How technology is reinventing digital payments

As a technologist at heart, I’m always fascinated by the advances in technology, especially those that impact digital payments. However, in this paper, I want approach the promise of technology … In other words, why should we care?

Let’s first step back and take a wide view of the industry…how did we get to where we are? what are the forces driving disruption? what do the new technologies mean to us, as businesses, and to us, as consumers? and how do we win in this new world/environment?

A.     The internet: rapid progress and change

The Internet in its early days (aka Web 1.0) was a one-way avenue, but even that relatively limited capability was enough to radically change entire industries … like the dissemination of news, information searches, yellow/white pages, catalogue sales, and many more.

Then came e-commerce, with the first SSL encrypted transaction reported on the New York Times on Aug 12th, 1994. With e-commerce came the enormous tasks of: (a) building consumer trust, and (b) helping merchants harness the nascent technology, curtail fraud and seize new economies of distribution, which ultimately resulted in the birth of companies like Amazon and eBay, that went on to become dominant players. 

As e-commerce was unfolding, another revolution was also in the works: Web 2.0. In Web 2.0 the consumer went from being a mere spectator, to becoming an actor …. Rating anything that could be rated, creating content, democratizing entire new areas: almost anyone could publish a book, become a journalist, post photos and cooking recipes, or perform as a musician or comedian on YouTube … Trip Advisor has 661 million reviews covering 7.7 million venues (airlines, hotels, restaurants, etc).  The other day, my daughter was selecting classes at her college, and before doing so, she checked the teachers’ ratings. We do it for doctors, for roofers, and in pretty much every field of activity.

And the evolution went on to social and mobile, and now moving to the Internet of things (IoT) / artificial intelligence (AI) / blockchain … with change happening at a faster and faster pace …

And all along, e-commerce and then mobile-commerce have continued to evolve and change … and spawned the creation of some giants (e.g. Amazon accounts for 49% of all US e-commerce, or 5% of all US retail).

And it’s not just buzzwords … think about it: our grandchildren won’t need a driver’s license.

This evolution along the axis of technology, ran in parallel with other fundamental changes in our world…

-       Urbanization. In 100 years, from 1950 to 2050, the world will have gone from 70% rural 30% urban to the exact opposite

-       Improvement in all aspects of life in the past 100 years globally: health, literacy, life expectancy, purchasing power, etc. Even though there are too many people left behind still today

-       The emergence of Asia-Pacific (APAC). More specifically China & India. China has experienced the most explosive growth on record, with GDP growing 200-fold between 1960 and 2018 ($60 billion to $12 trillion, in constant dollars) and is also a world leader in innovation. For example, in the US, 21% of e-commerce is mobile ($377 billion), while in China it’s 75% (over $1 trillion). This figure grows to $15.4 trillion if we consider all mobile-payments, including the use of Alipay and WeChat Pay QR codes at point of sale … It’s simple: by 2030, APAC will represent fully 2/3 of the world consumers!

Back to the pace of change, below are some stats on the time to reach the first 50 million users, by various innovations through the years:

?       Airlines              68 years

?       Automobiles     62 years

?       Telephone         50 years

?       Electricity         46 years

?       Credit cards     28 years

?       Television          22 years

?       Mobile phones 12 years

?       Internet             7 years

?       Facebook           3 years

?       WeChat             1 year

?       Pokemon Go     19 days

The pattern is self-evident … change is happening at ever increasing pace.

B.     Why should we care?

Customers + Technology + Regulation are the 3 key forces driving innovation … we often concentrate on technology and forget the massive impact of the changing customer engagement. BBVA reports that out of 200 annual interactions by the average bank account holder, only 4 happen at the branch, and the other 196 over technology. They call this migration: brick -> glass -> air.

Online banking is actually a great example of how technology is improving the consumer experience: you can save time and simplify your life when you embrace it. And this is really what online technologies are all about: shop online and stop queuing in lines, go digital and stop storing documents, transact wherever you are and don’t wait until you’re home.

