August 31, 2013
It's been a great summer so far.
I have had more frozen yogurt in more places and in more varieties than I have received pre-approved credit card offers in the mail...well, that second part is not quite true, and the topic of pre-approved card offers deserves it's own blog, so let's focus on the topic for this post...
Why have I had so much frozen yogurt? A few reasons:
What does payments have to do with all this? None of these yogurt shops accept Isis, Google Wallet, LevelUp, Dwolla, Bitcoin, airline miles, not even good old PayPal. They do accept paper and plastic. And I have been to ALL of them in a 25-mile radius - probably a couple dozen different retail brands in the category, each one with a precise spot in my son's preference matrix.
If you have gotten this far, you REALLY want to read this post, and I am honored. It's not that money has nothing to do with all this. Yes, I save a LOT of money because every 8th, 11th or 14th cup is free (depending on which brand), and that is obviously not the point either. The point is that I SPEND a lot of money, at $0.49/oz, on something that is completely discretionary, for reasons that are well explained, whether or not those reasons are rational. And those reasons have some learning to offer us in the payments industry:
1. The consumer likes to be in control. Offering something for free does not provide more control.
Just as people buy more strawberries when they weigh & bag the fruit themselves (rather than pick up pre-packed boxes), I typically buy more self-serve frozen yogurt than if I had to choose between small/medium/large cups. When the consumer is in control of a great experience, you can count on some overspend. There is no opaqueness in the pricing that is causing this. There is complete transparency in frozen yogurt retail pricing, assisted by favorable human psychology.
For comparison, mobile operators have thrived in their opaque pricing with 'free' phones and 2-year contracts. It has served them well, but has also made most related mobile business models in the ecosystem (especially in the US) rather translucent. The recent move by some of the Tier-1 operators to introduce more transparency in the device/plan pricing was rather overdue, and it is going to become main stream soon. Why should I pay Verizon more per month for the benefits that Apple offers me and then let Verizon pay Apple behind the scenes?
Is consumer pricing in payments opaque or transparent? Is it helping or hurting us?
2. The consumer will pay for a product or service that she enjoys.
I remember the days when yogurt used to be a commodity. I suspect yogurt is one of the higher margin grocery items today. One would think that Innovation never gets old, but let's think about it...seriously...the most recent significant habit change in payments was paying online with a card, and the one before that was paying with a plastic card at POS.
What's the next big habit change? I have used the line before myself, but i am now tired of hearing that 'payments is a commodity'. Offer a compelling new experience in payments, and the consumer will pay for making a payment. I am not saying each and every payment is consumer-monetizable overnight, but we seem to have given up on the notion completely.
3. We’re innovating in payments, but may be not enough and may be not fast enough.
The sheer ubiquity of frozen yogurt shops makes it more likely for someone like me to consume something that i would not have even considered otherwise. As a consumer, I just don't have any real options other than paper or plastic to pay...and if I were one of the 1300 people that tried tap-and-pay and wasn't thrilled, I just don't have another 2 or 3 compelling alternatives to try out and determine whether or not one of them works for me.
Yes, we have a lot of places to point the finger in payments - big companies, joint ventures, regulators, etc. etc. but after 5+ years of being an outsider in this space, I feel like there is just not enough volume + velocity of truly new and impactful ideas. There's a lot of 'volume' if you are in the industry and track all the startups, announcements and investments, attend conferences and read payments newsletters and blogs (including this one), but how much of that is truly impactful? Is it truly 'innovation at scale' or just ideas looking for the next round of funding or a rewarding exit?
LTP View: There may also be a few things the payments industry can teach the yogurt industry, but let's stay selfish and ask ourselves a few questions:
- Can we expect more pricing transparency in payments and financial services in general? - Can mobile payments become the excuse to start offering a certain new value for a certain clear price? - Can we create that next new habit which is 10x better than today's habit and becomes the next big thing in payments?