Pyramid of Payments
Recent launch mobile payments by Tele2 Estonia made me think about payments again. Tele2 has launched excellent service, that removes barriers in mobile payment world, helping to settle transactions quickly and with no need of credit cards and bank terminals. This is certainly interesting new world. But maybe there are even bigger opportunities for all of us?
There are big payments and small payments. Card payments and mobile payments, cash payments and micro payments. There are a lot of those, and a lot of excitement within the mobile and finance industry in general.
Pocopay is trying to make peer to peer payments easier, Transferfast wants to make them faster, while Transferwise is disrupting remittances and international payment market by making them cheaper. Apple Pay and Google Wallet are planning to make personal mobile payments more convenient, Stripe is making business payments as simple as ever, while Alipay is offering large amount of various services bundled together. And of course, there are plenty of other players, each trying to disrupt their own part of financial transaction industry.
But what sort of private payments do we do in everyday life? I think, those payments could be represented as a pyramid, based on amount of different payments we do:
For most of us, there are only one or two really big payments every month. Mostly rent or mortgage. They are big, but there are not many of those. We are very likely to use bank transfer for those payments. Just to be safe.
Then there are other payments every month, that still consume quite significant part of our paycheck, but they are not as large as mortgage. Those payments would include car lease, installment fees for bigger appliances, school fees, medical fees. In total there are not many of those payments every month.
Smaller than those payments, are some items of clothing, shopping carts full of food, full gas tank for the car. Some smaller subscription services. Those payments are smaller than previous category, but they happen more often.
Then there are even smaller and even more regular payments. Like lunches. And some breakfasts and dinners as well. And coffee. They happen every day.
And at last there are very small payments. Bus tickets. Chewing gum. Parking fee. Soda can and snack. Newspaper. Impulse purchases. Couple of coins in a donation jar.
The lower we go in the pyramid, the more payments there are, and smaller they become. Bigger payments we tend to pay in the bank, medium payments can be card or cash, depending on country and person. Smaller payments are more often in cash. Mobile payments are mostly bringing disruption to this lower part of the pyramid, by trying to make smaller payments more convenient than a card and simpler to handle than a cash. Make them just one scan, swipe or tap away.
But what if we would look even lower in the base of the pyramid? Maybe all this technology could not only disrupt existing payment methods, but also enable whole new layer of goods and services, that could give boost to our overall economy, livelihood and happiness. I am talking, of course, about micropayments.
People have dreamed about micropayments for decades. What our life could be, if you could reduce cost of transaction to fraction of a penny. Make it close to zero.
It has never happened, as cash transactions have inherent cost of handling that just does not go away. Somebody or some machine needs to physically count it, transport it and store it. It is not that cheap. And card transactions always have had just too many mediators, all asking their minimum transaction fees, thus making very small transactions not worth it. And tech of cards has not been so slick and simple. There are those terminals and readers and links, and all of them together generate rather complex landscape.
Bitcoin showed some promise in this field, but it has never caught on in this field. Reasons for that are worth their own article. And it might still happen.
So, enter mobile payments. Tech is extremely available— everybody has a phone or two. Receiving the payments often are couple of clicks away as well. Either to generate QR code or to provision NFC tag. Simple. As long as there are no prohibitive fixed fees for each transaction or any ‘minimum size’ constraints, we can easily see 1¢ or 5¢ becoming commonplace.
What they are good for, you will ask? A lot of stuff! With little bit of brainstorming I have generated following list of possible use cases. And I am sure that this is just the tip of the iceberg:
- Paying for content online. 7¢ per article in Buzzfeed, or 2¢ per gallery in SadAndUseless. Automatically.
- Donating 5¢ to important local cat shelter by just touching picture with a phone, while waiting in line.
- Paying 2¢ per minute to rent beach lounge chair. Pro-rata.
- Charging phone — 1¢ per minute.
- Saving 1¢ towards new TV, from each step from step counter.
Millions of small possibilities. And most of them are hard to imagine right now, as many would arise only because payment itself would allow for such possibility to emerge. For example, we can imagine the future, where 4 floor building has an elevator, that charges 20¢ for each button push. You can choose not to use it, but if you do — you are helping to pay back the mortgage, that has been taken to install the elevator in the first place. Elevator that would not exist without enabling micropayments.
Or bicycle stand. Or beach locker. Or street lantern. Many opportunities and changes that will impact all of us. Hand in hand with Internet of Things.
