On the Future of Humanity…. And Payments!
– The image that comes to mind is that of the ‘Tree of Life’ from the movie Avatar. Its roots connect all living beings and the planet itself in a network that keeps track of the health of the system and acts as a knowledge repository.
– Interesting fiction or a representation of what’s to come? Are we reaching a tipping point in the evolution of humanity where we as a species start adopting a holistic view in evaluating progress while becoming more conscious of the side effects of our success (resource depletion, pollution, etc.)? Can it be that we are finally reaching the mythical ‘Age of Aquarius’ – one of human enlightenment?
– Today we are rediscovering this once lost idea of a connected universe. Primitive societies had a much more intuitive sense of connectedness compared to our modern scientific approach of dissecting the whole to single out its fundamental building blocks. In parallel, we as individuals in a community have also grown apart. In contrast, today we are witnessing an unprecedented linkage between humans and their living and non-living environment enabled by technology.
– Consider the introduction of sensors in homes alerting you about problems in your building, or in cars monitoring the mechanic/electric systems, or in pills getting activated when the drug is dissolved in your stomach. Today we already have connected trees – with sensors communicating their health status and that of their environment. Similar technologies are in use for cows and even humans – for the most futile, a chip embedded in the shoulder area of VIPs provides instant admission to restricted-access clubs…. Additional examples of connectedness that already feel like yesterday’s story are texting, mobile communications and video communications (eg Skype).
– According to Cisco, the explosion of the internet of things is already happening with over 12.5 B devices already connected to the internet and expected to grow to 50 B by 2020…This is not to mention how much more interconnected we are as a result of the near universal adoption of mobile phones (over 5B phones) and social networking (500M on Facebook).
– So why is this ‘connectedness utopia’ of any relevance to payments? Because it fundamentally transforms the way we think about value and the way we exchange it with deep operational implications for those involved in enabling these activities.
– The value of things: how does the concept of value and your ability to monetize it change in a connected world? Is value derived from the number of trusting followers who are influenced by you in the social networking sphere? Is it a weighted average of your community’s innovative potential, environment and social stability? Could your insurance rate vary as the nicotine from the cigar you are smoking is detected in your bloodstream? Or could your university teacher ‘buy equity’ linked to a share of the future income you will generate instead of getting a tuition payment from you? Could the value of your house/car include a structural/mechanical health premium (or discount) that reflects how well you maintained it based on sensors feedback?
– Sounds pretty far-fetched? Maybe … yet, an echoing message was prevalent at SIBOS — the leading global payments conference, attended by ‘serious bankers’ – in Toronto this past Sep. One of the Innovation topics highlighted the opportunity for currencies to not only reflect the growth potential or the financial stability of a Nation, but a larger set of values including: innovation, the status of the environment and yes the degree of social happiness and stability – see the Ven currency as an example.
– Closer to home, new currencies are emerging that are already highlighting the potential of the new connected reality. Beyond a fancy conduit to buying digital goods, Facebook credits are today the currency of the wealthiest nation (cyber nation to be precise) on earth. Ven is looking at new meanings for currency. eGold is offered as a non-physical hedge against inflation, and different loyalty points reflect exactly that – the loyalty towards the brand. Will these currencies always be pegged to an underlying ‘traditional’ currency or will they like Bitcoins evolve on their own?
– The way we exchange value will vary as well. Alliances such as Isis (Telcos and Banks) or those established between Citi or Mastercard to power Google wallet, currently available on the Nexus S (NFC enabled) mobile are examples of migration of payment methods to the mobile phone and the need for banks and payment networks to forge the right partnerships with the Telcos. The long awaited emergence of the Paypal (possibly the largest FSI in the world with over 94 M users) genie out of the ‘virtual’ box is another indication of how ‘remote’ payments – away from traditional payment networks — might be implemented. Amazon’s acceptance of Amex loyalty points as a form of payments is another example of the way things are evolving.
– Yet, clearly a world without Cash and Card is yet a distance away. And banks’ payment experts will go out of their way to explain to you how the massive replacement of POS (point of sale terminals) to accommodate NFC (near field communications, touch-less payments) is not about to happen anytime soon on a massive scale in the US (in Canada or Mexico the move towards cards w/chips might trigger the replacement). Interestingly, the same banks are diligently crafting alliances with the key NFC ecosystem players ‘just in case’ the transition happens much faster than anticipated and to secure the right privileged partnerships while the window of opportunity is still open.
