Analyst Corner

Money 20/20 and the Future of Payments

Categories: Mobile POS, Payments

A few weeks back I had the pleasure of attending the third annual Money 20/20 conference. By all accounts the show reflected both the sea change in the hype of the payment space with record attendance. Having begun two years ago with an initial attendance of 2,000 each successive year has posted close to 100% growth. As one presenter commented, payments are now cool and this shows attendance proves it!

The show was actually a combination of sorts. The target audience ran a broad swath from traditional consumer banking, payments, security, electronic currency/Bitcoin, mobility and retail. After seeing the lineup of speakers in preparation for the show, I was more excited about the content than maybe any show I’ve attended in the last five years. Fortunately, the conference did not disappoint. During my two days there, the show was packed full of content delivered by the who’s-who in the space. For those with a peripheral interest in the retail payment space I would encourage you to make space on your calendar next year.

With regard to reoccurring themes at the show the influence of ApplePay and the yet to be introduced CurrentC by the Merchant Customer Exchange (MCX) consortium were frequently mentioned. While many of these discussions were around the technology aspects, discussions would often coalesce around the importance of meeting the needs of the customer.

These points were very nicely highlighted in an interview style keynote discussion with Kenneth Chenault, CEO of America Express. Ken rightly pointed out the need to meet the customer with the instruments and systems that align with how they want to pay.

The other key theme of Ken’s discussion on Amex was their focus on the unbanked or under-banked. This at first struck me as odd, considering AmEx’s premium positioning, yet when you consider that current estimates suggest that between half[1] to 75%[2] of all American’s are living paycheck to paycheck, this market segment is too important to ignore. When we also consider consumer debt levels are at an all time high and saving levels at historic low, one can appreciate the importance of credit for the average American family.

Another theme was Apple Pay.  When you consider the tokenization standard that is the underlying structure which ApplePay resides on, there are key impacts there as well which we now have to consider:

  • The concept of loyalty is about to be significantly more critical since retailers will no longer be able to use a customer’s credit card number to associate that with a purchase history and an individual person
  • Early returns suggest that tokenization could increase transaction processing time from 5 to 10 seconds which will create some dead zone time at checkout. How will retailers use that time and what are the best in class ways that retailers can use that extra time to create consumer connection.
  • With tokenization, the Holy Grail for card breaches will presumably move primarily from retailers to token vaults managed by the banks. How will the banks respond?

A panel discussion which included Carman Wenkoff, CIO of Subway provided a great example of how retailers get payments correctly. Subway is addressing mobile payments with a three-pronged approach:

  1. Acceptance of ApplePay
  2. About to roll out their three year effort of partnering with Softcard (formerly ISIS), a mobile wallet application that is a joint venture between AT&T, T-Mobile and Verizon
  3. Rolling out their own mobile application which will accept any form of card payment

Clearly the genius of this approach is the freedom the customer will have to select the form of payment that works best for them. Conceivably irrespective of the consumer’s smart phone choice, one of these three payment options will mean mobile payment is an accessible option.

As a closing note I would encourage the retail community to watch Bitcoin ever so closely. Evidence continues to mount that Bitcoin seems to have legs as a long term alternative currency. There are several retailers now accepting Bitcoin as a form of payment.  Georgia Tech becomes the first college to allow Bitcoin payment at the concession of football games[3]. And Amazon Europe[4] has reached an agreement that will allow Bitcoin as a form of payment for gift card purchases. As further evidence of Bitcoin approaching mainstream status, Net Suite financials now offers built in Bitcoin acceptance as part of their financial package.  Yet ROI is now becoming tangible as well as Overstock reported that they will make an additional 4 cents per share due to accepting Bitcoin due to the reduction in fraud or chargeback costs.

Finally, in all of this hype and excitement, let us not forget Cash as a primary tender type.  While the press is going gaga over Apple Pay, MCX, and all things digital payments, the Federal Reserve still shows that over 60% of all payments are still cash.  Things are moving towards more digital currency, the greatest ROI might just be in how you optimize the handling of cash in your stores.