To Grow a Hot New Payments Business, Focus on the Mundane
Written by Udaya Patnaik, Co-Founder of Jump. You can find him on Twitter @UdayaJump, or get in touch with him by commenting on this post.
Some of the biggest announcements at Mobile World Congress 2015 are coming from Samsung, Google and PayPal, who are trying to chase Apple’s recent success in mobile payments. Apple launched ApplePay on October 20, 2014. Four months later, Apple Pay now processes $2 of every $3 spent on contactless payment transactions. That’s good news for Apple, which makes about 0.10% on every Apple Pay transaction. Within the next two or three years, Apple Pay could spring a new revenue stream of over $300M.
All of the new announcements highlight five best practices for any company trying to grow a significant business in payments. Consider these the table stakes — the mostly-obvious, minimally required principles to follow.
Become the preferred or default payment.
Companies like Uber and Amazon often ask users to put in a default credit card number as a one-time selection for all transactions. Even credit card companies like American Express offer deals or rewards multipliers for making their payment vehicle your standard. To see increased adoption, Samsung, Google, Apple or anyone else is likely going to have to take similar steps to position their system as the preferred, if not default, payment method for retailers and sellers.
Diversify compatibility across networks.
A year after launch, Google Wallet still only worked with one credit card and bank combination on one wireless network: Sprint. After only a few months, Apple Pay already works across all major carriers. It works with more than 70 different issuing banks and on the Visa, American Express, and MasterCard networks, accounting for 90% of the credit card purchase volume. Adding Discover’s network would open up access to a few million more domestic US users, as well as product users of Discover’s partners like PayPal and JCB. When Apple wants to open up Apple Pay in China, getting on UnionPay will be essential. Recognizing the importance of diverse compatibility, on February 25, 2015 Google announced a deal to put Google Wallet on Android phones from Verizon, T-Mobile and AT&T.
Keep merchants and the rest of the ecosystem happy.
Winning in payments means recognizing that there is a complex, integrated network of partners, all of whom expect a portion of the revenue. CVS and others have a competing system called CurrentC, so they’re blocking Apple Pay and all NFC-based transactions in their stores. Apple and the financial network involved both get a cut of each Apple Pay transaction, which means less money for the merchants. Apple justifies its fees by offering tokenization to verify and secure transactions — a feature that Google’s forthcoming Android Pay intends to offer as well. Google also throws discount offers (read: ads) at Wallet users. PayPal charges $0.30, plus 1.9–2.9% of the value of the transaction, and on March 2, 2015, it bought Paydient, who makes CurrentC’s technology. To keep all of its various partners satisfied, Apple and others may need to provide other benefits, like transaction data analysis or market intelligence.
Increase the number of usable points of sale.
Payment terminal manufacturers like VeriFone and Ingenico are always looking for new ways to demonstrate their critical role in enabling transactions. Square gives out its iconic card reader to participating business owners and service providers, and even created its own register stand and hardware hub. Samsung recently announced its Samsung Pay system will use magnetic secure transaction (MST) technology to allow its phones to work with older swipe-only terminals that lack the tap-and-pay functionality offered by NFC. And Apple has begun partnering with USA Technologies, which handles cashless payments for everything from vending machines to laundry machines.
Assure end users that they’re protected.
People need actual protection as well as the perception of security from unauthorized uses and identity theft. Credit card skimmers and hackers who capture retailers’ and banks’ credit card data have upped the ante. There are now reports of how banks are lax about “provisioning fraud,” allowing scammers to set up new iPhones with stolen credit card and social security numbers. Better fraud detection algorithms, no-liability-for-fraudulent-use policies, and identity monitoring services help minimize a consumer’s exposure once an invalid purchase is made. Biometric validation like TouchID on Apple’s iPhones give people a stronger sense of security — “it’s my fingerprint” — and make it harder for anyone else to make a purchase.
Of course, these table stakes are the practices that everyone has to do to succeed. And every company will try to dazzle users with cool technology. But to truly differentiate one’s payment business from the sea of competitors, look beyond these five principles and the gizmos. Instead, focus on the mundane.
For a new high-tech payment solution to fully replace a physical card, we can’t ignore the obvious, yet less sexy challenges to the payments experience. Three of the biggest problems right now are:
The last 5% of battery problem.
Expanding battery life is quickly becoming one of the most important focuses of technology R&D teams. It’s even more critical for payments. What happens when you need to make a purchase but your phone ran out of juice? A reserve battery, quick display mode or quick charging can help fix this for a few seconds, but we need more than that to complete a transaction. As our device’s battery life begins to dictate our behavior in payments, payments businesses could benefit from investing in power solutions. With other technologies like phone-based driver’s licenses (Iowa and others are pioneering this technology), this is going to become an increasingly pervasive problem. It seems unlikely that “Sorry, Officer, my digital ID watch died…” will be a passable excuse for why you don’t have your driver’s license.
The cancellation problem.
It used to be that if you lost your wallet, you called American Express, canceled your credit card, and had a new one overnighted to you, or you picked up a new one at a certified travel agency. That process has been streamlined, so you can now cancel it through an app or online. Canceling a phone, however, is a painstaking process of dealing with terrible telecom call center staff, wireless contracts, early termination fees, lost passwords, data transfers, and more. As our smartphones, tablets and wearable devices become more central to our financial lives, such an onerous process won’t be tolerated. In order to succeed as a payment platform, Apple and its competitors will have to help make canceling a phone as easy as canceling a credit card.
The cold hard cash problem.
If all of these technological solutions are pushing for an increasingly cash- and paper-less marketplace, we need to allow those who primarily rely on cash and check transactions to participate. Ask any parent who has had to give money for field trips, music lessons or sports uniforms and you’ll quickly see that Americans still use cash and checks for nearly 34% of the value of payments they make annually. Globally, cash and checks still account for 85% of consumer transactions. Solutions like prepaid debit cards, person-to-person payment apps, and accounts you can charge up and monitor are potential answers for payers; however, they require recipients to give up the benefits of cash and check transactions. Having solutions for those times when we need to rely on the physical exchange of money will be central to making any new payment system as ubiquitous as cash and credit cards are today.
As the race for new payment formats continue, many financial institutions and tech companies will spend all their time optimizing the table stakes and the gee-whiz gadgets. And to be clear, the table stakes need to be met. But to really capture market share and grow a new differentiated payments business, it’s equally important to focus on the mundane.
Originally published at www.jumpassociates.com.
