This article is published just as Microsoft has launched a bold new Windows 8. It may propel them forward or backfire, but it is innovative. Circling back to 1975, Bill Gates, the co-founder and chairman of Microsoft, and other programmers were writing BASIC (a programming language) and computers were in their infancy. That same year Bill partnered with Paul Allen to form Microsoft. Bill developed the insight and smarts to understand the current barrier to the evolution of software and computers was an operating platform upon which other programs could run. Bill knew what was needed by IBM and all he needed to do was find or develop the software that could serve as this platform or OS. So what Bill had done to be in position to solve the problem was to understand what the main problem was, and how to fix it. He could not have done this if he did not understand the entire ecosystem and he was not networked enough to set meetings. As the story goes, Bill secured a contract with IBM to build their software platform and purchased an OS from Tim Paterson of Seattle Computer Company for $50,000. This operating software came to be known as DOS.
Steve Jobs, the co-founder of Apple was every bit as much the visionary and as shrewd a business man as was Bill. According to wikipedia "In the early 80's, Jobs was among the first to see the potential of Xerox PARC's mouse-driven graphical user interface, which led to the creation of Apple Lisa. One year later, Apple employee Jef Raskin invented the MacIntosh."
We know Xerox never went on to provide a worldwide OS for PC's. Steve saw that the graphic interface is what was needed to empower anyone to use a computer by making it simple to use. Now people could click buttons to open and close programs and store files. Now they the computer was visual which opened the doors to everything we do on a computer today. Steve spent his life innovating. At Pixar and then again at Apple he led the vision to build an 'iempire.' In doing so he revolutionized the music, phone and tablet industries.
I'll never forget the first time I saw a commercial for the iphone. I don't know about you, but I knew instantly I was looking at the future. I will be bold in saying, if you did not have the same reaction, you did not have on your 'Innovation Goggles.' How does one add Innovation Goggles? Keep reading and we'll get there.
So what does innovation take? It takes a father and a mother (necessity being the mother of invention) to get things started and from there its take a whole lot more people to see, believe and buy into the vision. It takes guys like Bill or Steve, or for that matter a gal like Meg Whitman, former CEO of Ebay, to see not only what is NEEDED, but what is POSSIBLE. But the question remains. How did they see what others did not? Well, it is my belief others could and would eventually have drawn the same conclusions as they did and serve up the innovation, they were just well prepared to know what to look for.
Yes, I am saying that innovation is destiny or fate and whosoever steps up to be at the forefront of innovation is the one that will capture and become the originator of the innovation. In this messy process, innovation is often overlooked and sometimes invention is not engaged or adopted only because the green light is not given to fund a project. Sometimes innovation is not seen only because VC's mainly look at team w/resumes over product vs. product over team w/resume. It's my opinion that you can always build an all-star team and plan around an innovative product or plan. At the end of the day it takes executors, but the product and innovation created is always what people are buying.
So innovation happens best when all have their innovation goggles on, otherwise it may be delayed for years, skipped over, lost altogether or worse end up disrupting your business and investments. Thus having your goggles firmly in place is key. The best example of this is the MoneyBall theory executed by Billy Beane, the manager of the Oakland A's. In 2002 the A's won a record 20-straight games in 2002 and the same number of games as the Yankees did, with only 1/6th the salary. The Boston Red Sox also went on to win two world series using this same philosophy. Bill James was the inventor of the theory and was not an insider of baseball, but noticed that the game was not embracing analytics to improve performance.
An example of missing out on opportunity is the touchscreen tablet. About a decade ago, for a short window, touchscreen tablets were all the rage. Why did they not take off in 2002(or 2000-?)? Honestly I don't know for sure, but apparently Steve Jobs must of set aside his innovation goggles along with all others at the time, or perhaps the economy killed it or the technology was not yet available. Apple eventually launched the iphone and ipad, but it could easily have been another company and other innovators and it could of been introduced 5-7 years earlier.
One thing I've learned is that if something can be done and is in great demand to be done, it will be done. The US Patent and Trademark Office holds a definition of invention as follows: "Is it new, useful and unobvious?"