– While pervasive mobile NFC payments might still have a way to go in the US, the emergence of Remote Payments is not as hindered by POS replacements — think of the use of Bar Codes or QR codes (in the case of Starbucks) instead of the RFID chip at the point of payment. More Telco-centric implementations of remote payments such as M-Pesa in Kenya or G-Cash in the Philippines are now proven success stories in the developing world where mobile payments are enabling economic growth in a population largely un-banked. It is important to note that remote payments are not necessarily phone-dependent, they can be implemented using biometrics (facial/voice/iris/fingerprint signatures)… check Facecash as an example.
– The opportunity is not limited to card or cash replacement. Think about the volume of paper checks in the US mainly used in B2B transactions. There is a huge opportunity right there to digitize these payments and generate large efficiencies in the payments industry (the US is a laggard in that respect compared to most developed nations) … yet the opportunity to do so is closely connected to the ability to transition from paper invoices to an e-invoicing system that mobility can effectively enable.
– Beyond consumer convenience, the migration to new forms of payments will have profound implications for merchants and payment enablers alike. The ability to sense someone’s needs (based on social network communications, e-wallet wish lists, or location) and deliver relevant in-context, merchant-funded offers – via Location Based Services (LBS) – that are fulfilled in real time at the POS will change the way we shop and the economics of payment-related revenues … trading in effect interchange fees already under regulatory pressure for marketing/loyalty revenue … At Cisco we call this new shopping reality ‘Connected Commerce’.
– Operational implications of all these changes on the existing infrastructure and processes that enable payments include:
– Connected Commerce: the ability to deliver location-based, merchant-funded offers that will be fulfilled in stores will require an integration of POS, LBS and loyalty/inventory management systems at the merchant level. As an example, Cisco’s “store in a Box” offering that includes in one box (router) networking, IP telephony, IP security cams, digital displays, cloud access etc. and is equipped with PCI-grade payment capability could accommodate the type of integration needed in a Connected Commerce world. The adoption of such devices by retailers for efficiency reasons above and beyond payment handling presents a solid enough case for the transition. For more examples check Foursquare, Cardlytics or Truaxis
– Big data and what it means: in a connected world, billions of connected devices and people will be sending continuous streams of info available – within privacy limits – to corporations and financial institutions. The exponential growth in data poses challenges in terms of storage, confidentiality/safety and ability to transform it into insights. New credit rating schemes that take into account info from social networks (check Movenbank’s Cred application), examples of financial offers based on life-events derived from one’s Facebook postings, and increasing interest in companies dealing with big data management are early precursors/indicators of what is to come. In a recent CIO Finance Summit in Scottsdale, AZ data management and security was the single most quoted area of concern to CIOs … they haven’t seen anything yet!
– Transacting in any currency over any channel: in a world where you can pay for an item partly in points, partly in cash using a mobile device in a store and benefit from a merchant funded-offer. The level of flexibility behind this simple transaction is currently beyond the capabilities of most payment switching systems – for the most part developed in-house by retired programmers. Companies such as Distra have developed front end systems to enable the seamless handling of such transactions.
– Another area to keep an eye on is that of machine to machine (M2M) transactions where your machines can be conducting commerce with a set of other machines, transparently, in the process of conducting a task you’ve assigned to them – think Coca Cola machine ordering new bottles as it is getting depleted or your car paying the pump for gas.
– Security and Regulations: such an analysis would be incomplete without thinking through the regulatory implications of such changes: implications of new currencies outside of the control of existing governments (and their ability to print unlimited quantities of new bills-), therefore hard to track and regulate (think AML), the entry of unregulated players (eg, Telcos and mobile device manufacturers) into the payment game and the profusion and dissemination of sensitive info across many platforms. This is going to necessitate a whole new level of regulation and controls aligned with new roles of participants in the emerging payments ecosystem. In the immediate, the flattening of the world is already resulting in regulations to reflect the new reality: examples include the Single Euro Payments Area (SEPA) in Europe and the Internationalization of the Chinese Yuan
– In this optimistic vision of the world one cannot ignore the risks that such a digitized environment represents at a time where cyber-attacks and threats against the ‘nervous system’ of production controllers (a la Stuxnet) and infrastructure networks are making the headlines … imagine the implications of bringing part of the payment networks down.
– With all these changes happening around us, one has to wonder whether our version of the Avatar Tree of Life is not already unfolding in front of us in the form of a ‘Tree of Payments’ a precursor / manifestation of the upcoming Age of Aquarius!