In about two weeks, 2018 will be one for the history books. And from a payments and commerce perspective, it really has been one heck of a year.
Over the last 12 months, we’ve seen consumers acquire and use connected devices in new and different ways in the pursuit of commerce.
We’ve seen big moves from key players to consolidate the payments ecosystem, streamline payments friction and gain scale.
We’ve seen regulators both here and abroad usher in new rules for how payments and financial services are delivered, which threaten the structure and existence of Big Tech.
Despite headlines to the contrary, we’ve seen physical retail continue to be decimated as consumers shun stores for the convenience of online purchase and delivery.
We’ve seen crypto plummet – although at $3k+, it isn’t clear whether the bubble has burst just yet.
And we’ve seen blockchain and blockchain tech keep the press release business thriving with a dearth of tangible results behind it.
Right around this time last year, I made several predictions about what the year in payments might look like in 2018. Rather than call winners and losers, I put forward a few broad themes that I thought would underpin the events of the year to come.
Now that we are nearly on the other side of that year, I thought it might be fun to look back to see how well my predictions held up.
At the start of 2018, I said it would be the year in which "power brokers would boost their power."
By that, I meant those with scale would expand their presence in the ecosystem and strengthen their relationships with consumers.
Why? Because payments and commerce require scale.
But unlike the power brokers of old who bullied their way into the consumers' pocketbooks, it would be the consumers who invited those power brokers into their worlds.
And that they’d do that via the growing proliferation of connected devices that give them access to the internet anytime, anywhere, as well as a connection to any entity – a merchant, a business, a bank – where she wants to do business. These connected devices, I said last year, would shorten the distance between the consumer and a business – a store, a manufacturer, a bank – while also increasing the distance between the brands consumers were purchasing and the underlying payments they would use to make those purchases.
I suggested that those forces would, this year, drive an appreciable shift in the balance of payments power to those with the scale that can deliver that access. That, in turn, would make the power brokers of 2018 not only those that made connected devices, but also the software and payments platforms that enabled access across any platform. That means any operating system, and any device using whatever interface the consumer wants to use – type, click, text, voice, click or swipe.
And I added that consumers would decide who made that list – in 2018 and in the years to come.
For that, I think I did pretty well.
Look no further than Amazon’s grip on the consumer and her purchase behaviors, PayPal’s growing share of mobile wallet online, Walmart’s moves to grow its base (online and off), the card network’s embrace of Secure Remote Commerce (SRC) as a way to create a secure and interoperable standard for the 75 percent of online checkout that happens via guest checkout and the pervasiveness of voice-activated commerce – Alexa, in particular – as the trusted broker of commerce, in-store and digital.
Then I said to "think commerce first, not connected devices … and think power brokers like Amazon, not Apple."
2018 was the year we saw Apple, the company that hit a $1T market cap, lose ground in smartphone sales – so much so that it announced last quarter that it will no longer publish units sold going forward. And it quickly lost the $1T mantle and – who would have thunk it – hit a lower market cap than Microsoft.
2018 was the year in which we saw Apple Pay continue to languish as a mobile point-of-sale payments method, despite Apple's claims of its growing user base and its global expansion in countries where contactless POS is used by consumers carrying contactless cards.
It’s a year that we’ve seen Apple continue to flounder with the execution of its voice-activated strategy, despite being the early leader with Siri, and shift its focus to services by doubling down on selling into its existing installed base services like healthcare.
Even Apple is thinking beyond the connected device.
It’s a far cry from what was the conventional wisdom a few years past the launch of the iPhone and the birth of the App Store.
Then, the pundits told the world to make way for the new power broker in payments – Apple. It hasn’t turned out that way. While their operating systems and devices have enabled consumers to shop anytime and anywhere using their smartphones, their respective attempts to control access to consumers via their “Pays” have failed to gain traction – either online or off.
Instead, think about what has developed even more momentum in 2018.
Alexa, the voice-activated assistant that is now in everything from glasses, thermostats and washers to lights, bathroom fixtures and cars – as well as in its own Echo devices and hundreds of others – can enable commerce anywhere the consumer wants to take her. Merchants from the smallest mop-and-pop to the biggest of the big, like Nike and the Gap, can be found on Amazon and accessed via any device the consumer wants to use.
