Over the centuries, money has morphed in form while retaining its essential function as a store of value. From goods on barter, to coins, to promissory notes, to currency notes and plastic, money is first & foremost a payment mechanism.
The digital revolution has affected many well-established businesses, for better & for worse. Analog has been ceding ground to digital in almost every sector one can imagine. From travel to photography, from newspapers to running shoes – upstarts are challenging the legacy players. Why should payments be any different?
Payments are different, because two key drivers of the digital revolution have been integral to that industry:
Banks & payment services have had a strong, interconnected ecosystem, before the app store popularized the word ecosystem. The biggest names in the digital age depend on a payment system developed in the mid-60s for an analog world to be who they are (think Amazon, think Travelocity).
Banks & payment services have been at the forefront of technology adoption, beginning with back-offices & then with consumer facing devices (think ATM) & services (think of the last time you had a physical passbook).
But, payments are ubiquitous. Everybody, everywhere has to pay bills. Everybody has had to borrow or repay a small sum from a friend. Everybody has to buy something from a merchant.
And, what is more ubiquitous today than mobile phones? Yes, mobiles are the vanguard of the digital revolution changing the payments industry.
There are currently three major changes afoot, all led by mobiles.
A. Device as a digital wallet
From credit card companies, to Google, to banks & payment service providers, there are several digital wallet initiatives being launched.
Google Wallet, currently being rolled out in the US, is an NFC (near field communication) enabled proximity payment system. It is an app that stores credit card information, pulls in offers & deals and is a proximity payment system.
The pilot test was launched as a three-way partnership between Citibank, Google & MasterCard, with Visa soon to join.
Good time to watch real people using Google Wallet here.
NFC devices are expected to grow in popularity in India & Asia. Some Blackberries and Android phones already have the ability to read NFC. My guess is that it will take a year or two to gain wide currency.
B. Device as a point of sale (POS) cash register
While there are quite a few players in this space, for most people Square is the defacto category. Jack Dorsey, co-founder of Twitter & widely touted as the next Steve Jobs, started Square.
Square has two components – a card reader that can be plugged into the audio port of an iPhone, iPad or Android device & an app that takes care of card authorization. The card reader is shipped free of charge.
Once you have a card reader, one can start accepting payments. Whether you are a second-hand bookseller or hobbyist-chocolatier, a credit card payment is suddenly possible. Of course, there is that small matter of the iPhone, iPad or perhaps a cheaper Android.
What makes Square powerful are the analytics tools which come with it. Wait, if you think that means more spreadsheets, take a look at this video
Once you have data, there are a myriad ways to add value. As you just saw. These will enhance usage, create stickiness and hopefully, make Square a juicy enough target for an acquisition. Pundits believe that Apple would probably be interested, again this could be plain rumour.
There are many more mobile device based payment systems. Intuit GoPayment is one of them. Intuit GoPayment works on Blackberries, too, so that is a plus.
Square, I suspect, has both the first mover advantage & a better overall experience.
C. Ecosystem (carriers + devices + social networks + banks ) as an alternative payments mechanism
A slew of players – popmoney, obopay, zong, to name but a few are creating partnerships which make existing bank accounts mobile. They typically leverage the mobile operators services – using the bill as a store of value or simply as a conduit. The bank-led partnerships work a bit differently than the mobile operator-led businesses.
popmoney have this simple graphic to illustrate how they work:
Most ecosystem partnerships are variations on this theme.
Obopay, another interesting technology play, has been in India for sometime, they have partnerships in place with Nokia for Nokia Money as well as with Union Bank and YES Bank for enabling mobile payments.
The alternative system, which uses the mobile service as a store of value is best illustrated by boku. This makes boku very scalable and relevant in India. It is device independent and depends purely on the mobile network. Here’s how it works:
Finally, some players are using social media, like the online payment startup Dwolla. Dwolla is challenging plastic by enabling payments through Twitter, Facebook, SMS and other virtual channels by connecting their bank accounts to their Dwolla accounts. The service integrates with social networks to alert payment recipients that there is money waiting for them in their own Dwolla accounts that can be transferred to their bank account. At its core it is an alerts service and depends on banking partnerships to transfer cash.
The elephants in the payments room
Apple, Amazon and to a far lesser extent, Google (Android).
These brands have made buying utterly frictionless, almost habitual. Amazon’s patented One Click system is literally one click away from accessing your account to pay for a book that you wished for.
What is delightful are the suggestions that Amazon makes based on past buying behaviour. Even past browsing behaviour. And that data prevents one from buying the same book twice.
That is the power of digital.
Each of these players could move into the core of commerce, payments. Perhaps through acquisition. Perhaps through partnerships.
Each leveraging the three key elements of digital business.
Powered by personalization. Enhanced by clever use of data. And ubiquity.
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