There’s Two Sides to Every [Payments Platform] Story

After a presentation by Mark Lavelle (VP of Strategy & Business Development, PayPal) about innovation planning, in which he discussed the development of Bill Me Later, Tim Attinger, Managing Director of Market Platform Dynamics and former Global Head of Product Innovation and Development at Visa, moderated a panel on igniting and monetizing innovation in payments.

Richard Schmalensee (Dean Emeritus, MIT) opened with a look at platform ignition, stressing one of the main keys is to get informed clientele and people participating before money runs out.

“The value proposition depends on customers,” he emphasized.

He also brought up the two-sided nature of payments platforms and the importance of garnering a critical mass, using the success of Diners Club as a historical example.

“The startup strategy is to get to critical mass before you run out of money… having customers on the system makes the system attractive. If you fall below critical mass, you die. If you get above critical mass, the system becomes more attractive,” said Schmalensee.

He noted that payment platforms earn a profit by facilitating interactions between different groups.

“The key to survival is a startup strategy that’s an ignition strategy… that is catalytic for both groups,” said Schmalensee.

He explained that a gradual ignition strategy can be successful as well, citing how YouTube built up both content and audience size over time.

One of the questions for Schmalensee regarded the exact size of critical mass necessary for a payments startup to achieve. Schmalensee responded that answer in many cases depends on the customer base the startup is trying to attract.

Schmalensee explores in-depth platform ignition and how Diners Club achieved critical mass in Paying with Plastic, which he co-authored with David S. Evans.

For more on two-sided ignition strategy best practices, check out David’s “Ignition Series” blog. (Read More)

PYMNTS.com Blog Entries from the Innovation Institute

Day 1

1. David S. Evans: Why the Time Is Right for Innovation (and Cash Is Not Dead) (9 a.m.)
2. No Need to Give a Eulogy for Venture Capital (10 a.m.)
3. There’s Two Sides to Every [Payments Platform] Story (11:30 a.m.)
4. The Key to Igniting and Launching Mobile Payments Platforms (12:30 p.m.)
5. Fed’s Proposal for Interchange Rates to Be Announced Within a Few Weeks (2:30 p.m.)
6. What Payments Professionals Can Learn from FarmVille (4 p.m.)
7. Driving Network Effects with Platforms (4:30 p.m.)
8. What Is The Next Great Payment App That Has Yet To Be Created? (5 p.m.)

Day 2

1. Can the U.S. Replicate Japan’s Mobile Payments Success? (8:30 a.m.)
2. POS Opportunities around Social Networking (9:30 a.m.)
3. POS Innovation in the Cloud (10:30 a.m.)
4. American Idol: Payments Innovation Style (Noon)
5. Federal Reserve: Cash Usage Increased in 2009 (1:30 p.m.)
6. Tips for Catering to Consumers’ Payment Preferences (2:30 p.m.)
7. How Walmart Views Consumer Payments Behavior (3 p.m.)