One of the largest merchant apps in Apple’s ecosystem, Amazon, has built a Prime customer base that it is now taking to any device, and a multitude of devices now have access to those consumers via Amazon's voice-activated assistant, Alexa. She and Amazon can direct any consumer purchase on and off Amazon, using Amazon Pay to complete payment – device-independent, but very much Amazon payments-dependent.
Device-centric players, like Apple, are now at risk – more so than ever – of losing ground, and control, over the customer, since there are now so many different ways that consumers, commerce and payments can be connected without it, including other smartphone brands. Commerce-centric players can make a thousand devices bloom – and can influence how and where consumers shop, buy and pay. Device-centric players with closed ecosystems remain at the mercy of producing the smash hits that enough consumers want to buy and use, and keep buying and using.
Connected devices enable commerce, but only if there is a commerce ecosystem for them to tap. In 2018, it became the domain of others, not Apple’s.
In 2018, I said to "think intent, not content … and think Google, not Facebook."
Little did I know at the time – and boy, did I get lucky on this prediction. This year would become the one Facebook would like to soon forget.
Between fake news, Russian election meddling and data breaches, the world’s largest social network has seen an erosion of trust and advertising dollars, as both eyeballs and advertisers have abandoned the site. The ambitions Facebook might have once had to establish itself as a commerce ecosystem seem like an uphill climb, absent two things: Consumers thinking about Facebook as a place to “go shopping” and the intervention of a trusted intermediary to give consumers confidence that buying on that platform is safe and secure.
For years, Facebook has been trying to parlay the massive amount of consumers' time spent inside its walled gardens into a big-time commerce play.
Despite more opportunities to shop via the News Feed and on Instagram, the launch of Marketplace as a challenger to Craigslist, and the ability for users to buy tickets to movies and concerts on Facebook, commerce inside their walled garden in 2018 seemed more like an asterisk to its main business – mobile advertising – than a serious entree into the world of payments and commerce. Even though Facebook, now more than ever, needs a foil to its mobile ad business.
But it’s yet to be proven that consumers who are trolling through Facebook want to use that time or those platforms to shop.
In 2018, we observed the rise of contextual commerce opportunities as platforms integrated payments into their apps to turn product discovery into a sale on platforms where there is an intent to buy, which is not necessarily Facebook.
It was also the year that we saw Google, the search engine and consumer gateway to search, do more to close those intent-to-purchase loops, since product queries via search reflect a consumer's intent to buy.
We saw Google expand its line of branded hardware devices to turn “ask Google” into a sale via Google Assistant, in addition to opening its ecosystem to participating retailers that want in on the voice-activated shopping game.
In 2018, it was commerce players that had the most success in turning intent to buy into a purchase, not those that first had to convince consumers that their platform was capable of enabling a purchase.
At the start of 2018, I said to "think ubiquity, not niche … so think card networks, not niche alt pay plays."
What I said last year is that as the world of commerce moves ever more digital, so does the consumer’s expectation to use the same method of payment everywhere she wants to shop, and with every device she uses to enable those purchases.
I said then that in the digital world, just like in the physical world, that’s using network-branded card products that run across the ubiquitous global rails they operate – worldwide.
And the more that connected devices add more commerce waypoints on those consumers' digital shopping journeys, the more difficult it will become for any alt payment brand to get enough scale to enable those buying preferences.
Friction – and eliminating it. That means eliminating decisions, steps and obstacles on the way to a buy. And that means being ubiquitous.
That wouldn’t be niche pays – and we haven’t seen any of them launch or gain scale in 2018.
Venmo launched as a payment tender type in 2018, but one that is riding the PayPal acceptance mark in-app, and the Mastercard rails anywhere that Mastercard is accepted when consumers use the Venmo plastic card on or offline.
I said to think global power brokers, like Tencent and Alipay.
At the start of 2018, I said that ecosystems that control access to more than one billion users of its payments method are too big for anyone to ignore – as are their moves to create easier on-ramps to establish payments acceptance or build interoperable mobile-first payments networks across the globe.
