2 January 2013 (updated typos and added content on kyc, cloud, and push payments)
Looking back to my first “prediction” installment 2 years ago, 2011: Rough Start for Mobile Payments, not much has changed. Although I am personally approaching the “trough of disillusionment”. Lessons below are not exclusively payment (ie mobile, commerce, advertising) but seem relevant .. so I mashed them together. Key lessons learned for the industry this year:
- Payment is NOT the key component of commerce, but rather just the easiest part of a very long marketing, targeting, shopping, incentive, selection, checkout, loyalty … process. Payments are thus evolving to “dumb pipes”.
- Value proposition is key to any success for mobile at the POS. There are no payment “problems” today. None of us ever leave the store without our goods because the merchant did not accept our payment. There are however many, many problems in advertising, loyalty, shopping, selection, …
- There is no value proposition for the merchant or the consumer in NFC. NFC as a payment mechanism is completely dead in the US, with some hope in emerging markets (ie transit).
- 4 Party Networks (Visa/MA) can’t innovate at pace of 3 party networks (Amex/Discover). See Yesterday’s blog.
- Visa is in a virtual war with key issuers, their relationship is fundamentally broken. This is driving large US banks to form “new structures” for control of payments and ACH. Control is not a value proposition.
- US Retailers have organized themselves in MCX. They will protect their data and ensure consumer behavior evolves in a way which benefits them. Key issues they are looking to address include bank loyalty programs, consumer data use, consumer behavior in payment (they like chip and PIN but refuse to support contactless).
- Card Linked Offers (CLO) are a house of cards and the wind is blowing. Retailers don’t want banks in control of acquisition, in fact retailers don’t spend much of their own money on marketing in the first place. Basket level statement credits don’t allow retailers to target specific products and it also dilutes their brand without delivering loyalty. Businesses want loyalty… Companies like Fishbowl and LevelUp are delivering.
- Execution. This may be subject of a future blog… Fortune 50 organizations, Consortiums, Networks, Regulated Companies all share a common trait: they are challenged to execute. Put all of these groups together (
without a compelling value proposition…) and we have our current state (see my Disney in a desert pic). Take a look at who is executing today and you will see product focus around a defined value proposition. My leaders: Square, Amex, Amazon, Sofort, Samsung, Apple, SKT, Docomo and Google. Organizations can’t continue to stick with leaders that are focused solely on strategy, or technology, or corporate development… You should be able to lock any 3 people in a room for a week and see a prototype product. The lack of depth in most organizations is just astounding. Executives need to bring focus. - In a NETWORKED BUSINESS, it’s not enough to get the product right. You must also get retailers, consumers, advertisers, platform providers, …etc. incented to operate together. Today we see broken products and established players throwing sand in the gears of everyone else in order to protect yesterday’s network. Fortune 50 companies have shown poor partnership capabilities. Their strategies are myopic and self interested. For example Banks DO NOT DRIVE commerce, but support it. Their “innovation” today is self serving and built around their “ownership” of the customer. Commerce acts like a river and will flow through the path of least resistance. There can only be so many damns… and they will be regulated.
- The Valley and “enterprise” startups. There are billions of dollars to be unlocked at the intersection of mobile, retail, advertising, social. Most of the value requires enterprise relationships. Most investment dollars have flowed to direct to consumer services. I expect this to change.
- Consumer Behavior is hard to change, particularly in payments, it normally follows a 20 yr path to adoption. For example, in every NFC pilots through 7 countries we saw a “novelty” adoption cycle where consumer uses for first 2 months then never uses again. My guess is that there are fewer than 1-2 thousand phone based NFC transactions a week in the entire US. (So much for that Javelin market estimate of $60B in payments).
- Consumer Attention. Who can get it? They don’t read e-mails, watch TV adverts, click on banner ads. My view is that the lack of attention is due to a vicious cycle relating to relevant content and relevant incentives.
- Hyperlocal is hard. The Groupon model is broken, CLO is broken.. Large retailers have a targeting problem AND a loyalty problem. Small retailers have a larger problem as the have no dedicated marketing staff. Their pain is thus bigger, but selling into this space requires either a tremendous sales team or a tremendous brand (self service).
- My favorite quote of the year, from Ross Anderson and KC Federal Reserve. [With respect to payment systems].. if you solve the authentication problem everything else is just accounting.
Predictions
Here are mine, would greatly appreciate any comments or additions.
- Retailer friendly value propositions will get traction (MCX, Square, Levelup, Fishbowl, Google, Facebook, …)
- MCX will not deliver any service for 2 years, but individual retailers will create services that “align” with principals outlined by MCX (Target Redcard, Safeway Fastforward, …etc). The service which MCX should build is a Least Cost Routing Switch to enable the most efficient transaction across payment “dumb pipes”. This will enable merchants who want to take risk on any given customer the ability to do so..
- Banks will build yet another consortium in an attempt to control payments. They will work to “protect consumers” by hiding their account information and issue “payment tokens”. I agree with all of this, yet this is a very poorly formed value proposition and Banks will find it hard to influence consumer behavior.
- We will see more than one bank start a pilot around Push Payments (see blog).
- Facebook and Google will gain significant traction in mobile ad targeting…. following on to targeted incentives… which will lead to mobile success. Bankers, please read this again.. success in mobile will begin with ad targeting and incentives. Payments are an afterthought…
- Retailers at the leading edge will begin to see that their consumer data asset is of greater value than their core business.
- Banks will follow Amex’s lead in creating dedicated data businesses. What is CLO today will morph into retailer analytics, offers and loyalty.
- Apple will put NFC in their iPhone.. but usage is focused on device-device communication… not payment. NFC will be just another radio in the handset, there will be multiple SEs with the carriers owning a SWP/SIM based one.. and the platform provider managing the other. Which will succeed? A: the group that can best ORCHESTRATE value across 1000s of companies.
