The Future of Personal Payments
Recent rumors that Apple was in discussions with banks about the potential of offering an Apple iPhone-enabled person-to-person (p2p) payment capability, brought renewed attention to the p2p payment space. Initial reactions largely focused on how such a move would put the company into competition with a number of other companies who are either active or experimenting in p2p payments, including PayPal, Square, Facebook and Google.
In my view, the move should instead shed light on a bigger set of questions about the future of how value exchange will work on the Internet, and what business models and products will ‘light up’ this market opportunity.
Long considered a product and market backwater, given countless product efforts in the West that have largely failed to live up to the hype or potential, p2p payments is now emerging as potentially one of the most valuable pieces of consumer Internet real estate. Like other killer apps on the internet (Search, Communications, Media), which are built on offering consumers engaging and free utilities, p2p payment apps have the potential to become a “beachhead” into the broader consumer finance and payments ecosystem.
A number of self-reinforcing market dynamics are creating a new wave of opportunity — global smartphone adoption, the rise of mobile messaging apps, the ability to use mobile phones themselves as ‘payment instruments’ (e.g. QR codes, BLE, NFC), and the emergence of open transaction settlement protocols (e.g. Bitcoin Blockchain), are all contributing to the sense that the changes that are about to happen to consumer finance are as profound as what has happened in consumer internet media, communications and retail.
These technical forces are buttressed by the demographic velocity of the millennial generation, whose US purchasing power is already greater than $1.4 trillion annually, and globally much more. This is a generation who expects “mobile first” everything, and that increasingly means their money and how they experience money. Globally, the millennial generation are poised to dominate not just retail payments, but wealth management, as they inherit their prior generations wealth and matriculate into their full careers.
In the US, according to market research firm Aite Group, person to person payments is an existing $1.2 trillion market that is today dominated by offline, analog, paper-based products — e.g. cash and checks. In other words, we already exchange around $1.2 trillion in value using legacy, offline mechanisms.
Globally, it’s even larger, where in most emerging markets, p2p payments is the entire foundation of most economic activity, which tends to be more informal, and one of the reasons why cash has remained so popular in these markets. But with the majority of people in these markets increasingly carrying smartphones, these mobile p2p payment apps are poised to disrupt the entire nature of how consumers can store and use money, especially if our industry can build on open internet protocols for value transfer, and unlock and unleash global payment behavior at the scale of the Internet.
In many respects, the p2p payments market resembles the p2p text-based communication market from 20 years ago — dominated by physical text (e.g. letters), and typically operated by nation-state specific government or commercial monopolies that routed text-based communications by hand and wheel. At that time, I don’t think anyone thought that something as mundane as ‘e-mail’ would be as disruptive and global in its reach and impact as it has been.
In my opinion, as apps emerge that make sharing payments and value as easy, frictionless, free and fun as email, messaging or content sharing on the Internet, it will tap into a deep latent aspiration — a concept that marketers use to describe deeply held desires that people didn’t even know they had.
As the cost of sharing payments approaches zero, the same way as the cost of sharing messages or content approaches zero on the Internet, and as innovators re-invent the User Experience (UX) of money using mobile apps, I suspect we will see non-linear growth in p2p payment activity and behavior, similar to the kind of non-linear growth in communications and information sharing that we’ve seen in the past 20 years of the Internet. We’re barely scratching the surface of how people experience and utilize p2p payments, despite it being a multi-millennium old behavior.
Back to the news hook — that Apple may enter the p2p payment market — and the question of “who will win” or what will winning even look like? When it comes to our personal money, our personal spending accounts, people want apps that give them the broadest possible reach — they want to know that, no matter what, people can get the value that we share or send to them, and vice versa. This desire for broad reach will drive demand for apps that are open and work globally; whatever mobile OS or device they use, whatever currency they use, and whatever messaging or communication channel they interact with people on.
The emergence of open Internet protocols for value exchange, today led by the global adoption of Bitcoin’s Blockchain, paves the way for value to move as freely as information and data move on the Internet today. Most of today’s pioneers and industry-giants in this market are building more closed walled gardens, where users are tied to their platform and customers, and don’t have the benefit of being part of a global network for value exchange.
