Payments Innovation

Payments 2018: Think This — Not That

In 800 B.C., when people wanted to know the answer to “what’s next” about their personal futures, they flocked to Delphi and asked Pythia, the Oracle of Delphi.

It was a bit of an ordeal.

Only after engaging in a variety of rituals, including drinking holy water, burning laurel leaves, bathing in a specific body of water near her cave, sacrificing a goat and eating a pie offered by the answer-seeker, would she speak. This whole process took a day or more, plus the time required to trek to the cave. It was said that her highly valued pronouncements were often incoherent, mostly because, experts speculate, the gasses inside her cave made her delusional.

The Oracle of Delphi wasn’t always right.

Croesus, the king of Lydia and one of her most ardent supporters, asked her advice about waging war against the Persian king Cyrus the Great, which she advised him to do. The decision to take that advice led to the fall of the Lydian Empire.

It’s a very good thing that happened after the king introduced the world’s first general purpose payment method, the Lydian Stater — the official coin of the Lydian Empire — otherwise, who knows what we’d all be doing today.

Thousands of years later, people the world over still look for answers about the future, particularly at the start of a new year. Fortunately, getting those answers no longer involves animal sacrifice or asking delusional people living in caves for answers.

Since PYMNTS was founded more than eight years ago to answer that very question about payments, commerce and retail, I’m going to share my thoughts on what 2018 has in store for us. Those thoughts reflect a few big themes organized around a couple of frameworks that I hope give you food for thought about what it means for you, your organization and the future of payments and commerce over the next twelve months.

And you didn’t even have to bring me a pie <wink>.

Power Brokers Boost Their Power

OK, you say, but hasn’t it always been that way? It has, but 2018 puts a different spin on who those power brokers are and how they will influence the future of payments.

Connected devices, and the access to consumers they make possible, now shorten the distance between the consumer and what they want to buy — at the same time they increase the distance between the business the consumer once bought from and the brand of the payment method with which they may use to pay.

That’s shifting the balance of power in payments — and not necessarily to those who make connected devices.

In fact, it’s quite the contrary.

The power brokers of 2018 and beyond are the players that control access to those devices through the commerce and payments platforms that consumers use — across any device, any platform and any operating system — when they want to buy something, using whatever interface that consumer wants to utilize to enable those purchases: type, click, text, voice, click, blink or swipe.

That also means the criteria for making that power broker list has changed: The names on the list today are quite different from those who might have appeared even a couple of years ago.

Here’s why.

Think commerce first, not connected devices. That means think Amazon, not Apple.

When the iPhone and Android devices were introduced about a decade ago, the pundits told the world to make way for the new power brokers in payments: Apple and Google. A decade later, it hasn’t turned out that way. While their operating systems and devices have enabled consumers to shop anytime and anywhere using smartphones, their respective attempts to control access to the consumer via their “Pays” have failed to gain traction — on and offline.

Think about what has.

Merchants from the smallest Mom-and-Pop store to the biggest brands like Nike and Gap can be found on Amazon and accessed via any device across any platform consumers want to use.

Ironically, the largest merchant app in Apple’s ecosystem, Amazon, has built a Prime customer base that it’s now taken to any device, increasingly giving a multitude of other connected devices access to those consumers via its voice-activated assistant, Alexa. She (Alexa) and Amazon can direct any consumer purchase on or off Amazon, using Amazon Pay to complete a payment.

Alexa, the voice-activated assistant, is now in everything from glasses to thermostats to washers to lights to bathroom fixtures to cars, in its own Echo devices as well as hundreds of others, and can enable commerce anywhere the consumer wants to take her.

Device-independent but very much Amazon payments-dependent.

Device-centric players, like Apple, are at risk of losing ground — and control — over the customer, since there are now so many different ways consumers and commerce and payments can connect without it, including other smartphone brands. Commerce-centric players can make a thousand connected devices bloom and influence how and where consumers shop and buy and how they pay.

Device-centric players with closed ecosystems remain at the mercy of producing smash hits that enough consumers want to buy and use and keep buying and using. Year in and year out.

It’s why Apple and Siri struggle while Amazon and Alexa prosper. It’s why the HomePod remains a question mark and Apple Pay’s power as a payment method will continue to sputter. It’s why even if Apple would buy a car OEM, like a Tesla, it would remain just another one-trick hardware play, like the iPhone.

Connected devices enable commerce, but only if there is a commerce ecosystem for them to tap. Hardware alone doesn’t control access to the customer anymore.