Today we are facing the same platform problems as was the case with the PC and the tablet. NFC, QR codes, or another yet to be seen bridge to securely enable and replace the plastic mag-stripe card, is still the barrier to adoption for mobile payments. Is there a technology that has yet to be seen that will propel the future of mobile forward in months like the iphone or will we continue to plod along at a pace that will wait for NFC or optical scanners to be adopted by most merchants and phone users?
It has been my observation, as an inventor, entrepreneur and salesperson that the solutions that require the least change, cost, are simple to use and provide the most added value are the ones that win. These are the most innovative solutions. Also innovation, like a river, obeys gravity and follows the course of least resistance in doing so. To have true innovation one must understand the rules and constraints one must work under in their respective industry in order to build a boat that will best navigate the river they are attempting to ride.
OK, you may be asking when am I going to land this plane at the 'Mobile Commerce' airport? Well, the control tower has cleared us to land in a few minutes.
I chose to talk about Bill and Steve because what they did is akin and parallel to a platform for Mobile Payments or Mobile Wallets. Once standards are set and adopted, then everyone can get down to business and the transition from plastic and paper to digital, mobile and cloud will take off, perhaps as fast as did the iphone. So, eventually once there only a few standards then we will have what we have with Microsoft and Apple, platforms upon which to build. Of course, I could have spoken about Mark Zuckerberg to begin with regarding innovation and invention, but I wanted to lay a foundation as to how we got where we are. In doing so we lay down the tracks and provide a direction in which to head and continue the work.
The Open API, allowing developers to add apps and connect their system was the next stage of evolution in communication and development that make up today the foundation of the technology that we see. And the 'Cloud' and 'Mobile' and connecting all things to 'Social' and 'Commerce' is what is happening now.
Mark Zuckerberg used the Open API, as did Apple's App Store and PayPal to expand their services and value-added services to an unprecedented level. So it is in these footsteps and this framework I will now move to forecast what the future of money will look like in the year 2020. In transition, I will point out that all invention and innovators are simply those those that use the tools at hand to build better tools, products and services that improve communication or tasks. My purpose with Mobile Wallet Media is provide additional insights from knowledge shared via media organizations such as Digital Transactions.net, Paymentsnews.com, PYMNTS.COM, TechCrunch.com and dozens more. My attempt here is to build a platform on top of such organizations that serves to connect the dots between them all, thus creating more value. I must also note that I'm but a rookie, a novice in the journalistic sense and am outside my normal and better scope of talents of invention, building products, brands and companies.
The Future of Money in 2020
Enough pandering about platforms. Let's talk about money and it's future. So the incumbents, the banks, payment networks, processors and equipment manufacturers stand to lose much with innovation, unless they partner with those creating the disruptive innovation or create it themselves.
Today innovation in the mobile commerce space is mainly about enabling greater convenience, security and value to the equation. It's end goal, as already stated, is to convert plastic and paper cards, coupons, tickets, vouchers, keys and ID's to digital, mobile, secure, and simple.
Innovation has been stagnated by the lack of standardization, but it has also left wide open the door for innovation by startups and non-incumbents. A decade or less ago, the conventional wisdom by some or many was that the payment networks could not be disrupted and that they would always set the rules. Many still do believe this and for the most part is true today. But, in the last 5-years and now more than ever, we live in a world of transparency. In this new world transparency carries with it a set of rules that revolve around trust, valuing user privacy, fairness and doing what is right and in the best interest of those it is serving; the merchant and the consumer in the case of payments, and in a bigger sense our government and economy itself. The incumbents ecosystem is being threatened. They must adapt their products and services around innovation, transparency and trust in order to remain an incumbent.
Where The Disruption Will Take Place
The member banks make most of the money from the fees charged in processing credit and debit card payments. The Durbin Amendment already reduced fees on debit transactions and this is likely but the first part of the 'Interchange Wall' to be torn down.
