Chapter 8 — In our last post, we discussed how the world was enslaved by credit cards. In this post, I’m focusing on how the cards system, and our dependence on it impacts innovation.
The reality is that cards are a based on a 68-year-old concept. Given all the technological progress we’ve made, it would be reasonable to expect the same for payments. It would seem strange that we haven’t developed or adopted a better payment concept suited to the 21st century.
However, that’s exactly what’s happened, or not happened.
So, why is this the case? While the ageing cards infrastructure itself is a big problem, there’s one that’s even bigger that’s feeding the beast.
Namely, there are two major barriers to entry into payments that’s putting a block on innovation. Firstly, card payments around the world are run by a duopoly and their associates — Visa and Mastercard plus their mates, the banks.
While the ageing cards infrastructure itself is a big problem, there’s one that’s even bigger that’s feeding the beast.
Collectively, they get to make the rules of the game for everyone else in world of payments. This allows them to design rules and regulations that exclusively protect their interests; making it nearly impossible to challenge the status quo, which they hold on to dearly.
If you ever wondered why Uber, an innovative and disruptive company in the global taxi industry, felt the need to introduce its own credit card under the banner of improving brand loyalty and couldn’t come up with anything better, wonder no more. There truly is no other option in payments.
Secondly, depending on one’s perspective, surprisingly or subsequently, there is no payments platform that makes it easy to build vertical solutions on. Let me illustrate this with the challenges we faced when building Beam.
The primary value proposition of Beam is to help retail ecosystem stakeholders (including brands, shopping centres and retailers) engage with their customers in a meaningful way. At a very high level, Beam achieves this by facilitating the exchange of value for data between the retail ecosystem and its customers, whilst protecting the privacy of customers.
They get to make the rules of the game for everyone else in world of payments. This allows them to design regulations that exclusively protect their interests.
In order to succeed, we had to eliminate the friction that’s present in traditional loyalty programs. With this in mind, we came up with the solution of combining payments and marketing into a single step.
In other words, customers can earn new rewards, redeem saved rewards, and pay their balance in a single step with a funding source such as a card, PayPal or a bank account. And they get to do it all without the need to join a dedicated loyalty program at each store they shop at.
After an extensive search, and to our disbelief, we discovered that there is no such platform in payments. We hoped that a company like PayPal could save the day. However, their systems had also turned into a legacy and they were constrained by their design decisions made in the early days when focus was on security features preventing fraud.
The cost of processing card transactions worldwide is in excess of $200 billion each year.
So, we had to build our own payments layer on top of the existing infrastructure in order to achieve the objective of our primary value proposition. By now, most rational and/or experienced people would have put this project in the “too hard” basket and move on. But we didn’t. We were naive enough to think that we could pull it off; and here we are, after burning $20 million, 7 years of head scratching, numerous regulatory roadblocks, creative thinking and hard work, we pulled off a model that is economically viable and appeals to both the retail ecosystem as well as its customers.
It is worth noting that “fintech” wasn’t a term at the time and no one in the Beam team had any experience in payments back then. In our case, this worked to our advantage, because if we did, I can assure you that we would have given up at the very start.
Unfortunately, not everyone is as lucky. Many great ideas and concepts in payments are never given a chance to succeed. They struggle to the bitter end or exist sub-standardly in the the land of the living dead. It is only through our journey, that we were exposed to the issues surrounding the world of payments.
Many great ideas and concepts in payments are never given a chance to succeed. They struggle to the bitter end or exist sub-standardly…
The cost of processing card transactions worldwide is well in excess of $200 billion each year. That’s right, the cost of just PROCESSING TRANSACTIONS is in the excess of $200 billion, and this is only the tip of the iceberg.
The real impact of the decaying payments infrastructure is measured in trillions of dollars. We have illustrated the type and heft of issues we faced first-hand underneath that iceberg. The bigger the the illustrated section, the larger the impact.
To put things in perspective, when studying the fraud rates in different countries, we discovered that in the UK alone, it is a whopping GBP 7 billion (since 2002).
We believe in our value proposition and we are passionate about making it available to all stakeholders of the retail ecosystem and their customers worldwide. But in the process, we discovered that the legacy payments infrastructure is a much bigger problem.
Given all the technological progress we‘ve made, it would be reasonable to expect the same for payments.
The good news is that there is a way out of this and not only it will save trillions of dollars for stakeholders of retail ecosystem and their customers through improved profitability and savings respectively, it will also create an infinite number of opportunities for developers worldwide.
These are exciting times for us all, so watch this space.
Beam Wallet
