Plan Smart Now If You Want to Be Relevant in 2023

Strategic planning season is in full swing in payments! And, the land grab for data and projections on everything from consumer spending to smartphone and tablet sales to POS trends to competitor activities is on! But, unless your one- to three-year window anticipates the macro forces that will drive payments and commerce over the next decade, then, you may be out of luck even with the best data at your fingertips. (Plus, you can’t always trust the data on face value – check out the predictions on NFC over the years as I wrote about here). But, it’ll take you a while to realize that. By then, there’ll be others who will have stepped in and driven an innovation agenda that you might find hard to accommodate or enable and one that is very expensive to play catch up with, if that’s even an option.

But, don’t take my word for it. Just look at the data points and their implications and impacts to payments and commerce now some six, 10, 12 and 15+ years later.

The internet was commercialized in 1995, the year in which eBay and Amazon were both established. Bezos, in particular, was motivated to launch an “online storefront” because he read something that suggested the annual volume of goods and services sold online would increase 2,300 percent a year – from a base of zero, of course – but he liked the way that sounded. He researched the 20 products that would lend themselves in the early days of the Internet to buy on line, narrowed the list to five and settled on books since they were easy to buy, ship and universal in appeal. He also created an easy way to pay on the nascent and pretty clunky (and slow in the pre-broadband days) online world via a one-click checkout (something that Amazon later patented in 1999). In its first two months of operation, Amazon was doing $20,000 a month in sales. Eighteen years later, it receives 65 million visitors every month on its site and on Cyber Monday 2012, sold 306 items every second. At the end of 2012, Amazon posted $61billion in annual revenues and has amassed 215 million digital accounts with registered cards attached to them.

eBay has a similar story. One year after its launch in 1995, it was generating $250,000 in annual sales, two years after its launch, this part-time avocation of Pierre Oymidar was hosting 2 million auctions. 2008 revenues – 13 years post launch – and six years after the acquisition of PayPal, were $7.7 billion. In 2012, 17 years after its launch, eBay reported $14 billion in annual revenues, or double what it did four years prior. PayPal, which was launched in 1998, was a huge catalyst in eBay’s growth, having introduced a convenient payment method within the eBay environment that invoked both trust and ease of use for both buyers and sellers. PayPal today has more than 170 million digital accounts with registered cards attached to them, is accepted at 64 percent of the top ecommerce sites, and has expanded off eBay and offline to the physical point of sale.

Just six years ago in 2007, Apple introduced the world to the iPhone. The announcement of its launch is really interesting. Here is how it was described (note the passage that I highlighted for emphasis):

“Apple® today introduced iPhone, combining three products—a revolutionary mobile phone, a widescreen iPod® with touch controls, and a breakthrough Internet communications device with desktop-class email, web browsing, searching and maps—into one small and lightweight handheld device. iPhone introduces an entirely new user interface based on a large multi-touch display and pioneering new software, letting users control iPhone with just their fingers. iPhone also ushers in an era of software power and sophistication never before seen in a mobile device, which completely redefines what users can do on their mobile phones.”

Its first year’s sales weren’t all that impressive by conventional measures – something like 6 million handsets were sold. By 2010, the iPhone had a market share of barely 4 percent of all cellphones, but garnered more than 50 percent of the total profit that global cellphone sales generated at that time. By 2012, Apple iPhone sales of roughly 250 million handsets had driven $150 billion in total revenue – more revenue than Apple had generated over the entirety of the 12 years prior. Its market cap in 2007 was $162 billion, today, it stands at more than four times that at $508 billion. Six years and some 400 million iPhones later, analysts report that roughly 55 percent of mobile commerce sales in 2012 were driven by the iPad and 29 percent by the iPhone (15 percent by Android, just in case you are interested.) with more than 760,000 applications available to download in the iTunes store – many of them apps that assist in some way with the commerce process. In addition, these devices are replacing traditional POS systems by merchants large and small that see the potential of using these devices and the iOS operating system that unites iPhone/iPad users with their own POS systems to transform the commerce experience for merchants and consumers. Over that same period of time, Apple has amassed 525 million digital iTunes accounts, all with cards registered to them and recently innovated around BLE (bluetooth low energy) and iBeacon to enable a store-based GPS system and a method that allows iOS connected devices to talk to each other.