2018 was a year that we saw Alipay expand acceptance in key markets to enable Chinese consumers to use their trusted payment method to buy outside of their home country. They did this by building on what Alipay had already done with First Data and Verifone, and by partnering with or investing in digital payments players like Paytm, GCash and Openpay in markets like the Philippines, India, Japan and Latin America. It was also a year that we saw Ant Financial license its tech platform to Chinese banks to help them establish more of a digital financial services footprint so that they, too, could expand their reach in and outside of China.
This was also the year that we saw WeChat Pay establish partnerships with key players to expand into Malaysia and Japan, and set the stage for expansion in the U.S. This move also built on a foundation that has seen Tencent invest more than $3 billion over the last seven years to take stakes in 40 U.S. companies, like Snap.
That said, 2018 wasn’t a such great year to be a Chinese power broker in China (the government clamped down on Tencent’s game platform) or outside of the country (as Alipay found when the U.S. government blocked its MoneyGram deal).
At the start of 2018, I also said that "remote payments would kill the physical POS … so think remote, not contactless."
I was pretty emphatic that 2018 would not be the year that NFC payments would ignite at the physical point of sale in the U.S.
And I was right in one way, maybe not in another.
The mobile wallet that was once regaled as the driver of contactless payments at the point of sale remains stagnant, now four years post-launch.
2018 was, though, the year that the nation’s largest card issuer – Chase – made the decision to convert its portfolio of Visa cards to contactless for use at the point of sale starting in 2019.
It was a year that we heard consumers, when asked, tell us they’d appreciate the contactless experience given its speed of checkout, and we saw an innovator, Mobeewave, release an app that turned every chip-enabled phone into a contactless POS device that could further pave the way for a contactless card ignition in the U.S.
Those moves all acknowledge the failure of the mobile wallet to ignite contactless in the store, as well as the acceptance of the physical card form factor at the physical point of sale. Moving forward, with a contactless chip on those cards and a greater number of merchants that are NFC-enabled, there will be multiple ways to use those familiar form factors to check out in a store.
But, as I said at the start of 2018, that assumes checkout in the store continues to happen as it does today – card plus checkout counter. And that’s not the physical POS checkout future.
So, while we may not have ignited contactless at the point of sale or killed POS checkout, my money remains on the latter via what I call the ultimate in contactless: remote payments. When consumers use apps to order ahead, they pay online for products fulfilled in the store. And when they do, checkout becomes irrelevant, as do POS terminals, checkout lines and lanes. It's contactless in the truest sense of the word.
In 2018, we saw a groundswell of those use cases. Using a mobile device to pay for something – even while standing in the store – is being embraced by consumers, as retailers are using mobile devices to help consumers avoid lines and bringing the checkout to them. Retailers are encouraging consumers to stage those purchases – to order and pay online and pick up in store, since having feet in the store for any reason is better than having no feet and no sale.
Over time – but not over such a long time – I still believe that remote payments will marginalize POS checkouts in stores, as well as how consumers use remote payments to buy and pay. I said at the start of 2018 that stores would be used by consumers as showrooms and fulfillment centers – and our latest research on this topic makes that point loud and clear, particularly for the bridge millennials, who value convenience over price and even product selection.
2018 was the year that I said "innovation will happen at the edges … so think incremental, not big bang."
Last year, I said that if you believe payments is all about scale and that the big will only get bigger, there are only two possible paths for the smaller guys: Either they disappear or they leverage the assets made available to them by the power brokers to drive their own innovations.
The enormous opportunity, in 2018 and beyond, I said, was harnessing the creativity of innovators – not to rebuild the payments and commerce ecosystem from scratch, but to amplify their innovations by leveraging the assets those power brokers have built to help them scale and deliver more value to end users.
2018 was a year that we saw a lot of incremental improvements on the path toward eliminating friction in payments and commerce, and innovators using APIs and SDKs to accelerate their own innovations. It’s also a year in which we saw crypto and the blockchain – the internet of money – crash and burn, despite the hype and the billions poured into those ventures.
It’s one that also saw nearly 200 press releases on blockchain innovations, but fewer than 10 stories of how that change-the-world innovation was, in fact, changing the world beyond that initial press release.
In 2018, I said "faster payments get faster by using existing rails … so think smarter, not just faster."
Faster payments has been a recurring theme in payments ever since the Fed assembled its Faster Payments Task Force to study the issue back in May of 2015.