Seth Priebatsch, founder, chief executive officer and “chief ninja” has been very bold in his statements with the media. At a recent analyst day, Mr. Priebatsch stated, “The cost of moving money is going to go to zero because of tech players like us, competitors like Square, regulations like Durbin, and frankly a populist movement in the country that will push for legislation against banks.” Mr. Priebatsch also made a slightly brash statement in stating his pitch to merchants: “Hey, do you pay interchange? You should stop.” LevelUp has reported that even though they do not charge for payment processing, they still make money on their transactions from transactional marketing fees.
There is room for disruption here because there is much more money in marketing and advertising than processing payments. It is inevitable that payments and marketing will be married via the mobile wallet. In doing so payments will become more a commodity and more like a bar code or RFID that enables transactional tracking of revenues tied to delivering sales to stores via offers to consumers.
But you may say, "The networks and banks control the rails and they will hold their ground to defend their fees." True they will and should. The networks and banks that don't build extensions of their rails to connect to the new rails are only limiting their future success. The game suppression is a dying art in light of transparency, trust and innovation. MCX's play should and likely will lean far into this philosophy. If they do, they will quickly gain leverage and speed up the reduction of fees and control by the networks. But my point here to the incumbents is to not fight this new wave of transparency and trust, but to ride it. You are the Facebook of your industry. But even Facebook, with 1 Billion users, may not dominant in 5-years if they do not maintain their commitment to innovation, transparency and trust.
Discover made a bold move towards riding the wave when it partnered with PayPal. They are partnering with PayPal to extend reach, add value and increase revenues. They will be parting with some of their interchange revenue in exchange, but in the end it is a wise decision because PayPal is an innovator. PayPal is riding Discover's rails and Discover, whose market share is only at about 5% (please correct me if I'm wrong) of credit card transactions, will now have PayPal out there slugging away with one innovation after another to add revenues to Discover's bottom line. So in essence PayPal is like one huge Super-ISO, perhaps like one we've never seen. To be clear, PayPal has said they are open to working with ISOs in a conventional manner.
So how does this all tie into the future of money? The transactional revenues tied to the mobile or digital wallet will pay the most to those that drive new and repeat customers to stores. Yes there will be a PPC model, but eventually, a Pay-Per-Sale transactional model will reign supreme, one much like the affiliate model online. With the pairing of transactions and marketing around the mobile wallet or card, the mystery is taken out of the equation. The percentage of those buying or not is clear and this is the only thing that matters in the end to the merchant. This model must be a tiered model to mirror the margins of retailers. It must add together the cost of payments plus marketing and net a bit a savings for the merchant. I must be a homer here to point out that most of my model and reasoning here I had formulated years ago, but I did not use a public platform to share such as I was trying to build such.
Yes, I know I'm a bit like watching a mile-long freight train, as I drive down the road slowly passing it, but hang in there and I'll deliver the cargo of this train. But hey, transporting cargo by rail is the most cost efficient way to transfer large loads. In this case the cargo is knowledge and the cost is only your time.
So the revenue and fee model will merge to match the value provided via transactional revenue, is one point of disruption, but can the payment rails themselves be disrupted or at least diluted too? The answer is most definitely a big YES. FIS via their NYCE network launched Paynet. This green lights real-time ACH. And Dwolla has partnered with Mfoundry to power connections to 800+ banks to power real-time ACH. Mfoundry is the company that powered the Starbucks Card Mobile app. Also, in past articles I've gone into great detail as to how this may be done, but I'll provide additional perspective now.
So there are many companies and industries with great big huge resources of "Big Data" or those with large customer bases. The end goal for retailers is obtaining more sales and increased loyalty in doing so. With this in mind, the game is about 'Consumer Reach.' The carriers, banks, networks, social networks, media networks, consumer aggregators, mass marketers and retailers all have reach. If the end game is all about retail sales then reach via trusted 3rd parties control the end goal as retailers reach is limited, though still barely tapped as of today.
So MCX, if they are able to play and work nice together will be able to attain much reach on their own. The more reach they can retain the less they will pay for the cost of sales and the more leverage they will hold to reduce interchange fees. There is no better way than to accomplish both of these objectives than for the retailers to do build their own independent payment and marketing network.