Another impact of technology is the advent of the culture of immediacy: I can get everything I want, right now. I can e-mail or call anyone at no cost, get information on any topic I’m interested in, watch or listen to almost any content I’d like. In a way, it has its own limits too, since our level of expectations has raised towards instant answers and ubiquitous connectivity, but that’s a topic for another paper…

The message is to embrace change and use technology where it adds value. This is the only condition to sweat the value of technology and benefit from it, or risk being left behind and disconnected.

Financial inclusion is one area where technology can have a massive positive impact on people that have been left behind by the traditional economy. And the issue is not limited to Sub-Sahara Africa, globally, over 2 billion people are deprived from access to any financial services (like saving, borrowing or e-commerce) for a variety of reasons, ranging from not having ID, meaning that the bank is unable to perform basic KYC, to a lack of economic motivation by financial institutions to deliver services to folks earning $2-$3 a day and barely having enough money for sustenance.

AI is the new electricity

Much like electricity 100 years ago … AI is impacting and will impact every single industry in the world. This confluence of AI and of “The Age of the Customer” requires of us, leaders in our own fields, a new way to think and act … and of companies, a new way to organize. Stanford University Professor Andrew Ng says … a brick and mortar company with a website is NOT an internet company, similarly, an internet company with a neural network is NOT an AI company … there is something fundamental about embracing AI.

I have tried to translate the promise of technology into concrete and easy to grasp benefits for all of us:

?       Convenience with security

?       Mass personalization

?       Automation with control

?       Quantum improvement in speed, cost & performance

1.      Convenience with security

Providing a frictionless environment for consumers … but with bulletproof security, leveraging in the background: biometry, behavioral analysis and machine learning.

2.      Mass personalization

We may be able to choose M&M colors, but with the advent of Walmart, Amazon, Costco we’ve lost the personal relationship that used to exist between mom & pa shops and their customers (the chef at the local restaurant that knew the customer’s favorite meals, the store owner that knew which blouses a certain customer liked, etc.) .......... AI/bigdata hold the promise to recreate that old relationship, using technology to make customers feel unique, valued and appreciated (i.e. not “a number”).

3.      Automation with control

We can automate a process in its entirety and lose control over it. For example, I get a monthly electricity bill for my Florida house: automating payments would put me out of the loop. Instead, if I could setup a “smart contract” with my bank whereby if the electricity bill is between $50 and $120, pay automatically; if it’s below $50, send to me (as maybe the AC broke and I need to take action); if it’s over $120, send to me (perhaps, someone left all the lights on, and the bill is $300). In other words, automate 98% of the instances, while still keeping full control of the 2% that represent anomalies or exceptions. The best of both worlds!

4.      Quantum improvement in speed, cost & performance

Examples … (1) the used of federated trust networks for know your customer (KYC) / anti money laundering (AML), that improve speed and accuracy, reduce cost, and almost eliminate the probability of data breaches (2) the use of AI for risk management, reducing fraud, and the automation driven by AI (chatbots, intelligent speakers … Microsoft predicts that by 2025, 95% of all customer interactions with be driven by an AI bot).

C.      Zoom on digital payments and how technology is creating new opportunities

The best payments are transparent

One of the strongest trends is the embedding of payments into the normal operation flow, so that they become effectively “transparent” …

?       Merchants and even consumers use an app (e.g. Uber), a platform, a software … and “payments come along for the ride” in an effortless, seamless, frictionless manner. It’s happening in the background, but the consumer doesn’t have any action to actually checkout. This results in increased efficiency: all parties are saving time and trust the platform to run the transactions accurately on their behalf. As a result, this drives loyalty and consumer engagement.

