The Future of Payments: A Model or a Set of Shapes?

Over the past two to three years we have seen many conferences and articles focusing on the future of money or payments. There is considerable expectation that the core payments process is about to be disrupted and everyone is getting involved, even people who might actually have little payments experience. The rationale for this is based on a perception that whoever owns the wallet and/or the payment transaction will be in a strong place.

The shape and form of the new payments landscape is a very difficult one to predict. There are numerous models and different parties will have varying reasons for perusing one form over another. The ultimate successful model could be one that we have not yet seen. Rather than attempting to conceive and design this model, we should try to consider what we are doing against a set of future ‘shapes’ or attributes. These future payment shapes could be anything from the way a consumer might behave to a small product feature that could be a trigger for further network effects or adoption.

In considering these shapes we can rule nothing in or out, at least not from the outset. We further categorise these shapes into groups and determine that whatever we do, whatever we design and launch, it must score highly against these five shapes or attributes:

  1. Regulation
    It might seem more like an overhead, but it’s not. Regulation in the payments space is a good thing. Many existing players find conforming to be difficult and expensive. If your solution to disrupt the payments world is not regulated, or if you see the regulation as an overhead that somehow inhibits your strategy, then think again. Regulation can and should be a way to accelerate entry into a payments marketplace. The Payment Services Directive (PSD) is a great example of innovation and regulation.
      
  2. Mobile
    It sounds so simple and yet sometimes it comes way down the list. Mobile payments can mean very different things to different people. Whatever you take it to mean, the solutions that will disrupt this landscape will be mobile. In this space the app is king, but it doesn’t live long.  Alongside the app the mobile has given the payments marketplace a new transport network, across which payments can flow outside of legacy networks.
      
  3. Electronic
    It might seem obvious yet we need to remind ourselves that cash is king and, in many regions, cheque usage is still widespread. In many markets, cards as an electronic form of payment have not presented a viable solution. Future models that disrupt the payments landscape will be as much, if not more, about bank accounts than about cards.
      
  4. Social
    Underlying everything is that payments happen at the end of a social engagement, which always involves two parties. Understanding the backdrop to the engagement is key. We need to know when, how and why someone will want to use our payment solution and we have to find network effects that will encourage adoption.
      
  5. Almost free
    This is the hard one. The cost of paying processing is high, while anti-fraud and security measures remain significant overheads. Yet consumers don’t expect to pay and retailers would like to see prices come down as their own margins come under more pressure. This means that the disruptive solutions need to be holistic and compelling in their design, with providers as focused on ancillary revenue as much as transaction revenue.

Ultimately, it is the marketplace which will decide who takes over and owns the payments landscape. Given the significant and imminent change, an organisation’s ability to be agile and adaptable is more important than their perceived understanding of what they think a customer wants in terms of product forms and models. Ask the question: ‘Is our solution regulated, electronic, mobile, social and almost free?’ Those that can tick all five boxes are well positioned to thrive in the new payments landscape.

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