In September 2015, Entrepreneur Magazine pointed out to its readers that, at the time of writing, there were some 200 different ways to make electronic payments. To put that in its historical perspective: Mastercard was working on its selfie-based system for confirming transactions and Apply Pay had just launched in the UK. The crisis in Greece was top of the economic news, and Bitcoin was still an extremely niche topic of financial conversation.
SMART Payments: Step 3 – Managing the digital switch in a fragmented US market
Three years is a pretty long time in an industry that has taken innovation to its heart, so we can say with some confidence that there are more than 200 electronic payment types available today: some with huge take-up, some still struggling to emerge from obscurity.
That take up will also vary by country and by region: there are particularities and idiosyncrasies everywhere, and the use of different payment types is as dependent on cultural norms and historical perspectives as it is on existing (or non-existing) infrastructure and attitudes to technology. The Alipay eWallet has more than 50 per cent share of the Chinese payments market due to a combination of product functionality, user experience, and timing: it was introduced when mobile adoption and consumer spending were both booming.
In the US, achieving that kind of market share is incredibly unlikely. One of the key features of its payment market is the far-from-standardised payment Infrastructure. This has become particularly noticeable in the field of mobile payments. Flash an Apple Watch in some stores, and you’re walking away with your morning cup of Joe in a matter of seconds. Try to pay for your avocado toast with your iPhone down the road, however, and you’ll either have to find your debit card or you’ll be going hungry.
The EU, by way of contrast, has a much more streamlined payment environment: whether you’re in Malmo, Munich or Madrid, the same payment device will pay for breakfast, lunch and dinner throughout your stay. It’s not universally true, of course, and a few places show signs of resistance (always carry cash in Berlin!) but the big picture is one of standardisation.
In fact, the US remains a convoluted and fragmented landscape, which is hindered by artificial complexities that have been created and cemented by dominant legacy tech players. It’s also highly competitive. This is the market of innovation, after all, the home of PayPal, Apple Pay, Android Pay and a myriad other disruptive services.
But as we have seen, competition in combination with complexity isn’t necessarily helpful for the consumer. In fact, it can slow the pace of innovation: potential customers, unsure of whether a new payment type can be used in their favourite stores will be slow to take it up. Merchants, unsure of whether customers will adopt more convenient payment types (and lacking the crystal ball that will indicate which payment types are short-term trends and which are here to stay) will resist investment in another dense layer of technology just to accept one of those 200+ payment types in circulation today.
In fact, the US is in serious need of some easy tech. Payments should be innovative, they should be diverse, they should be competitive. The ideas and the digital technology are there. The payments industry is now at the point where it shouldn’t matter how a transaction is captured as long as the payment moves from A to B. It shouldn’t matter what form factor a consumer chooses or a merchant provides. It’s just that legacy systems often get in the way.
As market trends suggest, that’s going to be an even bigger problem in the future. We are going to see a continued move to mobile. We’ll see physical payment devices actually disappear, and more customers paying anywhere without a specific form factor. There’ll be more sophisticated fraud defences, and more and more customer segmentation at the front end of store management systems – even at the smallest retailers.
This is a large enough space to give opportunities to many different players and many different innovators. But it really is dependent on simplifying underlying platforms: keeping them feature rich but, in contrast to all-pervasive legacy systems, ensuring they are simple to use and simple to deploy so that they make life easier for merchants and users alike.
Omni-channel payment gateways like RS2’s will play a vital role in de-risking innovation: removing the hurdle to adopting promising innovation not just once but each time new potential emerges.
Interested in knowing more?
Email me at David.Amato@rs2.com to arrange a call to discuss how we can help your business navigate payments
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