Payment Hype and Delusions of Grandeur

Very short blog

I tweeted this week that “Mobile Payments” are dead.. quite a contrarian view, particularly when compared to  Juniper’s forecast of $180B by 2017.  Or Visa Europe’s wild prediction that half of all payments will be through mobile by 2020.

Why am I the Contrarian?

  1. There are FEW payment “PROBLEMS”. Do any of us leave the store without our merchandise because the retailer didn’t take our form of payment?
  2. Payments is only the last phase of a long Commerce process that involves marketing, influencing, shopping, selection, purchase, support. Payments should be evolving toward a DUMB PIPE.. More value will not center around payment… but rather the retailer and consumer.. the costs of payments will begin to decrease SUBSTANTIALLY as supporting services improve DRAMATICALLY (Authentication, Fraud/Risk, Credit, Transparency  Reputation, … ). Can you imagine if you had to pay a 3% transaction fee everytime you bought a stock? Such a market would be highly INEFFICIENT.. yet that is the case in retail today.
  3. Mobile is not a payment solution.. it is primarily an “Access” and “Authentication” Solution
  4. My behavior rule of thumb says that there must be a >20% value improvement for behavior change
  5. Cloud, Cloud, Cloud.. Our money, friends, digital creation, … are NOT locked up in the phone.. they exist in the cloud. It makes no sense to have a solution that ONLY works with the phone. (See Cloud Wallet). The mobile device can serve as a key authentication tool.. but so can your iris, voice, or facial geometry.. (See Apple NFC and Stage 4 Value Shift).  This is the context of Ross Anderson’s quote at KC Fed “If you solve the authentication problem [in payments].. everything else is just accounting  ..
  6. Retailers are not supportive
  7. Supply Chain is complex

To be clear, there are many viable payment businesses today. However, MOST exist because of the INEFFICIENCIES within current networks (banking, 4 party models, regulation, …). My top examples surround P2P and international remittance (see my note on Xoom).  Banks have the ability to completely defeat any of these 3rd party services, yet they choose not to. Why? They are locked into existing services, products, branch distribution channels, payment partners.. most are mired in a sticky muck.. (see blog on VMT, and my Big Blog on Battle of the Cloud Part 4 – Clusters Form).

Emerging markets are completely different. There are many problems to be solved..including: commerce, banking, remittance, community, access, transparency, social welfare, .. In this area new models are “leap frogging” traditional banking and payment models. I’m very excited at the prospect of lifting billions of people from poverty (see this blog).

In OECD 20, We are beginning to see a massive restructuring of commerce (how goods are created, marketed, and sold). Tectonic shifts which will shake the foundations much beyond Amazon, taxes, mobile-physical shopping and channels, marketing, loyalty, discounting..   It is a 3rd phase of Retail (Future Blog).  What is Retailer loyalty? Brand loyalty? What is a commodity? How do you service a customer? What is the role of price in a buying decision? Where can I get a customer’s attention? Who else can influence this customer?

Start ups…. Go solve a Real problem

VC/PE… Due Diligence is required prior to investing here.  If Visa and Google can’t move the needle… how can NewCo?

Parting Thoughts

WSJ.com is my home page.. yesterday I see a Monitise banner ad on the right “Over $30B in payments, purchases and transfers annually” (see Monitise PR)… I almost spit out my coffee.  I doubt if many know the context here.. Monitise’s history is in SMS banking.. a first kind of online banking, where their unique innovation was integrating an SMS server onto the ATM switch.. this allowed a very quick and dirty implementation that was extremely reliable. My guess that $29B+ of their volume is banking customers moving money from one account to another.. including bill pay.. Oh.. their pricing?  its not transaction based for this.. its just a piece of software sitting in Lloyds, RBS, HSBC, … Is this the poster child of MOBILE MONEY SUCCESS!? I suppose I should put Apache down as well, as within Citi and Wachovia.. Apache/Tomcat executed over $500B in payments and transfers.. Just FUBAR.

