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Brett King
Brett King

Brett King

Brett King - Moven

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Innovation in Financial Services

Innovation in Financial Services

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

Why payments are disappearing, and mobile will win

11 October 2013  |  10587 views  |  6

Ok, so if you think we're done with the whole "when is a mobile payment a payment" argument, think again. The reality is that the biggest evolution in payments is not about Visa, Mastercard, Amex, Square or faster payments, but it is about context and simplicity, and that's where the mobile and other technologies are leading us.

You are probably familiar with the Gartner "Hype Cycle" which has pretty accurately predicted the adoption and maturity cycle of various technologies. The Hype Cycle is pretty good at describing the hype around things like NFC and Mobile Payments generally, and how now we're at the working end of enlightenment and productive ideation. There are a few exceptions to the Hype Cycle. Facebook, for example, is notably absent from their analysis because it has never quite emerged into trough of disillusionment phase - it got hyped and then went straight through to the enlightment stage. Theoretically you could call the IPO failure the disillisionment phase, although that wasn't with the tech. I digress...

What history teaches about Payments?

If we look at payments history, we find that even from the earliest days of exchange and barter systems, payment methods were generally fairly simple. In Europe paper money was first introduced in Sweden in 1661, not that long ago in historical terms. The exchange of a centrally valued currency was certainly well established by the 18th Century, but at its essence it was a fairly simple value exchange.

With the advent of telephony, and then computers, the ability to send cash from one side of the world to the other emerged, but this was more complex than traditional monetary exchanges based on paper currency or barter. It required trusted parties to be involved, and that raised the complexity, but the benefit was still clear. Cheques required similar authority to be established, but the benefit of being able to send a protected payment that could only be used by the recepient was clear - the benefit outweighed the relative complexity. 

When credit card payment networks emerged, the idea was you didn't have to carry as much cash, but you could still make a payment almost anywhere. The system itself behind the scenes was quite complex, but once we had migrated from Knucklebuster technologies to POS terminals, the customer experience was simple enough, although increasingly exposed to attempts at fraud. 

The pattern emerging is that, like the hype cycle, there has been a complexity cycle with modern payments based on transmission and identity that we simply didn't need with a cash based system. Banks and payments players learned to value complexity as protection from fraud and a barrier to entry, but today it is that complexity that now is getting targeted by technology like mobile. 

When the payment disappears

In a 2009 Microsoft Showcase video, a mobile payment for a Taxi was envisioned, where the user just exits the taxi without having to exchange cash, swipe or tap - this is the ultimate expression of a payment. A system that is smart enough to identify you, but eliminates all of the payment friction. 

Uber is a great example of that technology today. You jump in an Uber car, you take your ride and at your destination you hop out of the car, payment automagically executed through the Uber network, receipt delivered to your phone. The payment has all but disappeared.

The ultimate expression of all of the technology we are seeing right now in the payments space is not to make payments sexy, it's to make the payment disappear.

The real value that is emerging is knowledge and context, not the facilitation of the payment itself. Think of it this way. The ability to make a mobile telephone call from one side of the world to the other is built upon extraordinarily complicated technology, revenue sharing agreements between operators around the world, transmission and technology standards, etc. However, making a call is not that complex today - we just hit a button and the magic happens. 

Payments is increasingly becoming an iceberg in respect to complexity, with the really "sexy" simple stuff at the top, and all the complexity hidden. The advances we make in technology whether in respect to radio (RFID, NFC, Bluetooth, etc), mobile, biometrics, etc are being integrated into the experience to remove friction that has emerged into the system into the last 60 years. The friction is not value, it is simply complexity that emerged in an evolving system. We think of these networks as established, but in the scheme of things payments in the past have not traditionally been complex moments.

In a data rich world

Today, however, we live in a very different world to an 18th century merchant or an early 20th century industrial worker. We live in a world enriched and bombarded by data. Today that data is a somewhat chaotic, if not ubiquitious, but the real task is getting context to emerge from the chaos - personalizing it down to the person, at the moment, based on context.

Digital natives certainly expect more context in their life. The most simple form of context in a payment instance would simply be understanding how much money you have in your bank account before you make a purchase or payment. The way payments evolve from here will not be making payments faster or better ostensibly. The payment will disappear, becoming an embedded instance in another engagement or interaction.

So Uber is a great example of a payment that has largely disappeared, and where the value is not in the payment but in the interaction. That's why mobile, smart watches and other devices that give context are more important to the future of the payment than the POS or the network, when it comes to consumers. The future is about what happens before the payment and after the payment, not how the payment happens. That's like hitting the send or dial button on your mobile - it just has to happen with minimum fuss.

That's why arguing over whether a payment is truly mobile or something else is a lost argument. When a payment ultimately works, no one is going to care how it happened. As long as it happened seamlessly with minimum fuss, and maximum context or value. When the payment disappears, it doesn't matter how you paid, it matters what the payment did for you.

Is Uber a mobile payment, a mobile wallet or mobile commerce with a card payment? It matters not - it is a great taxi experience and the payment via the app on the phone makes it possible in the least complex way. That is what is cool, not the payment itself - the experience. Whether it is removing the complexity, or data that creates great context and value before and after a payment. The coming revolution is not in payment tech, but how the payment disappears and value emerges. 

