March 30, 2015
We have been very open here at LTP in sharing a diverse range of viewpoints on how innovation can and should happen in the mobile payments space. There are some practical learnings as well as some roadkill along the way. There's been unsolicited advice for tech players who seem to be struggling, and comprehensive coverage of those who seem to have figured it out. However, we wanted to focus on one particular dynamic in this new market - how traditional financial institutions (FIs) and the mobile network operators (MNOs) have contributed to this space so far, and if there might be a better approach.
Let's start with the FIs. Their biggest recent success in this space is probably the mobile banking experience that is becoming mainstream, perhaps faster than they wanted, given the rate at which brick-and-mortar branches need to be closed, albeit not in a very logical manner. And there's really no good reason why mobile payments has not become an extension of the banks' mobile banking success, although we can always blame the complexity of the ecosystem involved.
Then, there's the MNOs. There's less than a handful of successful attempts globally in this space in the last 2 decades: Safaricom in Kenya (m-pesa), NTT docomo in Japan, Mobito in the Czech Republic, and...well, it's hard to find another one where MNOs have had a significant role in successful mobile payments deployment.
In fact, for both FIs and MNOs, the track record of doing anything outside their core competencies has been poor. Regardless of the reasons or the excuses, the reality is that these industries are good at what they do, and nothing else. And that should not be surprising, but they keep trying to do more than what seems logical. Of course, it's dangerous to generalize at an industry-level, and this is not meant to belittle the "out-of-the-box" successes of specific companies of individuals, but the macro record speaks for itself. Even anecdotally, AT&T getting kicked out of the Dow 30 and being replaced by Apple, is a subjective yet accurate "report card" on how telecoms are seen in general.
The notion of trying to do more than what's logical is not new, and not limited to banking and telcos. Let's rewind a few years to the invention of the light bulb (OK, that's more than "a few years"!), more generally to Thomas Edison and the 2332 patents that he was awarded between 1868-1931. (This number does not include the 500-600 patents that were filed unsuccessfully or were abandoned.) Edison is credited with literally establishing entire new industries: electric light, power utilities, sound recording and motion pictures. Electric power generation and distribution at scale was arguably the most impactful of Edison's contributions to modern society. Yet, what do we really see and use from all these inventions and contributions today?
Yes, that's right! The holes in the wall that give you something very useful, on-demand, via a well-documented and standardized interface, no fuss, no muss...you see where I am going with this? The ubiquitous power outlet! If this were invented today, it would be called an "API" (application programming interface), and not just any API - it would be the most used, most reliable and most enabling of any API ever offered. May be the utilities industry was way ahead of its time, or perhaps, more likely, got in line reluctantly and gave up on "innovation outside it core competency". After all, it's hard to imagine that this is what Edison would have wanted to leave behind for people to see (just a few holes in walls) after having invented so many things that were clearly innovative in his day. Yet, his legacy is in no way diminished because the power outlet is what stuck, and most of his thousands of patents didn't.
Without getting paranoid about becoming "dumb pipes", what can MNOs and FIs, and perhaps even retailers, offer up from their core competencies to the outside world, via suites of APIs, to further the innovation in mobile payments and commerce? The electric company does not need to make the toasters, the ceiling fans and the home stereos to contribute to the innovation in consumer electronics. Many of my friends at the MNOs will disagree with me on comparing their industry with utilities, but I suspect there were also executives in electric companies 100 years ago who were probably equally paranoid of becoming dumb pipes after having failed to produce and sell the most popular toasters or ceiling fans of the day.
The transition from disruptor-to-innovator-to-utility is inevitable. It's only a question of 'when', not 'if". In fact, there's already evidence of this progressive thinking in both the MNOs and the FIs. While it's still hard to find banks who are able and willing to overtly offer APIs into their infrastructures, there are others around them who will force their behavior. I have written about this "banking as plumbing" before, and this might just be another way to make the same point, but I do believe it's fundamental to how these proud, established banking entities can still contribute meaningfully to mobile payments innovation. They don't have to do it all by themselves (and slow everyone else down in the process). In fact, the recent visible initiatives by Mastercard and Citi in supporting hackathons should be seen as a positive step in this direction.
The MNOs are ahead in this approach, although they don't talk about it much. They already offer location APIs for others to leverage for specific consumer experiences. Specifically in mobile payments, companies like Payfone, who have a real solution for helping alleviate fraud in mobile wallets (such as Apple Pay and Samsung Pay), use APIs and other proprietary access into MNOs' billing and provisioning systems to provide superior authentication and an ability to really know the person behind a transaction. The mobile operators deserve credit for appreciating the value of their own assets and offering them up for trusted third parties to innovate on top of.
Finally, let's look at the opportunity cost of all the FI and MNO attempts at trying to invest in things they don't understand, thereby depriving their customers of what they are actually looking for. Every dollar spent by Verizon in Softcard was a dollar that could have gone into making its network better. Every penny spent by Citi in building a custom mobile phone could have been spent in lowering the cost of international remittance. Every cycle spent in explaining why MCX needs to exist and what it even is could be spent on better omni-channel customer experiences.
It's OK to offer an "API" into your business that can change the world. If the electric company could do it with their power outlet, others can too.