stuff that never sells and takes up valuable space on the shelves.

But that’s only one slice of how the offline experience could be made as intelligent as the online world.

The connected home is all about making a wide variety of the devices found in our homes smart enough to enable routine activities – turning lights on and off, locking and unlocking doors, activating alarms – without human intervention. A whole new crop of devices is capable of doing even more, including commerce. Refrigerators and pet food bowls and coffeemakers, and washers and dryers can now sense when supplies are low and order them without the need for a consumer to take any action whatsoever.

Cars, too, are becoming software platforms and enabling all sorts of new capabilities. Like alerting gas pumps to activate — and even which station has the best prices – and where the closest QSRs are. They can also alert stores that their VIP customers have entered the parking garage and where parking spaces are available. All capable, of course, of enabling commerce as part of any and all of those experiences.

But as innovative as all of this sounds, all of this is still very early days, and very, very aspirational. We might be able to make refrigerators smart enough to order stuff automatically, but is that what consumers really want? Or would they rather be in control of what gets ordered and when, and talk into a device or an app that still makes it easy to order their own stuff instead?

At least right now, it’s also not clear that having access to all of the new data that intelligent devices generate magically makes the offline world smarter or the people tasked with operationalizing these new capabilities just more overwhelmed with volumes of data that they can’t action. And, is leveraging connected devices and the Internet of Things phenomenon an opportunity for businesses to truly recast their businesses – or a convenient cover for businesses that can’t make a go of their existing core businesses?

Most relevant to payments, in each of these situations, is adding payment to this new offline world of opportunity a catalyst to unlocking the opportunities at the edge of where payments is today and where it would like to go? Is it an enabler to accelerating the opportunities? Or is it just a new source of friction?

The sleepless part for innovators large and small is just how much of this is too far at the edge of payments and commerce for it to get traction and scale. Technology and the Internet of Things mantra is exciting, exhilarating and in many ways, an innovator’s dream.

Instead, what might be keeping innovators up at night is whether consumers – outside of the early adopters – truly feel the love or simply shut down, given the number of devices with commerce capabilities that they now feel that they have to monitor and manage. And whether businesses see the value – and are capable of executing any of this in a timeframe that’s relevant to them, and their customers.

And whether, if one and two come true, there’s a business model underneath all of it to profit from.


Here’s insomnia-inducing problem No. 2 for innovators: Are innovators really solving the right problems for the right people?

Because we’ve all seen what happens when we let the shiny new toy syndrome (aka what’s best for the innovator and not the end user) drive innovation.

Take checkout.

As I wrote last week, in some sense, the payments industry got the retail industry all off track in pushing mobile wallets in-store instead of mobile wallets as a way of reducing friction online. Offline checkout has always worked pretty well, while online checkout was tolerated on a desktop with a bigger screen and a keyboard. Online, the checkout situation is so bad that most retailers score a failing grade and overall, are set to leave $158 billion on the table this year. Mobile checkout in the physical store was intended to solve a payments industry problem – getting consumers to move to NFC – at the expense of solving the real problem for consumers and merchants – converting shoppers to buyers online, especially when they use a mobile device.

Prepaid is another product category that sounded good to innovators but perhaps less compelling, at least so far, to the intended end user. As a category, GPR continues to struggle. The unbanked and underbanked may not have any money, but they have a very clear understanding of how they like to manage the money they have. Prepaid plastic cards delivered an opaqueness that cash in their physical wallets never did. Did prepaid really solve a problem for people – or did it instead try to solve a problem for the industry that was determined to move cash to digital?

Then there’s the digital banking movement and the land grab for the bank accounts of millennials. There’s only one problem – as a category, millennials don’t really have any money to put in those bank accounts. Yet, that hasn’t stopped the formation of a host of digital-only banks that cater to this consumer segment that by and large has no money, requires only the most basic of financial services but demand lots more complicated ones that they don’t want to pay for, isn’t very loyal to any brand for any period of time, but happens to live and breathe on their mobile devices.

Other than that, it sounds like a great strategy.

Which begs another question: Just what happens when these young-uns whose simple needs are served today via a pure-play digital bank grow up, get married, have kids and want to buy a car and a house? Will they mirror the behavior of every other cohort their age over the last five decades and require more complex services that they’ll want delivered by a more traditional clicks and bricks bank?

It’s too early to tell, but it surely does beg the question, of course, what problem digital-only banks are solving for today – and is it a problem that they can both solve and profit from as their target market matures?