Starbucks manages their own gift card transactions for both plastic and mobile, so their cost to run their program is the cost to manage this platform. The most expensive part of this for Starbucks is when customers load funds by way of a credit card. The 5-10 transactions the consumer will perform using the Starbucks app, saves Starbucks the per transaction fees and actually serves to fund their loyalty program. Take note of this model, that is hugely successful and one to emulate. MCX will likely be doing so on network scale.
Now I mentioned that Starbucks largest costs were from card loading fees (please correct me if I'm wrong and Starbucks owns it's own bank, like Target and Walmart to recoup it's own fees). So in the parenthesis I just touched upon my next point. The card issuers get paid a bulk of card processing fees. If retailers issue their own network (Visa, MasterCard, AMEX or Discover) branded cards, they will recoup their costs. This has been a battle line being fought at for some time, but their is another way for retailers to fight this battle of payment fees. They can build their own rails and issue their own plastic and digital cards and accounts. They do not need to be a bank to do this either. They can operate under gift card laws and regulations, they can do as Target and Tempo do with decoupled debit or they can partner with banks to share in the rebate of Interchange. Banks must go with the flow of this new way of marketing and commerce or be left at a stand still and left behind. Banks must develop programs like Bank of America just launched to distribute offers to their customers. Of course AMEX Open has done this for some time as well, as have MasterCard and Discover have also showed innovation.
When it comes to mobile commerce in the brick 'n' mortar world, the conventional rules of the interchange fees are being challenged and discussed. The fee tables and parameters have been set around risk of transactions, with Card-Present transactions being charged about 50 basis points less than Card-Not-Present. In the October edition of Digital Transactions, the magazine went into great detail on this very subject. The main point of contention is that the rules are outdated, but the networks are reluctant to change and will not do so unless forced to do so. Articles in the magazine point to and suggest a standard of "Person-Present over CP and CNP" transaction. I agree. That is, if the person that is the account holder of the card or account can be verified, then the card being present or not adds lessor or little value to reduce risk. The rates and risk should be modeled around ID authentication vs. a card being present or not. Cloned cards are very rarely viewed by merchants and are still processed as Card-Present. OK let's move on.
Disruption by building out independent networks. This is all about Mobile Wallets and the fact that they are building independent rails to run their transactions through.
Yes, the tender type of choice is still the the network branded card, but if we take away the barriers of technology and reach, then what is standing in the way of 3rd party networks and companies from retail, social and technology from issuing their own cards to run on their own networks?
OPPORTUNITY + REACH + CAPABILITY = POWER TO DISRUPT
So now we circle back around to platforms for the purpose of arriving at final conclusions. I believe Apple, MCX, Google and ISIS all hold value plays, as do many other mobile wallet technology innovators, but at the end of the day, it is survival of the fitness and the solutions that do the BEST to add value, convenience, security and build trust that will win the most market share. We have yet to see exactly what Amazon, MCX or Facebook may offer in the way of a mobile wallet, but you can be sure they will play a huge part of delivering the customer to the store or in some cases taking away from stores.
More than anything else, I firmly believe that the future of money is mostly about adding savings and security for consumers and merchants alike. The company that can best earn the trust of the consumer under the newly unwritten rules of transparency and make it convenient and easy to get more out of a consumer's dollar will win. I firmly believe, as I have stated in several previous articles, that the sale itself is going to be happen, not at the register, but in the form of prepaid or digital vouchers. Making it convenient for consumers to redeem, manage and take advantage of deal or vouchers will make all the difference as the value of the consumer's dollar will raise by 1-50%.
The Mobile Wallet is the tool to make this happen and Passbook, though they are yet to call themselves a mobile wallet or offer such services, has already shown us a glimpse of the future and a model of the platform that has worked in the past via it's App Store. Facebook, PayPal and others may follow suite or build or buy an array of value-added solutions solutions for e-gifting, prepaid, daily deals, virtual currency, gaming, loyalty, ticketing, coupons and more. So in the end it is all about knowing what to build, and will be in demand by consumers, that will win the day and the sale at the register. In the end it is those that innovate that will dominate the future of money and in just 7 years or so here in America and worldwide, most transactions will be digital and made using the mobile phone.
