As part of a report to ‘get a sense of the most significant seismic shifts that have pushed payments innovation inexorably ahead through the past 10 years, as well as what lies over the horizon, PYMNTS queried 29 C-level executives with a collective thumb on the pulse of innovation’. Endava’s Jourik Migom offered his opinion on how smartphones have not only significantly changed our lives, but also driven innovation in the payments industry.
THE SMARTPHONE CULTURE
When identifying one innovation that has most dramatically moved payments innovation forward in the past 10 years, it is almost impossible not to talk about the smartphone. The increase of smartphone ownership (the raw numbers) and the relationship we all have with that device (the changed human behaviour) have been so transformative that it has touched almost every industry and created entirely new ones. The smartphone is a platform that has enabled a lot of change in the payments industry, so let’s unpack that further to identify what made it so influential.
THE RIGHT CONDITIONS FOR DISRUPTION
While I pointed to the smartphone as the most significant innovation, in reality, it is the combination of mobile internet, availability of 3G and 4G, cheaper data deals and the rise of the App economy that have driven a true payments revolution. All that technological change,¬ “sponsored” by the abundance of Venture Capital (VC) and Private Equity (PE) money and endorsed by the start-up culture, has created a very fertile environment for change.
THE PAYMENT ECOSYSTEM SHAKE-UP
We have seen a shake-up of traditional industries by new business models that tap into the opportunity to do business with the smartphone-empowered consumer: subscription models locked in consumers — think Spotify for music; direct-to-consumer retailers started selling online, circumventing traditional channel partners or the need for expensive retail shops — think Caspar for matrasses; on-demand businesses started billing customers in a PAYG mode, often having a default credit card stored in their app — think Uber for transportation. This new way of doing business has put the incumbent payment players under pressure. Their businesses were built in an age where the payments industry was very much an infrastructure play, with complex legacy powering a secure but much slower-moving number of interactions between a less complex pool of players. Today’s scattered payments landscape has unbundled a lot of that legacy and has created more nimble and specialised players providing services to each other. They do one thing — or a couple of things — extremely well and are built for an API economy rather than as a change request to a legacy payment system of a massive organisation.
THE EMPOWERED CONSUMER HAS COMPOUNDED THE EFFECT OF TECHNOLOGICAL CHANGE
Consumers with smartphones have started behaving dramatically differently over the past ten years. New features developed for the smartphone operating systems, combined with the apps operating on top of iOS and Android, have created a ripple effect in payments innovation. Contactless payments happen predominantly through cards, but an increasing number of consumers have started using the NFC functionality on their phone or the in-app payments functionalities of their favorite apps. Payment cards have become invisible in this world of mobile wallets, and the way micro-payments are facilitated to ensure safe and correct billing between a consumer’s smartphone, a merchant and the banks involved has created a new level of complexity that is handled more effectively and more cheaply by next-gen technology-powered players.
PAST INNOVATION DOESN’T EXPLAIN THE FUTURE — WHAT’S NEXT?
While the enabler of lots of the change for the last 10 years can be linked to the rise of smartphone adoption, the ripple effect wouldn’t have been so massive without the behavioural change we have seen with digital consumers and the tolerance that millennial audiences have with technology enabled payments. The changed role of payments — where the trade-off between security and convenience has constantly been tested — might as well push us to the next big thing in payments: cryptocurrency and a systemic shift towards more distributed and abstracted forms of payment where identity becomes the new currency. The use of quantum computing, the availability of 5G and the rise of more IoT will power a lot of those next innovation cycles. Let’s talk again in 10 years’ time.
Read the full report in PYMNTS here.