You, of course, know the story of Smith Corona. (Unless you are a millennial, in which case you can check it out on Wikipedia on your mobile.)

Until nearly the day before it closed its doors, its CEO affirmed his commitment to making the very best typewriters there were. And they did. Their only problem was that no one wanted to use them anymore. The market had moved to the PC and personal computing. Being the best typewriter company assured Smith Corona of one thing: having a huge market share of a market that was vanishing.

That’s a bit of the same dilemma that all device manufacturers have facing them today in payments. It is clear to everyone that point of sale is moving from being all about the hardware to being all about the software inside of any device, setting up a number of decision points on the part of every single player in payments — not just the terminal manufacturers who understand that the last thing they want is to be the typewriters of payments.

A fundamental question facing the payments industry now is the degree to which software is truly “eating the POS,” or whether the hardware/software bundle that is enabling checkout is just different.

Different because who makes and operates the devices are different.

Different because of the new opportunities that embedding payments in software creates – and destroys.

Different because where checkout happens is different.

Different because businesses now demand features and functions that help their businesses operate as better businesses, not just enable payments.

Which means that as payments moves to the edge, where every device that can connect to the Internet also has the potential to enable commerce, the number of devices that consumers interact with expands exponentially.

Which perhaps begs a more basic question: What comes first – the device or the software – and how tightly should hardware and software be bundled in a world where countertop terminals will become less important and mobile devices will become more so?


The POS breaches that colored our world in payments starting at the tail end of 2013 set in motion a whole host of activities designed to protect payments data at the physical point of sale. Big merchants threw their support behind EMV as a way to avoid having counterfeit cards used in their stores. That, along with tokenization and point to point encryption became the trifecta of payments security.

All pure goodness, with two big exceptions.

First, everyone acknowledges that EMV does nothing to stave off the real and growing threat which is fraud online – a situation that’s increasingly happening as more consumers transact online even when they are interacting sometimes with a physical store – e.g. mobile order ahead and click and collect. Online merchants and hundreds of innovators are hard at work now trying to plug that growing hole in the payments’ transacting dike.

But the second is probably most troubling and potentially the cause of a lot of sleepless nights for both consumers and innovators.

Consumers aren’t bothered all that much about having their card credentials compromised. Don’t get me wrong, no one wants that to happen to them, and it’s a royal pain to wait for a new card and then change out card numbers everywhere they might be stored when it does. But, consumers have been trained that they’re not responsible at all when a bad guy compromises their card information. They bear no liability, so, although an inconvenience, it’s not as if they’re worried about how those credentials can be used down the road. They know they won’t be – and even if they are, they’re totally off the hook.

But cyber crooks who steal their name, address, email address and SSN is what consumers really worry about since that actually can compromise their well-being down the road. Having all of that personal information at the ready is how the bad guys establish legitimate accounts that can wreak havoc without the consumer knowing about it – at least for a while.

Which suggests that the focus in payments needs to shift toward keeping customer data secure, not just the payment card information they carry around in their physical or virtual wallets.

Now the payments industry knows this as they observe those bad guys hacking their way right and left into health care, employer and government databases, and scrounging around lots of other digital nooks and crannies where data might not be as secure. Then using that data to create commerce identities to buy things that can be resold at a very high marginal profit for the fraudsters.

Which begs the question: How do we as an industry keep personal consumer data safe, standardize on the methods needed to do so, and, if compromised, how to keep consumers safe from its fraudulent use? Who decides on those standards, and what does the payments industry do in the meantime to protect consumers and themselves from that type of fraud?


The financial services world is awash in the faster payments narrative. The popular line goes something like this: We need payments to go faster, and we need them to go faster, faster!

It’s a wave that was set in motion worldwide a few years ago when regulations in a few countries mandated that consumers and businesses have a right to access funds sent to them in real-time. Now it’s still early days, but there’s not a whole lot of evidence that consumers and businesses have gravitated, en masse, to many real time payments solutions.

In other words, it’s a teeny and tiny part of the payments mix in the countries where it was required to happen.

Here in the U.S., the financial services industry has worked itself into a lather to move heaven, earth and 13K banks toward a faster payments solution — or should I say solutions — that would allow originating banks to move money to a receiving bank and for that receiving bank to make those funds available to those consumers instantly.

Instantly, and irrevocably.