TagsCardsPayments

Comments: (11)

Alexander Peschkoff
Alexander Peschkoff - TEDIPAY - London | 11 October, 2013, 22:00 I disagree (no surprise there). Uber payments, for example, do not run on Uber network (as there is no such thing) - they run on the card networks (V/MC/Amex - whatever card I registered with Uber). Also, payments as such do not disappear - Uber drivers do get paid. I guess what does indeed change is (a) how user is authenticated and (b) how payment is initiated. So, it's POS, inter alia, that disappears, not payments...
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Brett King
Brett King - Moven - New York | 11 October, 2013, 22:29

@Alex

I believe you missed the point entirely - remember telco networks making a call? The payment disappears in that there is no 'instance' of the payment. A customer doesn't authenticate, doesn't put in a PIN or password, doesn't swipe, doesn't tap, doesn't chip and pin, doesn't pull out his wallet, doesn't push a button, doesn't use his fingerprint, doesn't have to open a special app, doesn't have to scan a QR code, doesn't have to bump - nothing. 

The payment happens, but it is invisible to the user and embedded in a more important interaction - catching a taxi. The value of the payment network and experience is that it enables the payment as simple and as frictionlessly as possible. That is all - the payment itself is of no value except that it enables the commercial interaction. Even if you argue they had to authenticate at some point with the Uber app, or that at some point they had to set up their card details with Uber, that has no impact at the instance of an Uber trip where the customer simply exists the vehicle and the payment is executed at the back-end.

Where this leads to is that all payment networks must strive for maximum efficiency and minimum friction to be of value in the future. This also explains why cash still exists in the system, because it is hard to make payments simpler than using cash. 

You can disagree all you like, but the facts are that an Uber customer doesn't make a conscious or deliberate 'payment' in the experience. He chooses Uber because he trusts that the service will be offered, and that the payment will be executed seamlessly. The fact that the payment gets initiated by the driver and then goes through Uber, to Braintree, to a Processor, through the card network, authenticates via the bank, and sends the approval back through the processor so that Uber can issue a receipt is invisible to the user - and that's the point.

The more you fight to make the payment a distinct moment, the more you are fighting the inevitable. 

Friction is what kills incumbents.

BK

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Alexander Peschkoff
Alexander Peschkoff - TEDIPAY - London | 11 October, 2013, 22:45 Using a card to pay is no more difficult that dialling a number on a phone. It's for sure simpler and faster than fumbling with banknotes and coins (cash is still here NOT because it's "easy"... Dave Birch covered that subject well.) I do like Uber/Hailo experience. I simply cannot see how it relates to "no payment". Just because you don't see it, doesn't mean it's not there (have a look at the definition of payment via the first link in your blog post above).
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Neil Burton
Neil Burton - Verifone - London | 12 October, 2013, 09:34

@Brett - I entirely agree - indeed the unbundling of the components of a payment process is creating new value.

But touching client funds is a regulated activity – there are laws to be adhered to, and failing to do so has potentially commercially fatal consequences. Some entrepreneurs and investors have seen mobile as a way to work around that; it can be, in a closed loop system, but that model usually fails the scalability test, and achieving economy of scale is another of the critical success factors.

The retail experience should be frictionless, but what lies behind it, to enable the end-to-end process to complete reliably, predictably, seamlessly - for a sufficiently large number of senders and beneficiaries - has to be factored in, too.

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Brett King
Brett King - Moven - New York | 12 October, 2013, 19:38

@Neil

Correct, but that's what I'd refer to as a hygiene factor in the future. Minimal impact to the customer, but has to work everytime, seamlessly.

 

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Alexander Peschkoff
Alexander Peschkoff - TEDIPAY - London | 12 October, 2013, 19:53 I've finally thought of a better term for what you were saying there, Brett. Payments are becoming INVISIBLE/TRANSPARENT.
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Brett King
Brett King - Moven - New York | 12 October, 2013, 19:57

@Alex

So let me get this straight? If I change the title to "Payments are becoming invisible" instead of disappearing, and I change references to disappear in the text to invisible and/or transparent, you agree?

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Alexander Peschkoff
Alexander Peschkoff - TEDIPAY - London | 12 October, 2013, 20:00 200% :)
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Brett King
Brett King - Moven - New York | 12 October, 2013, 20:02

Glad we got that settled...

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Eric Smith
Eric Smith - Dynamic Partners - London | 14 October, 2013, 17:07

Brett,

I think what you are saying makes a lot of sense and indeed security to one side, making a payment as simple as possible takes away as much "hassle" as possible.

That said, it also perhaps makes it a bit "too easy". When you check your bank balance or credit card statement (or whatever) at the end of a month and see you spent much more than you thought you had - you might want some of that hassle back again. In other words - people still like some level of control over their spending. Making it too easy might not be such a good thing.

A guess another thing that occured to me reading this was where there's a dispute. There's no signature, no PIN. If I say "it wasn't me in the taxi" how can anyone really prove it was? I'm sure you've thought about this - but it's not immediately obvious.

Anyway - great article.

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Brett King
Brett King - Moven - New York | 14 October, 2013, 21:10

@Eric

You are absolutely right. In fact, the great thing about context and value is that before a payment you will have the ability to not only see how much money you have in your account, but you'll regularly ask your phone if you can afford something - and it will tell you.

The core bank account of the near-term will be more about value advice and context of your money than the current system allows.

 

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Brett King is an Amazon bestselling author, a global commentator on the financial services space, a keynote speaker, the host of the BREAKING BANKS Radio Show on Voice America Radio, and the founder o...

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