New ways of making payments have emerged as technological advances such as smartphones, enable consumers, businesses and financial institutions to exchange information more freely and quickly. Regulation continues to make an impact . In fact, the impact of regulation on payments innovation very much depends on the country, law and new ideas involved. Recent analysis conducted for the latest World Payments Report (WPR) showed that half the global regulations and initiatives analysed had a positive effect on new thinking.
Regulations designed to promote competition, create a level playing field through standardisation or boost social inclusion were most likely to be pro-innovation. Whereas those that put business models under pressure, by targeting market entry or price regulation for example, tended to create less opportunity to innovate. With payments, regulation can help drive new thinking and improve efficiency – the key is flexibility.
Payments is a two-sided business. It requires the engagement of both merchants and consumers. So anything that is intended to “innovate” payments better deliver enough value to both sides so that both merchants and consumers have the incentives to move away from what they know works today to the promise of something that might work better in the future.
Research in 2012 about the future of payments by American Express shows that over half (52 percent) of consumers ages 18-24 are likely to try new technology-enabled payment tools as they become available compared with 23 percent of those ages 55-65, suggesting that the fate of emerging payments clearly lies in the hands of millennials. However, all consumers agree that security is most important, with 83 percent of consumers ranking it higher than loyalty programs, benefits, fees/costs to use, user friendliness and convenience.
“mobile will shape the way consumers shop for goods and services.”
Turns out, that’s a big deal. And getting consumers and merchants to change the ingrained habits that dictate their behaviors isn’t easy. Finding the hidden clues that can unlock those behaviors is tasked to one of seven CEO panels that are a part of The Innovation Project 2013, a program hosted by PYMNTS.com on March 20-21 at Harvard University and designed to change the way that the payments and its broader commerce ecosystem thinks, talks, delivers and ignites innovation. Steve Levitt, economist, University of Chicago professor and author of Freakonomics, and Don Kingsborough, VP of POS Innovation at PayPal and former CEO of Blackhawk, will lead one such discussion entitled Shoponomics: Uncovering The Hidden Clues For How Consumers Buy And How They Pay.
Kingsborough, whose job it is to lead PayPal into the offline world, knows first-hand the complexities of igniting a new network of any kind. He did it with Blackhawk, the gift card network now readying for an IPO, and says, “getting consumers to adopt any new thing and having retailers adopt at the same time is difficult.” And this is where the words of Levitt may be extremely insightful: “The conventional wisdom is often wrong.”
He has a point.
- Square was never about the dongle; it was about a new business model that made it possible for micro merchants to get a merchant account – and use the dongle as a way to convert their phones into acceptance devices. Today it is about creating a new merchant-consumer network.
- Starbucks’ mobile app was never about payment via mobile; it was about using the phone to give people better information about their prepaid card balances – which was then bundled with payment.
- LevelUp wasn’t about offering zero interchange to merchants; it was about giving consumers a credit pegged to the frequency of visits to their favorite merchants – which created the basis for a new business model that, in turn, pegged merchant payments to a percentage of that credit.
- M-Pesa wasn’t about replacing cash with the mobile phone; it was about giving Kenyans a safer way to send money to their relatives in the villages – which in turn, increased the amount of cash circulating in that economy as money was transferred from person to person in a safer, easier and more reliable way.
In every single one of these cases, trusting “conventional wisdom” would have gotten these innovators very little and probably into a heap of trouble (and debt).
As part of the panel facilitated by Levitt and Kingsborough, four of the most dynamic innovators in payments will give the Innovation Project 2013 delegates a first-hand account of what happened when they turned conventional wisdom on its ear and gave consumers something new to use when shopping or paying.
- Dan Henry, CEO of NetSpend, says that it “provides something that better meets the financial services needs of its customers than a traditional bank account” yet prepaid remains one of the least sticky financial services products on the market. Dan will share the good, the bad, the ugly and the behavioral economics of the alternative banking product that few have managed to make pay (for themselves) and that NetSpend seems to have been able to deliver.
- Alex Rampell, CEO of TrialPay, kicked conventional wisdom to the curb years ago when he realized that many people like to buy many things but few people like to buy all things especially the stuff that may be good for you but not all that exciting. TrialPay at its inception was all about getting people to acquire the stuff they may have wanted but didn’t want to pay for (or pay full price for), like software, by throwing it in with stuff that people were willing to pay for, like red roses on Valentine’s Day and creating a clever business model that gave everyone the right incentives to take action.
- Ed McLaughlin, CPO of MasterCard, is all about moving MasterCard and its customers toward a world “where the physical and digital worlds are converging” and where “mobile will shape the way consumers shop for goods and services.” Ed will share how he and MasterCard’s various pursuits in payments innovation have shaped, reshaped and recast MasterCard’s payments consumer innovation agenda.
- Troy Carrothers, Head of Financial Services at Kohl’s, will tell the story from the retailer’s point of view and from one that, like many, are working hard to keep up with the changing social and financial circumstances of its customers. Sales and coupons and promotions have been a core part of how Kohl’s creates the demand for its “highly discretionary” items – and they have extended that to the mobile platform. Carrothers will describe how Kohl’s is using mobile and digital to drive preference and conversion in a new retail world.
Levitt and Kingsborough’s job will be to draw new insights from the innovators who are on the front lines of payments innovation and at the same time provide fresh and practical insights to Innovation Project delegates who want to leverage the assets they have (or could acquire) and overcome the obstacles to getting consumers to embrace new ways to shop and pay.
For more information on The Innovation Project please visit theinnovationproject2013.com