To me, there are 4 pillars that together form the foundation of any future state for payment systems. Consumers, Environment, Governance, and lastly (yes lastly) Technology. As an industry, we tend to get hung up on the technology because we live with
it every day, but ultimately, the technology is just an enabler. Payments services require consumer demand within a commercial environment protected by a legal framework - we just happen to deliver them with technology that continues to change to meet the
changing demands of the other 3 pillars.
If you ask Wikipedia - “when did the internet start?” you get a variety of answers. ARPANET was created in the 1960s; TCP/IP was defined in 1982; ISPs appeared in the late-1980s; and in the mid-1990s the World Wide Web was created. Choosing your preferred
definition isn’t that important here - what is important is that anyone born from the mid 1980s on, really has no recall of commercial or banking life pre-internet. in the UK that is 23 million people or 35% of population. The proportion is probably similar
across the developed economies. In India 65% of the population is aged under 35 - this is possibly true for other developing markets.
But what is the average age of someone making decisions about the future of payment systems - even Wikipedia couldn't answer that. However, based on my unscientific approach of thinking about everyone I know in these key roles (spanning contacts in the UK
& mainland Europe, India, Indonesia, South Africa, USA, Canada, Australia), I came up with 45-55. We may like to think we are well educated about the capabilities of modern technology, and we're probably justified in that thought, but we shouldn't mislead
ourselves that we know what these young people will want or do with the technology we deliver.
Having watched the success of M-PESA in Kenya, one South African retailer thought it would be a great idea to put prepaid debit cards in the hands of their previously un-banked customers. Tens of thousands of cards were duly issued and cash flowed through
the systems, but relatively few purchases were made. On investigation, it turned out that savvy young consumers were using the cards as a type of free travellers cheques on long journeys. Rather than carry cash on a long bus journey, people would deposit
the cash to their card at one branch of the supermarket and then withdraw it at another branch when they reached their destination. The retailer did persist with the system and in time saw some of the shopping behaviour they had hoped for. So, there are
really two lessons here - the first being that one generation finds it very hard to predict the future behaviour of a younger generation. The second is that if the first generation focuses on providing a solid, trustworthy, flexible infrastructure, then the
next generation will devise creative ways to exploit that infrastructure.
The real world environment for the payments domain was for so long the high street, with a little bit of MOTO. That environment was stretched with the arrival of e-commerce. Now with card payments accepted in bars,on trains and aeroplanes, at vending machines
and toll booths, only a very small number of outlets remain cash-only. Various acceptance technologies based on mobile phone technology are even now eroding those last bastions of cash. Taxis, cash-on-delivery services, even person-to-person payments are
all technically possible now with acceptable user interfaces and transaction latencies. The only barrier to wider adoption in most of these acceptance points is the tendency of the merchant to pass on the MSC as "card fee". That is, the only barrier to card
acceptance ubiquity is the cost of card acceptance - this seems like a problem that the cards industry should be able to overcome
Historically, governance in the cards arena was based on issues like consumer protection, fraud prevention and scheme operating regulations. However, in recent years, oversight has moved from the specialist cards domain into the more generic economic domain.
In many markets, the role of ATM systems in managing the cash supply came under scrutiny during the banking crisis of the last decade. The power of the cards networks generally has become more interesting to governments trying to manage the cost of welfare
The dependence of consumers on payment networks to manage their daily lives has attracted government and competition authority intervention in areas like interchange fees and card usage fees (for ATMs and e-commerce transactions).
This increasing exposure to regulation means that payments systems have left the world of self-regulation and will be held to account by governments if they fail to meet the expectations of their increasingly dependent users.
So finally to technology. How does our 4th pillar deliver for the 1st in the context of the 2nd while not falling foul of the 3rd?
I'd suggest that the first step is to accept and plan for the divergence between the required homogeneity of the payments infrastructure and the inevitable heterogeneity of the myriad of access methods and channels that appear and disappear with alarming speed.
In the future, acceptance methods and technologies will proliferate but they will all seek connection to a tried, trusted backbone of reliable, robust payments infrastructure. The need to maintain the reliability, scalability and availability of that backbone
payments network is what should be at the top of the to-do list for payments technologists.