Think intent, not content. That means think Google, not Facebook.

Google, the search engine, is the consumer gateway to search. It’s why Google is investing heavily in commerce enhancements through its shopping carousel, capturing online travel sales via its newly launched travel bookings site and enabling those capabilities via a Chrome app that can also be found on Android and iOS devices. Its Chrome browser form-fills store payments credentials for use when checking out for those who’ve opted in. Its suite of smart speakers is a way for Google to create its own commerce ecosystem of participating retailers who want in on the voice-activated shopping game, including Walmart and Target, who want an alternative to their rival’s Alexa.

And since queries via search reflect an intent to buy, Google is hoping devices that can “ask Google” will bring consumers back into the habit of “asking Google” — and not Amazon — when they’re looking for something specific to purchase.

Facebook’s been trying for years to parlay the massive amount of consumer time spent inside its walled gardens into a big-time commerce play. Despite more opportunities to shop via its 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 the company’s walled garden seems more like an asterisk to its main business — mobile advertising — than a serious entrance into the world of payments and commerce.

It’s yet to be proven that consumers, trolling through their social networks, want to use that time or those platforms to buy — and whether Facebook and its related properties are serious about using that precious inventory to encourage that behavior when they can rake in boatloads more dough selling ad space to brands.

Context is important, and contextual commerce opportunities represent an emerging opportunity for many players.

But context and content, without a consumer’s intent to buy or without prompting an opportunity to buy, is an experiment — possibly an expensive one — in changing the behavior of a consumer who isn’t in the mindset to take the bait.

Think ubiquity, not niche. That means think card networks, not niche alt pay plays.

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 wants to access to enable those purchases.

Today, in the digital world, just like the physical world, that means 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 consumer’s digital shopping journeys, the more difficult it will become for any small, alt payment brand to get enough scale to enable those consumer-buying preferences.

Eliminating friction is what those who today have and control access to the consumer are working hard to do. That means eliminating decisions, steps and obstacles on the way to a purchase. That means, among other things, delivering ubiquity. Niche alt pay plays, even before the explosion of digital and connected devices, have struggled for that reason.

The riches may be in the niches in many areas, but payment acceptance isn’t one of them.

Think Tencent and Alipay. Period.

U.S. regulators may have put the kibosh on the ambitions of Chinese players from buying some businesses in the U.S., based on supposed national security concerns, but they won’t stop them from taking stakes in or forming partnerships with key players the world over — ones that can help them scale outside China, including here in the U.S.

It’s what Alipay has done already with First Data and Verifone, and in places like India and South Asia, where it’s taken stakes in digital payments players such as Paytm and GCash. It’s what Tencent has done by investing more than $3 billion over the last seven years to take stakes in 40 U.S. companies, like Snap, and global players like Spotify.

Ecosystems that control access to more than 1 billion users of its payments method are too big for anyone to ignore — nor are their moves to create easier on-ramps to establish payments acceptance or build interoperable mobile-first payments networks. Acquisition is but one of the many arrows in the quiver of these players that bring the trust and the spending power of billions of digital consumers with them to many with complementary offerings.

Now, with this as a framework, think about how these power brokers — and others like them who control access to massive numbers of consumers — will change the future of payments and commerce.

Consumers aren’t going to ask Alexa to help them shop on Facebook.

Nor are they going to start their shopping journey based on where they can use [fill in the blank payment method] – even though they may abandon a sale if they get to checkout and can’t use the method of payment they want to use.

Nor will they organize all their shopping around a single connected device.

If we thought that mobile introduced a new set of expectations about how consumers shop and pay and the frictions they would no longer tolerate while doing so, the proliferation of connected devices — cars, wearables, smart speakers, appliances, televisions — will only amplify those expectations.

So, think commerce — and enabling it first — and devices second. Ask who is leveraging environments where consumers have or could express an intent to buy. Ask who recognizes that scale is about achieving ubiquity and who may have gigantic user bases and focused on eliminating obstacles on the way to the sale.

Then line up who today connects those dots, or enables those dots to be connected, given their ability to control access to the consumer.

And then make your own list.

Those are the power brokers of 2018.

Remote Payments Kill the Physical POS

Think remote (via the cloud), not contactless (via the terminal).

The disappointment of the digital wallet as a method of payment in-store has been well-documented on these pages for more than three years. So, too, has the myth about NFC (near-field communication) payments being the salvo for moving payments, mobile and digital, at the physical point of sale (POS).

