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Invisible payments, Cloud POS and the next big thing

Money2020 was a great event that I missed. Yet, judging from media coverage and comments from people who did attend, there were few surprises there. There were some weird product launches like Loop; there were some, still unspecific, updates on MCX (it's not clear how consumers will benefit from it...); there was a new tokenization initiative by the card schemes (who still think from the perspective of control, rather than added value). There was nothing to blow your mind away, though. Perhaps because (a) status quo payments work, (b) there is little money to be made in pure payments and (c) payments are boring.

Although "mobile payments" is a hot (and hotly debated) topic, nobody is excited about making a payment these days. The ability to use a piece of plastic anywhere in the world to make a payment is taken for granted, just like a light switch or a water tap - the marvel of what it takes to make it work is lost on us today.

Payments are becoming invisible: the term was inspired by my discussion with Brett King; I later found out that Felix Salmon used it back in 2010 to describe the notion similar to that of BK. An invisible payment requires corresponding "invisible" authentication.

Take "Pay with Square", for example: the shop assistance needs to ID the customer via a photo; the customer needs to confirm his/her name to consent to the transaction. That doesn't work in all circumstances and leads to some loss of anonymity (not that we should care - no, I did not sleep with Keira Knightly). That's why cash and cards are here to stay for the time being (when I say "cards", I mean the "ID" which a bank provides me with, not a piece of plastic).

Talking of physical cards, they will soon have another role to play, in e-commerce. Contactless EMV is about secure transactions which are based on data exchange between a card (secure element) and a card terminal. Security comes from secret keys, encryption, data exchange protocol, counters etc. Communication channel itself (e.g. NFC) is not - and does not have to be - secure (here are some hacking basics courtesy of British Telecom).

That means we can move the card reader into the cloud... By enabling a physical card to talk to "Cloud POS", we can make secure "card present" e-comm transactions - something that tokenization does not achieve (sorry, cannot share more details here - Finextra does not allow "self-promotion", I am bound by NDAs and, besides, some of the competitors read my blogs here...)

Is that the next big thing in payments? Not at all. There is no red pill. The industry will get more fragmented (e.g. MCX vs card schemes), there will be new form factors and new business models, there will be changes to user experience and user behaviour. Payments are about authentication and subsequent reconciliation of records in two databases. That's all there is to it. The latter is simple; it's the former where the main battles will be fought and the wars will be won...


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This post is from a series of posts in the group:

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

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