I do have an ever-present fear that technology will be abused to infringe upon our privacy and personal rights and freedom, with the only excuse or rationalization being that of doing it for the greater-good. On the surface this may appear to be the right, good and smart thing to do, but if it gets in the wrong hands of governance, such power could be used to restrict freedom and engage and even mandate us to comply to the system. I sincerely hope those that reign today and tomorrow will be careful to look beyond profits.
There is a way to solve the security problems of today, some of which I have proposed solutions for, but some of which I firmly believe will come to pass that will involve biometrics beyond the digital fingerprint being used for authentication. The clues and all the pieces of the puzzle are out there and exist to bring this authentication technology together. In the end it will all boil down to a digital ID tag or MARK tied to biometrics that will be required to conduct commerce or buy and sell anything. The question is should it be done? My answer is NO! This should be your answer as well if you see this come to pass.
Being willing to be open to the reality of a world in which reality may be far different than how we now currently envision it, is the road leading to innovation and a stable future able to withstand the test of time and storms of disruptions. I speak more upon this in future articles.
Coming "Full Circle" is the key to not only closing the "Redemption Loop," but also in solving problems by discovering and embracing the solutions. There are minefields and barriers obstructing in reaching the end goal and only by acknowledging reports thereof will one reach the destination in one piece and gain the prize. The source of the solutions rests right before you, but unless you look without prejudice you will not have the vision to see the solutions. If you have read this far you have a chance and may even know what to do, but like a nicely wrapped gift, unless the package is opened, accepted and utilized, then one will not have the gift, nor the solutions needed to reach the end goal. So we come full circle from where we began:
If innovation is the future, understanding innovation is what matters most.
And to add to this, if one was truly understands innovation, then one can see innovation and will know innovators when they see them. So if you see innovation clearly, what are you waiting for? Act on capturing and embracing innovation and the sources thereof or be left to finish 2nd, 3rd or be run out of the race completely.
Those out in front of a race know that they are in the lead because they can see no one in front of them and can also look back and know how far others are behind. Of course the danger in looking back can mean your competitor slips in on your blind side while you were looking back. Looking forward, forgetting what is behind, counting all accomplishments but rubbish, living in the moment and pressing on to achieve the prize is my focus. What about you?
They say it is best to hedge your bets on the favorites with a small bet on the long shot, contrairian or maverick. If you are not doing this and the world we know completely changes again in coming days, weeks, months and years, will you have a future in this world turned upside down? Will you have invested in it or will you be on the Titantic going down in the icy cold?
Of course bold innovators are wrong here and there, but if they are batting 300-400 or better, then you might want to heed what they are saying and secure them for your team. As for me, it is my goal to be a big part of the team that wins the Mobile Wallet World Series.
Continuing down the same road will only lead to the destination you have been headed for. So, make a U-turn, pivot, and come on over meet me at "Innovation City." This is where I reside and live. It is always easy? No! Look at my formula below for the power to disrupt. If you have everything but innovation then all you need to do is add it.
OPPORTUNITY + REACH + CAPABILITY = POWER TO DISRUPT
Bold wins out over being just plain old. Has it been a while since you conquered a mountain in your work? Are you content in just getting by? So long as you are ready for retirement, enjoy the ride while it lasts, for the train will be dropping you off at the next stop. If, however, you want to beat the young innovators, then you must out innovate and outsmart them. If you are losing the game and have never lost, can't afford to lose or want to go out on top, then embrace innovation. Secure the top talented innovators and stay on the train to the final destination of Innovation City. Innovation is waiting here for you to arrive. Will you join INNOVATION to add your REACH and CAPABILITY? There is ample OPPORTUNITY, but without all three, innovation will go no where and your reach and capabilities will soon diminish or be wasted. Together we can prevail, but apart we may all lose. How much we lose out on we may never know!
Is there a future "Universal and Ubiquitous Mobile Wallet Platform" able to operate from single app or mobile web site? The answer may be surprise you as being YES! The standardization problem or least a reduction in the barrier to adopt mobile payment technologies may be solved sooner than you think! Stay tuned!