For every data point about Australia and its success is a countervailing data point about its highly concentrated merchant and banking bases, which make getting the entire ecosystem, including its 21 million consumers, on board a much easier lift.

And how the success of NFC contactless in the U.K. is driven almost entirely by its transit use case in the densely populated city of London.

So, those who say that 2018 is the year contactless payments, defined as NFC payments in the U.S., will ignite, since merchants will have more NFC-enabled terminals, are simply wrong.

The lowly QR code is used by a billion-plus Chinese consumers in China for making payments in store — to taxi drivers, to panhandlers and for just about everything else. It’s also the interface for many payments schemes in developing countries, like India, and for emerging mobile payments schemes in the U.S., like Chase Pay.

But that’s a distraction and also not what’s next.

That moniker is reserved for “order ahead” — the remote payments plays that are the ultimate in contactless payments technology, since they require no touchpoint at all with a merchant in a physical store.

Today, those use cases are more typically associated with QSRs (quick-service restaurants) and coffee shop use cases, using smartphones and apps. For Starbucks, order ahead represents 20-plus percent of Starbucks’ transactions — in just three years. This particular category of retailer, the fast food/QSR operator, would rather invest in this technology than the integrations associated with enabling NFC at the point of sale since the long term payoff for them is much more than just “checkout.”

Sure, using tap and pay, in theory, can make lines go faster, but so can quick, chip-enabled EMV terminals. Order ahead skips the line completely — and that saves consumers many, many minutes, not nanoseconds.

While giving merchants the opportunity to drive more incremental spend and frequency at their establishments.

Remote payments also reduce the need for those restaurant operators to pay cashiers and/or gives them the chance to redeploy them in back-of-house areas preparing products that consumers have ordered.

But it’s not just QSRs for which remote payment has great appeal – and potential.

Consumers are ordering groceries ahead and picking them up curbside. Throughout the holiday season, merchants were practically begging online shoppers to pick things up in store to avoid incurring shipping charges. The data proves that when consumers pick things up in the store, more of them tend to add more products to their tabs.

And multi-tasking consumers, including commuters, are increasing the frequency by which they order groceries online before leaving the office and picking them up on the way home.

Given the favorable economics associated with those transactions, expect merchants to offer more and more incentives for consumers to do that. And with the ability for consumers to hop into an Uber or a Lyft or rent a Zipcar for a few hours or swing by the store on their way home from work, expect more and more consumers to take them up on those offers to avoid delivery charges and get what they ordered the same day.

Over time — but not over such a long time — that will marginalize POS checkouts in stores, as well as how consumers use them.

Stores will become showrooms and fulfillment centers. The shopping experience will evolve to become a reserve-ahead experience, where consumers will be able to come in and inspect, try on and then buy online what they want to keep. This behavior will accelerate the shift to digital versus physical store sales, even if those purchases happen while consumers are standing right inside those same physical stores.

Innovation Will Happen at the Edges

Think incremental, not big bang.

If you buy into the fact that the big guys, with scale, will only get bigger, then that means there are only two possible outcomes for the smaller guys: to disappear or to leverage the assets made available to them by the power brokers as they seek innovators with fresh ideas to drive innovation.

2018 is the year (at least I hope) in which the notion of pinning one’s hopes — and investment dollars — on creating “the next big thing” that guts the existing payments and commerce ecosystem in exchange for something revolutionary just withers and shrivels into oblivion. Not only is the innovation highway littered with lots of those dead bodies already, such an approach requires too much time and capital to build, then ignite.

If we’ve learned anything about innovation’s prospects over the last decade, it’s that time is a currency that works against as many innovators as it may advantage. And no one, including investors, has the appetite for an expensive, decades-long build that is likely to collapse under its own weight long before it could ever ignite.

Instead, what we will see in 2018 is a further doubling down of the commerce and payments power brokers exposing APIs and creating SDKs for innovators to tap and use to enhance payments and commerce ecosystems and infrastructure that exist today — and that consumers already use.

The enormous opportunity, in 2018 and beyond, is for power brokers to harness the creativity of innovators to enhance what exists in order to further differentiate their  strengths and capitalize on market opportunity — for all parties.

Faster Payments Get Faster by Using Existing Rails

Think smarter, not just faster.

Faster payments has been a recurring theme in payments ever since the Federal Reserve assembled its Faster Payments Task Force to study the issue back in May of 2015. Some three years later, the result of that effort is a massive tome for making payments faster. And a pilot with a handful of banks that sent a couple of transactions across its rails.

Meanwhile, payments are moving faster than ever.

