CSFI Innovation in Payments

Possibles versus probables

[Dave Birch] The technology guru Clay Shirky said in a recent interview in The Guardian that "more interesting than thinking about what's possible in ten years is thinking about what's possible now but that no-one has built". If we look at payments, we can see that there are a great many products that are possible but that no-one has built. Why? Well, the business case, obviously...

No, it's not that simple. I've been in meetings where everyone around the table has conclusively decided that there was no business case for something, only to see the same idea blossom somewhere else. One possibility is that the "not invented here" syndrome is a real effect and that because of the network efforts in payments it has much more of an effect than in other industries: Apple didn't have to get 200 other consumer electronics companies to agree to the iPod. The "not invented here" syndrome runs pretty deep and is not an emergent property of business, but of culture.

Anthropologist Pierre Petrequin once noted that the Meervlakte Dubele and Iau tribes in Papau New Guinea had been using steel axes and beads for many decades but their use had not been adopted by the Wanos tribe a “mere day’s walk away.” Another example: the adoption of credit cards is wildly uneven among the developed world. But that unevenness is not for a lack of plastic, or electricity, or banks.

[From The Technium]

Kevin's article is well worth reading, by the way, and not just because it mentions credit cards. It caused me to reflect on a number of issues around the cultural basis for innovation and the relationship between technology and culture.

Lunchtime round table, 30th March 2009

[Dave Birch] The third of the lunchtime round tables in the Innovation in Payment series will be held at the Innholder's Hall in London on 30th March 2009. All are welcome, but as space is limited please reserve a place with the CSFI before coming along. This third seminar takes considers one of the more radical branches of payments futurology, private currencies. You can download the full invitation here PDF [114K].

Innovation will come from outside the industry

[Dave Birch] At the round table on paleo-future, Tom Standage mentioned one of my favourite comments about innovation -- in fact, one of everyone's favourite comments about innovation -- which is William Gibson's comment on National Public Radio in 1999, paraphrased as "the future is already here, it's just unevenly distributed". What he means by this, I think, is that all of the technologies that will make a difference to a company's business model in any reasonable timescale (let's say the next 25 years) already exist. Therefore, the right way to try and get ahead of the curve on new business models is not to try and imagine amazing new technologies from scratch but to simply go out and look at how technologies are moving from the lab into the world and then try to consider their impact in a reasonably structured way.

The history of the technologies that we associate with payments today -- cards and ATMs being the key examples -- is that they came from outside the banking and payments world but were then picked up and exploited by banks. OK, fair enough and not a particularly radical observation. But does it matter? Well, look at the nature of the innovation underway at in prosaic processes.

[Quicken's] s new tool is just another example of how innovation in the online personal financial services sphere is being driven, not by banks, but by more imaginative outfits (often newcomers such as Mint and where Wesabe). The result: banks are steadily surrendering their franchise in personal finance as the population gets younger and more tech-oriented.

[From Banks failing in personal finance online proposition]

Perhaps whereas it didn't matter in the past, it will matter in the future because the new technologies will sit between banks and their customers, making banking services into a commodity accessed via networks and not a customer-facing proposition at all. As John Reed observed, "one day banking will be a line of code in a big network".

Lunchtime round table, Monday 2nd March 2009

[Dave Birch] The second of the lunchtime round tables in the Innovation in Payment series will be held at the Innholder's Hall in London on 2nd March 2009. All are welcome, but as space is limited please reserve a place with the CSFI before coming along. This second seminar takes takes a first look at the future of payments by looking back and wondering why it was that people got things wrong when they looked at the future. This is called the "paelo-future". If we can understand why people were wrong about the future (instead of just laughing at how wrong they were) it's one way of making sure that our prediction for the future are more useful. You can download the full invitation here [PDF 89Kb].

Is there discrimination against e-payments in Europe?

[Dave Birch] In a recent edition of European Card Review, Malte Krueger of Paysys wrote that the cashless society would remain a fairy tale. Maybe. But as the article itself notes, that's not because cash is more efficient but rather because the law ensures unfair competition. Legal tender laws do not force people to use cash, as is sometimes claimed, but there are some laws that do discriminate in favour of it. In Germany, for example, banks are simply not allowed to charge private customers for withdrawing cash. Similar laws would undoubtedly be enacted in other countries so banks try to recover any costs on this side.

