Future of Payments

An overview on a few aspects of the payments industry

What will the Future of Payments look like?

Truthfully, no one knows, but I think there is enough info out there to make some overall predictions. I’ve got three:

1. Companies of all sizes will need to focus on “users”, not shareholders, to succeed.
2. Big firms have the advantage, whether they choose to use it or not is up to them.
3. There will be a consolidation of services over time.

Users > Shareholders, finally

Let’s talk about the need to focus on “Users”.

By “User” I’ll point out that this isn’t just a consumer attempting to buy something, but a company or individual trying to sell something as well. Possibly even friends trying to move money back and forth.

It’s been increasingly clear that larger payment companies have been stuck competing with each other for decades, most of which results in minor feature or price competition, and a consistent focus on financial results to satisfy shareholders. Now, I’m not proposing that seeking to maximize shareholder value is wrong, or that there hasn’t been any progress. To the contrary — I think that there is a need to maximize shareholder value for the long-term and that we’ve come a long way from paper statements or carbon copied impressions. However, for real growth and innovation, we need to focus not on corporate tuning and efficiency goals for incremental profit gains on a quarterly basis, but instead on providing a really fantastic experience for the users in order to continue long term growth.
That goes for smaller companies as well. Look at PayPal and Square for example (they’ll be a theme for most of this discussion because they fit some important guidelines).

PayPal, despite its frequently ill-reviewed user experience, was really an innovation focused on customer benefit. It allowed an easy online checkout for the consumer, with two simple pieces of information as opposed to card numbers, expiration dates, billing addresses and such. Moreso, it allowed customers to use the cards and accounts they already had, all with the same ease. Add to that the ease of integration for eCommerce site builders, and you’ve got the first steps in the right direction. Admittedly, they’ve fallen a bit behind the times and are now considered an older, less sophisticated way to solve the problem, but the basics are still covered.

Square took a much deeper look at the design and user experience elements of small and medium sized business transactions. Small coffee shops and boutique retailers are loathe to invest in expensive POS systems simply in order to take credit card payments (and still have to pay a fee). Then even after making the leap, the typical POS systems look and feel like the acronym suggests: Pieces Of Sh…

Square cut the complexity, made a simple and beautifully designed interface while providing free “hardware” that almost anyone could immediately use right out of the box. Hence, they’ve had great adoption rates and are probably the biggest major payment competitor in the market. However, the growth seems to be limited to smaller companies because at this point the POS software doesn’t integrate or include as robust of a back-end as more complicated companies would like. Inventory management, timekeeping, and other features are missing from the simplistic package and are among the many things Square will have to address to make big moves up the food chain.

What do both of these clearly demonstrate? Users (be them consumers with a card-in-hand, or companies happy to swipe those cards) are excited about companies that make it simpler, easier to transact, or more enjoyable to use the product. Many of these users, particularly in Square’s case, previously didn’t even accept credit cards thanks to a dislike of the current options. I’ll discuss this more below in the advantage of big companies.

Speaking of big companies, they certainly can’t be getting it right in the eyes of the user when so many small startups are getting funding, finding traction, and often times even finding small success by improving the user experience and design focus of even just one aspect of the payments industry. Venmo is an example of focusing on one very small niche. PayPal made it easy to pay friends online without a charge, Venmo has made it downright enjoyable.

Questions I have:

1. Why aren’t there more “Freemium” options for merchants? Square cut out the hardware costs, but still charges per transaction and therefore, establishments all over the tech-forward city of San Francisco still require cash at the register. Why not give the smallest retailers a chance to better serve their own customers with similarly free hardware plus some small number of free transactions per month. Ideally, the value would be made up once they hit the cap and start getting charged, doubled by the simple fact that accepting credit card could drive more business.
2. How hard is it to simplify a statement? If a google search can return what a credit card line item actually refers to, why can’t the company skip this step for me? Give broad categories and a simpler interface then allow the user to see details when and if they want.
3. Why is customer service still so corporate? If it’s already a focus of frequent satire, and it’s common practice to start by asking for a “supervisor”, why not focus on presenting a real human first, who has a broad range of authority to solve problems quickly and at the first try. (Without the script, as much as possible). Its time to start treating the call-centers the same as if every discussion were on Twitter.

Advantage: Incumbent

Why big payment companies have an advantage they’re letting go to waste.
As I pointed out above, big payment companies are clearly missing something, somewhere, and it’s becoming less plausible to ignore these issues as “long-tail” fickle customers. PayPal and Square, again, are great examples of innovation that would have been just as easily created and deployed from within a major organization.

Square adds a hardware aspect that is less than typical, but not impossible to (re)create, given the budget of the payment behemoths. Other than that, it’s really just a focus on smaller-than-typical merchants and giving them a fantastic experience. With the press surrounding big players, adoption and growth rates could easily have been twice as high, and iterated with more features to support all levels of companies.

PayPal would have been a tough pill to swallow for any major payment company, but once in the belly of the beast, who better to create an eCommerce layer? Yes, they’d have to allow other competitors to share the benefits of the service (see above: the major aspect of the value proposition), but PayPal has gotten decent increased revenues with “Bill Me Later” — value that any major credit card could have captured much faster.
In an infrastructure-heavy industry with complicated regulations giving the advantage to the big players, not innovating to fend off other companies is the fault of the incumbents. The value derived by upstart competitors was theirs to lose in more than a few cases.
Questions I have:

1. I get back to the freemium question again here: Why (ignoring shareholder issues for the moment) wouldn’t a company with profit to spare, spend time creating a simplistic POS & hardware solution that’s truly pleasant to use, then offer it as a freemium product to the smallest of all retailers? There will always be early adopters who love the underdog (often times myself included — seeing as I had a square dongle as soon as they hit the public), but a drastic move like that would effectively kill Square at its roots.

Future Consolidation in the Industry

I think it’s taken the rapid explosion of small startups focused on making this industry a simpler, more pleasant experience for the people in the trenches — the users — to make it clear that the status quo was not alright. That being said, I can’t imagine that this expansion will continue too much longer. I’ve already got 11 different apps that deal with payments on my phone and I’ve been extremely picky with each. At some point the specialized niches will be highly optimized for simplicity and a great user experience and every different type of payment transaction will have a separate service (or 4). Once that happens, or ideally before that happens, the value will be creating a consolidated central point that either competes with each of these separate services on equal footing, or finds a way to harness their value with an over-arching platform layer. Again, here we see the obvious value in being a market leader in the space, as well as having a user-centric vision with design and user experience at its core.

Questions I have:
None really — just hoping we get there sooner rather than later!

I believe we’re on the cusp of some very interesting developments in the payment and financial technology industry. Moves that will make every aspect of payments less expensive, more efficient, and downright enjoyable. It’s a future I’d love to be a part of!