Okay, thanks for the interesting anecdotes and Internet history lesson, you say, but what does this have to do with strategic planning in payments and the need to focus on the big picture?

Well, here’s what.

All of these developments, and the many more that I didn’t talk about that started six or 10 years ago or even longer zeroed in on a trend that me and my colleagues at Market Platform Dynamics (MPD) started talking about in 2005 – the innovation in payments that was going to happen at the intersection of mobile, the cloud and data. The end game for these players wasn’t just about growing online sales and taking their fair share, but thinking about the opportunity that connected devices – mobile phones and tablets today and who knows what tomorrow – had to actually become the point of sale – whether the consumer happens to be online while on the couch watching the Patriots on a Sunday afternoon or online while in the physical store buying stuff there. The vision – and the reality that we are now seeing play out – was that every interaction in the physical world could, in fact, have an online component and vice versa, with payments embedded into those interactions via digital accounts that turned the Internet into a legitimate point of sale even within a physical store environment.

But, depending on when you start counting, it has taken us 6 years (since the iPhone was introduced), 15 (since PayPal was launched) or 18 (when Amazon and eBay started) to get as far as we have, which is really not that far, when you consider that online commerce is still just 5 percent of all transaction volume and mobile commerce is a puny 1 percent of all transaction volume.

But, that’s part of the lesson. It’s just hard – and therefore time consuming – to line up all of the pieces in payments in order to affect change at the point of sale and getting consumers to play along – so you have to start early. Those who are and did recognize early on the power of connected devices and the cloud – and who envisioned a future where the point of sale could be anything and anywhere two devices could connect to the cloud now have a running head start in innovating a commerce future that takes that notion as a given.

So, if you’re just starting to think in those terms now, or don’t have assets that can be leveraged or enabled to accommodate that notion, well, it just makes it that much harder (and more expensive) to get to the same place. For some, it may just be impossible to catch up and a whole new game plan and strategy will have to be considered.

But, humor me for just one moment more and let’s turn the clock back a little. What might things look like today if the networks had embraced the notion of cloud + connected devices and gotten together in 1998 or even the year 2000 or even 2005 and created an online standard for acceptance and authentication that did as much to define their success in the online world as it did in the physical world with mag-stripe cards? What would the payments ecosystem today look like and how would that influence our direction and thinking 10 or 15 years hence? Would we have an interoperable network-driven version of a digital wallet? Would there have been the same level of emphasis on NFC? Would PayPal have had the same level of success in populating its digital wallet? We’ll never know now will we! But, when you start to think in these terms, it becomes interesting to speculate about, for example, whether the shifts we are beginning to see at Visa around is a pivot that recognizes that starting now to build a base of digital wallets is a far tougher slog than making sure that the digital wallets that exist today and will exist in the future have Visa-branded products in them and that the ecosystem has an incentive to make sure they stay that way. But what seems clear is that the networks could have been in a much different place today when it comes to digital wallets and the converging online/offline worlds if they had cracked the code on online acceptance a long, long time ago.

So, given where we are now and the two realities that we know to be true in payments – that the cloud/connected devices/data triumvirate will define the payments and commerce landscape going forward – and that decisions made today will have a material impact on where you’ll play and be able to play 10 years hence, that the one- to three-year strategic plans become more important than ever – and certainly far more critical to the future of any company in payments or that wants to be in payments than perhaps once thought. And, that’s a far more important series of conversations to have internally than how much of an increase there will be in consumer spending over the next 10 years.

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New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.

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