In 2018, we saw that task force get reconstituted and a new one launched – one that is now investigating the role of the Fed (hint: regulation) in making faster payments happen faster – and maybe even by regulatory fiat.
Meanwhile, payments are moving faster than ever.
Existing rails – ACH and network debit rails – are zipping payments back and forth between people and businesses like there’s no tomorrow.
Same-day ACH is ubiquitous, and there are proposals to increase the number of settlement windows to include weekends and holidays. Faster payments using debit cards and technology platforms are depositing money into consumers' bank accounts in real time, while enabling new use cases like the deposit of loan proceeds, insurance claims, airline voucher payments, and instant payroll for gig and wage earners, as well as SMB merchants.
In 2018, we saw that instant money didn’t require the Fed or a task force.
On the B2B side of the house, in 2018, we saw blockchain and crypto hit the skids, despite the press releases to the contrary, while at the same time, global, compliant network rails were facilitating the real-time movement and settlement of digitized assets, including data, between banks and cross-border. We saw SWIFT leverage its connections to 11,000 banks to enable the real-time settlement of funds cross-border, as well.
Banks, which need to all be on board for any of this to work as advertised – see my earlier point about ubiquity – sort of like it this way, too, even though they are exploring faster payments alternatives. They have a business model for enabling these payments, and don’t feel the need to invest billions into a network that will take years and years to become ubiquitous. Corporates want faster payments, they say, even though secure payments top their list. And certainty of payments trumps all.
As I said at the start of the year, in a perfect world, we’d all junk what we have and start from scratch using the tools that are available today. But the world isn’t perfect, and payments – on a global scale – is a complicated beast. Today, as it’s always been, banks and networks that want to enable instant payouts today to anyone can do that – all that’s needed is a business model to support it.
No different at the end of 2018 than it was at the beginning.
In 2018, I said "skills take on apps … so think access, not apps."
Then, I said that if you believe that voice would be an underlying component of the future of commerce and payments, then it’s skills, and not apps, that will drive developers' interest moving forward.
It makes sense. In 2018, consumers didn’t all of a sudden become obsessed with apps (games excluded) and start downloading them like crazy. In fact, when it comes to those for shopping and commerce, they’ve really plateaued. And App Annie also reports that consumers spend a whole 50 minutes a month on shopping apps.
Consumers spend about five hours on their mobile phones every day, so that means they are spending an average of 1.7 minutes (50/30) on shopping apps. Most of that time is spent on a few key apps – with Amazon and Walmart.com in the number one and two spots, accordingly. That’s because those apps give consumers access to millions of SKUs in one single spot – and that’s a whole lot easier than popping from app to app to find and buy what they want.
So, as I said in 2018, if consumers aren’t going to the app stores and searching for what’s new, and aren't downloading and using new apps, then developers aren’t being asked to create them. And so they’d find other ecosystems to keep them busy (and paid).
Here at the end of 2018, Alexa counts some 50,000 skills as part of her ecosystem. In 2017, that number was 25,000. Developers are skating to where the puck is moving, not necessarily where the puck has always been played.
Voice commerce doesn’t require the consumer to download anything at all – or even specify at which store she wants to shop.
Voice commerce and the ecosystem it is creating puts products or services before stores. Skills in a voice ecosystem build bridges from today's digital environments to the connected devices that consumers use to access that ecosystem and buy something. And they create on-ramps for brands that want a direct relationship with the consumer to cut out the app and retailer middleman and get that access.
Skills shift the power from app stores and retailers to the connected devices that allow consumers' devices to access new ecosystems, creating a new power center of commerce that consumers, using the power of their voices, will control.
It’s a shift that accelerated in 2018 and will continue in the year to come.
What I did at the start of the year was share the framework for how I look at the dynamic world of payments and commerce – one that considers the complexity of the world of payments and the reality of how consumers and businesses engage with new ways to pay and new access points capable of making those purchases.
2018 was a fascinating year, one that I believe set the stage for the innovations that we will see emerge in the year to come – a year in which the developments we have seen in 2018 will only strengthen and accelerate.
I’ll have more to say on that the first Monday of 2019.
Until then, my very best to each of you for a wonderful holiday season and a healthy, happy and prosperous New Year.