So before you go out to buy a piece of MONI on the London Stock exchange.. realize that biz model resembles FIS.. or rather Jack Henry (be VERY skeptical of any mobile payments revenue). In fact, Visa gave up on MONI within emerging market payments (in favor of the much more robust “BANK IN A BOX” Fundamo solution).

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13 thoughts on “Payment Hype and Delusions of Grandeur

  1. I totally agree. I also think the model is wrong on todays mwallet. The model needs to be neutral.

    Also I am curious what your thoughts will be around with your future blog on the” place to capture the customer”. Maybe it’s the TV since the TV is the most influential medium in the buying process…thoughts?

    • My only thought is opportunity exists where consumers spend time (not fully engaged in thought). In this context.. advertising just seems completely broken.. Context and relevance are important, as is content, value, reputation, social factors…

  2. Whilst I agree that mobile payments value is often misrepresented (not least by including ecommerce transactions on tablets), this view of payments often seems too narrow to me. Card payments distance the consumer from their spending and the retailer from their customer. Payment on mobile devices creates an opportunity for deep connection, providing the consumer with immediate feedback and control of spending (such as Moven) and giving retailers the opportunity to reinvent the concept of loyalty and recognise the long term value of customers. Mobile payments is not about the payment itself but the opportunity to create connection.

  3. great perspective, your blog is a voice of reason among the breathless hype. I think there is one problem to solve it is that 3% for the merchant. if consumers understood that they paid for that 3% indirectly then both sides have the pain.

  4. Wow great post, a breath of fresh air!

    As you said so well:

    “Payments is only the last phase of a long Commerce process that involves marketing, influencing, shopping, selection, purchase, support”

    The biggest value add will be in “marketing, influencing, shopping” since that his where most retailers focus their daily effort. Getting more customers in the door.

    Also noting that the most popular retail tool in the world is still coupons, despite the fact that (as great retail pundits have said) coupons are probably the most inefficient, boneheaded system in the world, frustrating to both sides.

    For that reason we’ve been experimenting with Passbook/Google Wallet for retailer marketing. Huge efficiency gains possible, and the platforms are mostly free and open to anybody.

  5. Great article. Love the rule of thumb comments around behavior change being a 20%+ swing on value to drive interest and potential adoption. While not the be-all-end-all / a simple mobile couponing strategy to drive additional merchant foot traffic and sales and consumer ‘value’ for trying the mobile channel – might help to extend the runway. That has been our focus, 140,000+ merchants under contract with mobile coupon acceptance. And, yet – our merchant feedback has been largely — ‘It’s another marketing channel’ – they are not thinking about it in terms of payments yet.

  6. “Do any of us leave the store without our merchandise because the retailer didn’t take our form of payment?”

    I did this on Friday. I went to get a coffee and a pastry at a coffee shop by the station. I didn’t have any cash with me and I didn’t have the time (or, to be honest. the inclination) so when they told me they didn’t take cards I just left and got on the train.

  7. Just realised my comment makes no sense. What’s new? Anyway, it should read…

    I did this on Friday. I went to get a coffee and a pastry at a coffee shop by the station. I didn’t have any cash with me and I didn’t have the time (or, to be honest. the inclination) to go to an ATM so when they told me they didn’t take cards I just left and got on the train.

  8. Dave, completely agree. It’s even more relevant when you travel (and EVEN more for you because you have weird coins by European standards!).

    I also recently saw the opposite happening. A coffeebar company in The Netherlands only accepts debit cards as a payment method, cash is banned. Tourist that fear being charged for purchases made abroad leave without their cappuccinos. It’s the first example i see of merchants being more advanced than users.

      • Restaurants too Tom. More than once I’ve gone into a restaurant in NYC that has a sign inside “cash only” and then turned around and walked out. And I’ve occasionally gone to a different merchant because one didn’t accept Amex or because their surcharge for credit/debit cards was too high.

        However, I don’t want to detract from the basic point, which is completely correct. Identity is the new money, as they say (well, as I say).

  9. Pingback: CEO View – Battle of the Cloud Part 5 | FinVentures

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