Payments And A Changing World

I’ve just returned from an annual trade show in the payments industry which first crossed the chasm from “aspiring show” to “established show”, then crossed another chasm from “established show” to “hot show”, and from what I can tell from this week’s 2014 event, it has now crossed into some rarified air best described as a “boondoggle”.

Money2020 is an event which, as the name implies, brings together aspiring innovators to shape what money will look like in the year 2020. Since this has been the name of the show for the past four years, here’s guessing that the name will eventually change as 2020 begins to appear closer in the rearview mirror.

I want to recap a few key themes for those of you who are not in the payments or financial technology space so that you can appreciate what key themes are emerging. After all, you have money and make payments, so the inevitable evolution of this space will impact you along with every person on the planet. There aren’t many industries that can say that, which likely accounts for the gold-rush mentality exemplified by the 7,500+ attendees and the mosh-pit of blue blazers and dress jeans trying to get into sessions.

Trend One: Tokenization. This is hot, and has to happen. There are coming changes to the way your plastic card will work as the US begins to adopt the EMV cards, also known as “chip and PIN” since the card has an embedded chip (less easy to swipe/replicate than the mag stripe on the back of your current cards) and you have to enter your PIN to confirm the transaction. This is known in the technology world as “two-factor authentication” since a transaction requires something you have (the physical card) and something you know (your PIN).

That said, the breaches that we’ve all read about have largely been driven by hackers getting into the POS system and reading the card data as it travels the byzantine pathways between the merchants, processors, and issuing banks.

Tokenization, simply, enables your sixteen-digit card number to be converted into a meaningless string and sent to it’s logical destination whereupon the gibberish is decrypted and associated with a valid account, and the transaction is properly acted upon. In short, there are a number of people who are driving hard toward this future. The challenges here, as so often is the case with payments, aren’t technical but are associated with getting everyone on the same approach.

Trend Two: Crypto-Currencies. The best-known name in crypto-currency is Bitcoin, but there are others. The idea here is that money is virtualized, encrypted and exists outside of a central banking systems. Naturally, central banking systems are interested in what all this means. Since the financial services world is arguably the most heavily regulated industry around, expect there to be a lot of turmoil about the topic of crypto-currencies.

I heard an adage recently attributed to Bill Gates: we tend to overestimate the change that will happen in five years and underestimate the change that will happen in ten years. I have a sense that the crypto-currency evolution will fit into that adage very neatly.

Trend Three: Mobile Payments. This one has been covered by the traditional business press quite extensively, so no need to rehash what you already know. Some of you may have already tried the new Apple Pay capability on your phone. I have been associated with the mobile payments space since around it’s inception, and the Apple Pay introduction has cut through at lot of the circular discussion that was going on over the past few years by inking deals with existing players (Visa, MasterCard, large banks) and creating something that’s easy for consumers to use.

There is an erstwhile competitive scheme to Apple Pay sponsored by the merchants under the consumer brand name “CurrentC”. They have had a bumpy few weeks lately as evidenced by them exerting pressure on their merchant members to stop support of Apple Pay (covered nicely here by The Onion) as well as being breached before they really started.

The questions all these people are asking about you is how likely you’ll be to pay for something by waving your phone in front of an NFC terminal in the checkout line versus using your physical card. How can they create other value – offers, loyalty points, etc – to entice you to enter into a more real-time digital connection to merchants? FYI, if you’re interested in how your local retailer will want to keep track of you in their stores, read up on beacon technology.

Trend Four: B2B and P2P Payments. This has been a thorn in everyone’s side, although most of us don’t know it. Think about this: why, in the 21st century, is it so hard for you to send me $100 from wherever you are right now? (If you’re the sort of person who perseveres in the face of adversity, I’m sure you’ll figure out how to get that $100 to me. Thanks in advance.). Related: there are 58 million businesses in the US trying to figure out how to invoice, pay, reconcile, and track the flow of money between each other. Like the tokenization topic above, there are no shortage of solid solutions to this problem, but getting everyone on the same page is difficult for both bad reasons (proprietary technologies thwarting innovative attackers) and good reasons (regulate the flow of money so that fraudsters and criminals don’t immediately bankrupt us all).

Also, I am enthused by the way that the camera on a mobile device can be used by mobile workers to capture and transmit checks and invoices at the point of service. Of the billions of checks written in the US annually, the majority are circulating in the business sector. You’d be amazed at the number of delivery drivers and service providers who drive around every day with a bunch of checks that they need to deposit at some later point. The mobile phone camera will speed up access to funds and reduce lost time associated with visits to bank branches or the nightly visit to a local ATM.  My company, Mitek, continues to lead the charge in this area.

These are just four trends among many. There continues to be a number of other exciting innovations that are coming for the unbanked (no bank account) and under banked (someone who might have a savings account but no daily payment capability).  This is a growing category of 60M+ Americans and many hundreds of millions of global citizens. These innovations will increase access to money, unlock entrepreneurial potential, decrease personal security risks, and give the next billion an opportunity to join the middle class.

For those of you who participate in the payments world (and that’s all of you) but don’t live in the daily back-and-forth of “what’s next” in this space, hopefully this gives you a glimpse into a future that will directly impact all of us.