Lunchtime round table, 22 January

[Dave Birch] The first of the lunchtime round tables in the Innovation in Payment series will be held at City Marketing Suite, Basinghall Street on 22nd January. All are welcome, but as space is limited please reserve a place with the CSFI before coming along. This first seminar takes a general look at the state of European payments industry to establish a baseline for the research and ground the discussions the come. The seminar will begin with three short, high-level introductions by senior people from APACS, McKinsey and Visa and will then move on to informed discussion and debate. You can download the detailed invitation here [PDF 56Kb].

Innovation fills a vacuum

[Dave Birch] Innovation in the sense of "building a better mousetrap" is certainly difficult, but you might argue that starting with a mousetrap and then working on a better one is much, much easier than starting with nothing and imagining a world with mousetraps. This is why, I think, that (the obvious example of PayPal apart) there hasn't been as much innovation in the world of online payments as I might have expected a decade ago. In general, nothing genuinely new has been invented for the online world and online payment methods tend to be "shoehorned" versions of existing offline payment mechanisms. There is one area of the online market, though, that has seen some real, entirely digital, money that exists only online and has no offline infrastructure or base, and that is "e-coins" in virtual worlds.

I think that an informative case study is that of China, where virtual currency has grown rapidly to the point where it has become an issue of concern for the government.

London is good place to try things out

[Dave Birch] There's an almost perfect storm coming in London. For those of us interested in technology and innovation that is, I don't know so much about the sport! The city will become the focus of the world's attention with the Olympics in the year 2012. This is obviously an opportunity to showcase the best of British technology. One area of great interest, given the nature of the event and Visa's sponsorship is payments. Here, London is in an interesting position because it is already home to some of the worlds most advanced retail payment technology. The UK banks launched contactless here and a very successful trial with Barclays, O2 and Transport for London (TfL) has already seen mobile proximity payment and ticketing in action. Britain as a whole has a very vigorous mobile industry with national networks competing for customers and service providers competing to deliver new products and services to those network customers. Mobile penetration is high and the inventiveness of the developers is part of British tradition of innovation around new technology.

Oyster cards could be turned into jewellery, or hidden away in a mobile phone's battery compartment, a student's project has revealed. Chris Woebken, a design student at the Royal College of Art put an Oyster card in a pot filled with nail varnish remover to dissolve the plastic and was left with the RFID tag and the coiled wire of the antenna. He then tried paying for his transport around London using the stripped down Oyster card and had no problems.

[From Oyster cards melted and made into jewellery - London News]

Imagine what this generation of designers to going to do to payments!

Contactless in London

[Dave Birch] The early evidence coming back from the retail pioneers is that contactless does, in fact, have the predicted impact on transactions in the relevant categories (ie, categories such as quick-server retail, where contactless ought to have an impact). It speeds transactions and simultaneously delivers an increase in average transaction size. Interestingly, it seems that the use of open (eg, Visa) contactless products delivers a transaction uplift over the closed stored-value cards used on many education, corporate and government campuses.

Greater success occurs with the complete replacement of aging stored value card systems, resulting in lifting cashless sales from less than 10 percent of total sales to an average of 38 percent with credit/debit cards;

[From Payments News: New Cashless Vending Research - September 11, 2008]

This, to me, reinforces the rather obvious link between contactless and prepaid: a contactless platform for a prepaid product would mean that the two were mutually reinforcing in the assault on cash for low-value transactions, because of the increase in convenience (at both levels) over conventional card products. A contactless offline transaction is the fastest possible to way to pay for something, faster even than getting coins out of your pocket and throwing them at the shopkeeper.

It seems to me that bringing together consumers' revealed preferences is straightforward: pre-paid payment products (or pre-authorised debit products) on contactless payment platforms look like a winning combination.

[From Finextra: comment - Is the e-purse coming back?]

That doesn't mean that implementing contactless interfaces, by itself, means that contactless pre-paid payments will automatically succeed. A rather obvious reason for this is that there's a link between the types of POS and retailers and the desirability or otherwise of the payment mechanism. if there are no contactless interfaces at the kinds of POS and in the kinds of retailers that are optimal, then contactless isn't particularly interesting. When I do my weekly shopping at Lidl, the time taken to carry out a chip and PIN transaction is a small fraction of the time it takes me to buy a trolley full of bargains. But if I run into EAT for a sandwich, then paying quickly is part of the proposition.

Announcing the 2009 Fellow

Visa Europe (Visa), the Centre for the Study of Financial Innovation (CSFI) and Consult Hyperion (CHYP) are pleased to announce that David Birch (Dave), one of the founders of Consult Hyperion is to be appointed the Visa Research Fellow in Payments at the CSFI for 2009.