And with multiple solutions facing the industry to enable this new capability:

  • Same Day ACH will begin its Phase One rollout this fall.
  • The Clearing House says it will have something in market by the end of the year.
  • SWIFT has recruited 45 or so banks and let it be known that it wants to throw its faster payments platform hat into the ring.
  • Early Warning, which bought clearXchange, is expanding its banking network to enable real-time solutions between banks for B2B, B2C, C2B and C2C solutions.
  • There are a host of existing global rails that already move money in real time around the world today – from the card networks to Western Union, who are devising solutions for the use cases that they view as ripe for faster payments, like disbursements.
  • There is a gaggle of innovators who use software to ride on top of existing payments rails that can make real-time use cases like bill payment, real time and interoperable, and distributed ledger software players who are aiming to use software and private networks to move money in real time.
  • And, then, of course there are the dozens, if not hundreds, of blockchain players who all claim to be capable of moving money in real time to and from anyone, despite the fact that the blockchain is reported to be maxed out – if your definition of real time is now 43 minutes and counting sent via the banker’s favorite currency: bitcoin.

That aside, perhaps the bigger question on the table for everyone is whether faster is the only qualifying criteria for investing in new rails and methods to move money between parties, or whether smarter and more flexible – and, of course, secure should be the end game instead.

And if so, how many sets of rails do we need to do that, can existing rails be made to serve that purpose, how much it will cost to build new ones, and how can banks — especially the receiving banks who have to do the hard work — monetize their investment(s) to get the return on their investment. P2P is the use case that everyone uses to rationalize the need, yet is the one where the business case is that consumers won’t pay. That, among other things, raises a lot of very tough questions regarding faster payments.


Giving everyone in the world access to affordable financial services is an incredibly important and worthy goal. The World Bank says that there are 2 billion people who don’t have access to financial services, and billions more who are not served well by the services that they have. Yet delivering on that need has been relatively illusive outside of the success of a few countries in Africa despite the hundreds of initiatives and billions of dollars that have been directed to those efforts – and the near ubiquity of mobile phones everywhere in the world.

Banks, telcos, card networks and a host of third parties have all tried to wrestle this problem to the ground for a very long time. Yet, according to our Financial Inclusion Tracker, the gap between the providers of those services is getting larger. There are many suppliers of service who have done little to move more people into the ranks of financial inclusion.

That’s actually part of the problem. In the developing economies, there are too many players trying to own what is in reality a huge market with very challenging economics. And markets in which turf battles rule the day: Central banks would like banks to drive mobile money programs, yet the telcos have the relationship with the consumer. Regulatory barriers, which are now starting to relax in countries like India, have made it hard for non-bank players to enter and serve consumers with a viable solution. And, necessary infrastructure, like cash in and cash out networks, are ignored as not relevant – when, in fact, they are an essential part of igniting a mobile money scheme. Giving someone a plastic card to use, even if that card doubles as their identity card, doesn’t work in the villages where the only thing that works in those shops is cash.

Solving the financial inclusion problem requires an ecosystem – a platform that can create an interoperable solution driven by mobile devices that help make the invisible and underserved today, visible, inclusive and capable of adopting solutions that can help monetize the delivery of those services. The big question for innovators is where do they – and should they — play? And with whom do they align? Going it alone hasn’t worked well for the more than 200 players who’ve tried, at least so far.

And there are probably six – or 16 – more questions to lay out, including the sleepless nights that everyone has worrying about the regulators, what they might do, and how they are interpreting the many, many now grey areas that existing regulations simply never accounted for in an Internet/software/mobile/data/platform-driven commerce world.

But since I’m already at 3,500 words, I’ll stop.

What’s clear though is that at the very same time that payments and commerce and retail are faced with such tremendous opportunity, they are also faced with new questions that arise now that commerce and payments are moving well beyond the places where consumers once only transacted: the physical store. It’s exciting and exhilarating at the same time it is terrifying and filled with risk.

But knowing what questions to ask, and when, is part of the journey.

We’ve always been told that there is no such thing as a stupid question. Now more than ever, making sure you ask questions – and the right ones — can make the difference between being successful and simply spinning your wheels for no real gain.

So tell me, what about payments and commerce keeps you from getting a good night’s sleep? I’m planning to ask the CEOs of some of the biggest companies in payments and commerce that very question on March 16-17 as part of the Innovation Project. If you’d like to be on hand to hear what they say firsthand, drop me an email and I’ll make sure you get a VIP invite.

Happy Monday!


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