Developing Your Payments Sixth Sense
Psychologists have recently acknowledged that something commonly referred to as “the sixth sense” really does exist. Some attribute these strong hunches or “feelings” about what might happen in the future to people being uniquely in synch with the Earth’s magnetic force field which sharpens their focus in ways that those of us who aren’t, just can’t. Others say that it comes from being able to communicate telepathically with the spiritual world and being forewarned by those spirits about future events.
Others, with perhaps a more practical bent, simply believe that some people are better able to internalize and process vast amounts of information in a way that helps them refine their “gut feelings” into a plan that anticipates the future more precisely.
Regardless of who or what you believe, it seems that having a “sixth sense” can come in handy, since if it’s reliable, it can actually help prepare you for what’s to come. And, that’s the goal of this piece … to share the six forces that I think could inform your “sixth sense” about where the future of retail payments is headed so that you can more adequately prepare for what’s ahead as you put a bow on your 2014 plans.
This sixth sense and six forces start, however, with realizing one enormous paradigm shift about the future of payments. Ready? The future of retail payments isn’t about payments at all. It’s about shaping, driving and enabling a commerce experience – one that will reinvent the way in which merchants and services providers and consumers interact.
2014 Newsflash | The Future of Payments Isn’t About Payments
The innovation and the ecosystem that define retail payments as we know it today – the ability for a consumer to produce a plastic card with a mag stripe or a chip in it in any store and use it to pay for their purchases in a matter of seconds – works just great today. Consumers like it because they trust it to be reliable and safe – they know how to use it and it works more than 99.999% of the time. Merchants like it because they have invested lots of money in people and hardware and systems to support it – they and their sales associates know how to use it and it works more than 99.999% of the time. The action of making and receiving payment at a store isn’t really broken today.
The problem – and therefore the opportunity that is before the payments ecosystem – is how to leverage the power of connected devices, data and the cloud to eliminate the friction associated with buying things in a physical store. In a world without smartphones and the cloud and data, interactions related to the buying experience between merchants and consumers couldn’t happen in real time, couldn’t reflect consumer preferences and, therefore, couldn’t influence their choices or payment methods as the buying journey was underway. Consumers, as a consequence, have missed out on promotions and other sources of value related to the things that they are buying or might want to buy. Merchants have missed out too on not being able to offer valuable offers and promotions to consumers who were or could become their most valuable customers.
Now, with connected devices in the hands of consumers throughout every part of the buying experience the relationship between merchants and consumers can be reinvented – in real time.
The implications for the ecosystem are enormous. Payment, the process of “checking out” as we know it and define it today, gets moved to the background, an important enabler to closing the commerce loop but not what’s driving it. Payment also isn’t likely to drive the business model moving forward either. Today’s payment ecosystem is monetized based on the payment transaction itself, tomorrow’s business model is likely to be monetized based on the value that this commerce experience makes possible for merchants and consumers. But this refocus on commerce and not payment will, in fact, drive just about everything else in the payments ecosystem, including its winners and losers.
It’s also what has given rise to the six forces that will inform your sixth sense in the year to come about the future of an ecosystem that is poised for great change.
Force Number One | The act of paying – and therefore payments – becomes invisible
Now, anything that a clever entrepreneur has identified as an offline point of friction, can now not only have an online solution, but one that enables payment.
The mash up of connected devices, the cloud and data now enables every offline action to have an online component via apps that consumers download access via these connected devices. It has also inspired a whole host of entrepreneurs to reinvent – and monetize – those offline activities. The ability to move what were once activities completely tied to desktops or PCs has unleashed massive innovation – often focused on helping those with excessive supply to find consumers or businesses with demand for those services or products in real time. For example, finding a taxi or a black car, renting out a spare bedroom, booking a hotel room last minute, finding someone to run errands, ordering ahead to avoid standing in line, ordering ahead to secure scarce quantities of available inventory, not having to produce a payment card to pay for meals in a restaurant, not having to produce any payment credentials at all at checkout in stores, or simply skipping the lines all together and checking out by walking out of the store are all examples of the types of things that are now possible because connected devices and apps tied to payment have eliminated the friction associated with matching those with supply with those who have the demand and exchanging payment for those services.
There are important implications to the payments ecosystem. Once a consumer downloads an app, they “set and forget” their payment method. After that, the act of paying, for the most part, becomes completely invisible to the consumer. What consumers focus on instead, is the entire shopping and buying experience made possible when they download those apps and use connected devices to access those apps. And, depending on where you are in the ecosystem, this development is viewed as either a massive opportunity or a massive threat.
Pushing payment to the background pushes the providers of that payment method to the background too and commoditizes those that process the transaction. And, if you’re one of those players, that’s pretty scary. It’s why the digital wallet has become a topic of conversation in just about every board room in payments: every player wants to be “the” wallet that consumers download and use to organize all of their payments, loyalty credentials and offers so that their brand remains front and center. No one, particularly the players that represent the incumbents today, want to get lost in cyberspace, end up subordinate to someone else’s brand and be viewed and priced as a commodity service.
My sense is that, ultimately, just like in the physical world – consumers will choose just one “wallet” – one container which aggregates all of the things that are relevant to their buying experience …. promotions, offers, loyalty and rewards, payments methods, etc. Consumers may fill those containers (or have them automatically filled) with many “apps” from merchants or other services providers that may also have payment methods attached to those apps – but consumers won’t want to manage multiple wallets. Managing a few now, isn’t a hassle, but once everyone has an app, consumers will consolidate. It is also my belief that, with very few exceptions, it is unlikely that the “container” that they choose is issuer-branded, even if that issuer allows multiple payment methods to be attached to it. “Wallets” must enable multiple methods of payment, since that is how consumers shop and pay today, but aggregating multiple payment methods under one issuer brand is a drastic departure from how consumers view the relationship they have with their issuer today. Adopting an open “issuer wallet” may require too much of a behavioral shift for consumers to easily make such a drastic change and, at least now, there’s no apparent reason why they’d want to do it.
“Wallets” must also deliver something much more meaningful than simply substituting for a plastic payment card. It must eliminate the friction associated with buying and/or create new value at the merchants they frequent . Wallets simply designed to enable payment and nothing more will fail to gain traction – in my opinion, that’s one of the reasons that NFC has failed to gain traction just about everywhere in the world outside of narrow use cases such as transit. So, payments incumbents – networks and issuers – must think deeply about how and where they will play in a world where the act of payment takes a back seat to the buying experience, perhaps starting with making sure that their products are, in fact, those products consumers want to “set and forget” in this new commerce paradigm ruled by connected devices, the cloud, data and apps.