August 28, 2015
The evolution and revolution of payments continues to unfold before our eyes. Everyday there are more announcements of new products, partnerships and services that move us closer to the inevitable ubiquity of paying for nearly everything using new and exciting methods. Although there is much to be speculated upon within the payments industry at this point, three defined payments channels have emerged that give a sense of who is winning the payments war and who may become the dominant player when the eventual dust settles.
Although these payment channels have not matured, their mere existence is a leading indicator for what the future norm of payments could be. Not only have these emerging channels created a more intricate opportunity for the players that currently dominate payments , but the partners-versus-competitors scenarios in this space are becoming more complicated, as well. Who is partnering with whom and who is competing against whom? It’s sort of difficult to tell, which makes for lots of frenemies and some interesting bed partners.
Mobile wallets have the ability to hold your payments information – typically a debit, credit or prepaid card -- on your phone and pay for things using the wallet. After the industry’s many failed attempts at grabbing the consumer’s attention, Apple Pay is leading the charge within the mobile wallet channel by declaring NFC the technology of choice at the point of sale. As more issuers, handset providers, and retailers see the advantage of creating their own mobile wallets and loyalty programs (think the travel rewards industry or even bill pay in the early 2000s), my sense is that this space will become more crowded, with mobile wallet loyalty programs battling for top of mobile wallet status.
So who will win within this channel? Certainly the card operators -- Visa, MasterCard, American Express, and Discover – but also the mobile wallet providers, technology companies, retailers, and issuers due to increased loyalty and usage. And don’t discount the handset providers; outside of the US, cell phone companies dominate mobile payments.
From iTunes and Google Play store to Uber, Air B&B and Starbucks, the app channel is arguably the most successful, with payments apps and service companies becoming enormous disrupters not only to mobile payments but to the industries they serve. This method of mobile payment is a leading indicator of how easy it can be to pay with your phone given an experience that is seamless and a service that adds true value.
In this environment, the concerns over sharing private information -- location, card info, preferences, and so on – become non-issues with consumers. Loyalty and satisfaction with in-app purchases are evident in the success of the companies that own this space. Who are the real winners? Well, certainly the service providers; being positioned as a conduit to the services they provide is a brilliant value add to consumers. There is also Braintree, owned by PayPal, which enables the payments platforms for Uber, Air B&B, and many others; they are certainly well positioned to continue to reap the rewards of in-app purchases. But again, the operators and issuers of the underlying cards and accounts are winning, as well. This is an interesting share of wealth.
Buy buttons are starting to appear everywhere online. From Pinterest to Twitter, and eventually in the physical world, the ability to see something online or need something at home and purchase it using a buy now button is the future of shopping. This is an obvious win for consumers. Buy buttons are the direct purchase channel that consumers have been waiting for, and the industry is responding. PayPal has long been the button of choice for most online purchases, mobile or otherwise; but the buy button space has become more crowded, with Visa Checkout, MasterPass, Bitcoin, Discover, and many others vying to be top of wallet at the point of checkout. All you have to do is look at the options when checking out at Overstock or Amazon to see that the buy button’s popularity continues to grow.
Again, who are the winners? PayPal will continue to be a dominant player in this channel, although in a much more competitive environment. But again, the operators and issuers are grabbing a piece of these channels, by having their products be the underlying purchase vehicles. Other winners will be the CPG companies that will introduce buy buttons as part of the connected home. There could also be future disruption with cell phone operators creating their own buttons, and potentially their own underlying payment vehicle, bypassing cards.
The old saying, a rising tide lifts all boats is applicable to payments across all three channels, as adoption increases and the value proposition becomes defined with consumers. This is partly because the major players have dominance in payments, both mobile and otherwise. This only solidifies the idea that the players rely on each other to make the payments ecosystem work for consumers.
But, if everyone is winning, then who will dominate? My speculation is that, as the action of paying for most things continues to evolve; there won’t be a single dominant player. The way I see it, the developing mobile channels and subsequent options for payment -- in-app, buy buttons, and mobile wallet -- as well as consumers’ nuanced preferences will combine to make the payments marketplace more and more fragmented. The long term winners will be those players that are involved in as many of these channels and offerings as possible. As the slope of consumer adoption of new payment methods begins to level off, the added benefits being offered to consumers will increase, driving incremental growth – and lifting many, if not all, boats.