- Visa will lose a top 5 issuer to MA, and they will see a future where their debit revenue is gone (in the US) as MCX and bank consortiums take ownership of ACH and PIN debit.
- We will see 100s of new companies work to create new physical commerce experiences that include marketing, incentives, shopping, selection. Amazon is the driving force for many, as retailers work to create a better consumer experience at competitive price.
- Chaos in executive ranks. Amex, Citi, MCX, PayPal, Visa all have new CEOs.. all will be shaking up their payment teams.
- Retail banking is going through fundamental change. Bank brands, fee income and NRFF are declining, big dedicated branches will be replaced by more self service. Mass market retail will see significant leakage into products like pre-paid. Retailers and Mobile Operators are better able to profitably deliver basic financial services, to the mass market, than banks…. see my Blog Future of Retail: Prepaid.
- Unlocking the Cloud… and Authentication. KYC is a $5B business. Look for mobile operators to build consumer registration services that will tie biometrics with phone. Digital Signatures on contracts, payment through biometrics, .. all will be possible in a world without plastic. Forget NFC… See previous Blog on KYC and Cloud Wallets.
I would add to this a prediction that more comprehensive approaches to alternative payments and funds storage and management will pop up that will have the mobile access channel as the primary method of transaction initiation and user identification but will in practice represent simple “bank in a box” or “money in a box” solutions.
Key functional characteristics of this approach would be:
•Comprehensive, multichannel access management (as universal as possible – mobile, web, plastic…)
•Funds storage and transaction funding management from multiple sources: stored value account, direct bank account, line of credit, etc.
•SVA cash-in/cash-out ecosystem that enables the harvesting of cash for SVA recharge and cash withdrawal
•SVA electronic reload ecosystem (from multiple electronic sources including bank account, remittances, payroll deposits, government and NGO assistance)
•Merchant/Payee payment integration for proximity and remote payments; attended and un-attended merchants; real time and off-line payments (e.g. bill payments)
As Wal-Mart, Target, Amex have been proving, there is a demand for simple set of financial services, not involving consumer risk and taking advantage of modern consumer electronics AND consumer/merchant networks.
Great post Tom. I 100% agree with your statement that, “There are no payment “problems” today. None of us ever leave the store without our goods because the merchant did not accept our payment.”
To me, the opportunity is hyperlocal marketing and ‘loyalty’. Getting the right message in front of the customer at the moment of truth to change their behavior, then turning that transaction into a long-term relationship.
If you can do *that*, you’ve captured 95%+ of the value, IMO.
The power play over the wallet is fascinating and no doubt a large prize if there’s a clear winner. If I had to bet, my $’s on Google.
There may not be a “payment problem” but there is a payment opportunity in cash replacement market (in LVP and micro transactions).
Cash is expensive and limiting. A large percentage of consumer payment transactions, mostly small and micro payments, represent 50-95% of the total transaction count and are almost entirely served by cash. Cash processing costs, especially when coins are involved, are very high, often as high as 10% of the total amount. Unavailability of funds in cash (and/or the change where necessary) limits the velocity and volume of commerce, inconveniences the payer, and constrains the business of the payee/merchant.
Currently proposed cash alternatives are inadequate. Most currently considered alternatives for cash displacement need to wait for or build a sizable population of payers and payees compatible with their offerings (e.g. NFC-only solutions). The time, effort, and additional capital required represent significant issues. The need to replace and/or update mobile phones, terminals, OS and application software, and the resulting complexity and intimidation factor result in very slow service adoption.
Tom – great summary. I’d second Mirek’s suggestion above re Micro payments, but less from a cash replacement perspective in the physical environment, and more aimed at the opportunity to buy seamlessly small pieces of digital content via your different devices.
I think the paywall/regular subscription concept for newspapers and magazines is flawed, but one-click purchase of an individual article for pennies on a pay-as-you-go basis is a must for the low ticket end of digital commerce. Imagine Amazon one-click embedded within a page after the first paragraph: “Like what’s you see? Read the rest of this article for 5c…”
With many major card markets operating a percent + pennies per transaction interchange model, micro payments are a problem that need a solution.
Getting authentication right is absolutely critical to making mobile payments critical. Consult Hyperion did a podcast with my CEO on this very topic @ http://www.validsoft.com/news/consult-hyperion-podcast-pat-carroll-on-mobile-payments-news-23427103745.
Using my CEO’s own predictions for 2012, “2012 has been the year of the mobile wallet and 2013 will see some actual merchant adoption of the many wallets that have already been announced, no doubt with many more to come before the inevitable consolidation will occur. Picking the winners and losers, though, is far harder in what is fast becoming a saturated market. Merchant adoption is of course key. 2013 will also be the year of mobile payments. I personally believe that 2013 will herald a faster transition to mobile payments than analysts are currently predicting. Traditional transaction methods remain woefully inadequate to meet the needs of both the world’s large under-banked population and those who are demanding even greater convenience from their banks. Mobile opens up a host of possibilities to address both needs.
However, throughout 2012 the mobile payments industry has been preoccupied with the race for market share and no single technical standard has emerged. As long as there remains opportunity to be had and competition remains high, I think we’ll see this trend continue. I wouldn’t be surprised if along the way some of the fundamentals fail to be addressed (we have already seen one high-profile case in the UK in 2012) and we see a significant fraud attack that puts users at risk, causing significant reputational damage for this new channel.
That’s why, as we move into 2013, we’re fully in support of the Electronic Transaction Association’s Mobile Payments Committee, as it looks to become a unifying body helping to shape the standards for the merchant acquiring industry in this area.”
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