Existing rails — network debit rails and ACH — are zipping payments back and forth between people and businesses like there’s no tomorrow — safely and securely. Same Day ACH for credits and debits is ubiquitous, and faster payments schemes are using technology and debit cards to push funds into consumer bank accounts in real time. At the same time, they are enabling new use cases, like the instant deposit of loan proceeds, insurance claims, airline voucher payments, payroll for hourly workers and sales payouts for small businesses (SMBs).

On the B2B side of the house, blockchain technology running over existing, global, compliant network rails is facilitating the real-time movement and settlement of digitized assets, including data, between banks and across borders.

Banks, who need to all be on board for any of this to work as advertised — see my earlier point about ubiquity — aren’t exactly complaining about the state of faster payments affairs. What they’re using today is a business model for enabling (close to) real-time (or quick enough) payments — and it doesn’t come with a billion-dollar price tag to build something new that will then take years to become ubiquitous enough to be very useful.

And, as it’s always been, banks and networks that wish to enable instant payouts today to anyone can do that. All that’s needed is a business model to support it — and that is something that they can decide and control based on their use cases and customer base.

Of course, no one disputes the fact that core banking systems should be modernized, and building new real-time settlement rails is something we’d do if we had enough money and time to do it. But the world isn’t perfect, and payments — on a global scale — is a complicated beast. No one has all the money in the world to do it, and no one really wants to wait.

2018 is the year that will shift the conversation from faster payments tomorrow to smarter and faster payments right now.

Skills Take on Apps 

Think access, not apps.

Apps have plateaued. As App Annie data shows, the average person downloads zero new apps and uses about 30 a month. Those mobile apps are mostly centered around a few categories: social networking, messaging, utilities, tools like weather and ridesharing and productivity apps like search and email.

App Annie also reports that consumers spend a whole 50 minutes a month on shopping apps. That’s less than two minutes of the five hours that consumers spend on their mobile phones every day. Of course, they’re using their browsers to go to websites instead.

Most of the time they spend online with their smartphones — about three hours a day in the U.S. — is spent on a few key apps, with Amazon and Walmart.com occupying the number one and two spots, respectively. That’s because accessing those two apps gives consumers access to millions of SKUs, which is a whole lot faster and more productive than popping from app to app to find and buy what they want.

If consumers aren’t going to the App Store and searching for what’s new and downloading and using new apps, developers aren’t being asked to create them.

Now, compare that to voice commerce and the skills ecosystems that are emerging around it.

Voice commerce puts products or services before stores. Skills in a voice ecosystem build bridges from the digital environments that exist today to the connected devices that consumers use to access that ecosystem and buy something — and on-ramps for brands that want a direct relationship with the consumer but found it difficult to achieve in the past.

Voice ecosystems become the new power centers, shifting control from app stores and retailers to the consumer, her voice and the skills that connect her requests for what to buy with the brands in that ecosystem that can fulfill those requests.

Crypto Will Remain Inexplicable

Think irrational.

Have you ever tried to explain bitcoin to an 82-year-old man who used to run his own business and is reasonably savvy on investments?

I had that pleasure over the holidays when trying to describe bitcoin to my dad, who wondered why it was all over the news and what you actually bought – was it like a stock and a share in a company, or an investment in something tangible, like gold?

And why, if it was so crazy, were respectable players like Goldman Sachs getting in on it and the government hadn’t yet regulated it?

He left before I had to answer why just about every country in the world but the U.S. has taken — or is close to taking — steps to ban initial coin offerings (ICOs).

Why some company that changed its name from Long Island Iced Tea Company to Long Blockchain Corp. saw its value increase by something like 7,000 percent.

And why some guy who created a crypto token that banks don’t use and that only 100 banks (out of tens of thousands in the world) have signed on to run pilots is now worth almost as much as the founder of Facebook, which has billions of people glued to it daily and is the second largest ad firm in the world.

There’s not much more to say than this: It’s a bubble, baby, and there are two things we know about bubbles. They burst — but no one knows when. Some people will get fantastically rich, some will lose everything.

And  one day we’ll wake up and all the news won’t be about payment methods that hardly anyone actually uses — for legitimate purposes, anyway.

[By the way, have I mentioned that PYMNTS has been renamed PYMNTSBLCKCHN.com?]

In 2018, maybe I’ll be richer than Warren Buffett.

Or not.

As I said, think irrational.

So, that’s a wrap.

Happy 2018 to all. I can’t wait to see how each of you makes “what’s next” happen this year.

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