November 12, 2016
The term transaction rail typically refers to these well-established, and more importantly, well-regulated settlement and clearance networks. As the banks have been deemed an essential utility, and effectively, as a sector too precious to be allowed to fail, the networks they setup and use to enable commerce worldwide are also deemed a critical utility.
While the role these networks play in terms of enabling commerce within and across borders is relatively straightforward, witness the increasing use of these networks by the US Treasury in cohorts with the US Department of State, US Department of Defense, and their global coalition of allies, to force sanctions on rogue regimes, redefining the term soft power.
Hence, every time there is a discussion around a new transaction rail, there is an understandable anxiety amongst all stakeholders. In most instances, these so-called new transaction rails are relatively small incremental innovations at the periphery, largely – if not entirely – leveraging the existing transaction ecosystem and infrastructure. Some of these innovations do end up scaling, but that is largely – if not entirely – because of some inherent inefficiency they have managed to expose, as opposed to the introduction of a new transaction rail. As the adage goes, it is extremely difficult to truly disrupt payments.
Most aspiring payment disruptors actually end up being very effective direct or indirect enablers for the legacy providers. While some may rightfully argue that the current advances in stored-value products, or virtual currencies, or tokenization, are truly disruptive in nature, it is unclear how any of these individually or collectively could transpire to become a new transaction rail.
At a bare minimum, a transaction rail has to enable transactions between different kinds of parties – consumers, enterprises, and government – but more importantly, also enable frictionless cash-in and cash-out. It is this latter part that trips up most contenders.
So, let us now propose our guiding principle for new transaction rails: it’s all about frictionless cash-in and cash-out.
Mobile wallets, which were once considered to be disruptive and needed a book to define them (please see The March of Mobile Money), are now quickly becoming a commodity. While mobile wallets in themselves are relatively single-dimensional, it is less about the container for credentials and more about the window to all personalized services, transforming them into conduits for seamless transactions. In The March of Mobile Money, we argued for a broader definition of mobile transactions to replace the relatively single-dimensional perspective of mobile payments. We argued that as mobile wallets force the convergence of all three industries – banking, telecommunication and retail – consumers and citizens would have a single smart interface for all secure personalized services related to finance, retail, healthcare, education, and government – or in other words, redefined as seamless (mobile) transactions.
That said, given the advances we have discussed specifically related to the world of omnicommerce – supported by the entire legacy and so-called disruptive players – we do have all the building blocks to define a completely new set of nodal use-cases.
These nodal use-cases will initially complement human-to-human transactions, gradually learning enough to be able to leave the humans out of the mundane repetitive transactions, and effectively setting the stage for the introduction of a brand new transaction rail that will permeate from the node towards the core.
This brand new rail will not only accommodate the stretch definition of mobile transactions but more importantly, will enable seamless transactions. This brand new rail will morph the definition of commerce and digital commerce, where we will no longer refer to them as different instances. This brand new rail will appear to be as disruptive to us humans as CME’s exchange would have appeared to the first humanoids.
Check out Mehul Desai’s August of Money.