?       Merchants and consumers are also technology agnostic, and focus on the desired outcome: simple, fast, secure, cost-effective, cool payments … merchants want to concentrate on their core business, not become payment experts

At Paysafe, we believe that, fundamentally, we must all seek to understand the customer’s higher purpose and how it’s fulfilled by the different dimensions of the product and the end-to-end user journey.

For example: if I buy a gym membership, the PHYSICAL product is access to the gym facilities and to the machines, the LOGICAL product is the gaining the opportunity to exercise, to register in classes, etc., and the EMOTIONAL product is the desired outcome: feeling better about myself, healthier, losing weight, being in control of my life and body.

We’re of course not alone in this quest to profoundly understand customer needs. Google, for example, has the following stages of product design:

·      Understand: where we map out the problems space and create a shared brain.

·      Sketch: generate a broad range of ideas and narrow down to a select group.

·      Decide: as a team determine what to prototype to answer your sprint questions.

·      Prototype: build only what you need to validate your ideas in a very short time frame.

·      Validate: build only what you need to validate your ideas in a very short time frame.

Let me elaborate on 4 Paysafe examples:

-       GOLO mobile ordering – putting the consumer in the driver’s seat (i.e. convenience). Design is refined via monthly focus groups where new user flows are tested by prospective customers

-       Paysafecash (pay by cash) – weaving cash into the fabric of digital payments (also good for financial inclusion/the unbanked)

-       Paysafe Pay Later at point of sale – changing a credit application process that used to take up to 20 min into something that can be achieved in 2 min

-       Integrated Software Vendor (ISV) payments (seamless integration) – integrate once into the ISV and serve thousands of sub-merchants with minimal onboarding effort

And I could go on with innovation in our digital wallets, remittances, in-store and online/mobile processing and more.

D.     Final thoughts

So how do we translate all this information into actionable insights?

What companies must do:

Don’t pay lip service to tech evolution: structure to take advantage of AI.

This means bringing decisions down to engineers and product managers that are closest and have the deepest understanding of customer needs and wants. It also means adopting the iterative approach to product building, with a constant feedback loop that puts the customer at the center. Understanding the customer requires that all data be correlated to gain a full view of all the customer’s touch points with the company, across products and divisions (i.e. single data warehouse).

This will also require cultural change and engaging the entire organization, as success is a team sport. From hiring for transformation, to ingraining customer centricity as a core value, from the CEO to the newest hire, to making it safe to fail (as a result of experimentation/innovation, not sloppiness) and allowing talent to thrive … it’s not enough to recruit the best, we also have to provide a nurturing environment that brings out the best in all of us, collectively.

As an example of new opportunities, conversational commerce & banking: today’s 8% penetration in the US will become 31% in 5 years … but according to Paysafe’s proprietary market research, Lost in Transaction, 2/3 of consumers have concerns (real or perceived) that must be addressed to fully realize the potential of conversational commerce (will I be overcharged? will I be subscribed to something I didn’t want to?). For example, in a similar scenario, Amazon Go’s cashier-less service makes it very easy for a consumer to challenge a charge item, if he/she feels it’s incorrect, just swipe it on the phone and Amazon will adjust the invoice by removing the disputed item. This is the type of approach that builds consumer confidence.

What does it mean for consumers?

Enjoying the benefits in terms of speed, convenience, security, personalisation, cost-effectiveness and why not, coolness, that these technologies are bringing about.

Preparing our children to succeed in a world driven by disruptive technologies, such as AI, blockchain, IoT, biometry, quantum computing and others, is also a fascinating topic (e.g. to ensure they don't choose a field that's likely to be automated/displaced but rather one which will be in high demand and enable them to realize their dreams and aspirations).

Conclusion

In closing, while experts debate about how to engage with customers in this new environment, one thing is clear: only value delivery engenders customer loyalty … solving a real need, giving people back time and reducing their stress appear to be good starting points. 

People in my generation are probably more likely to divorce than to change banks, but millennials don’t have the same attitude … companies that fail to meet their ever-increasing expectations are bound to decline.

On the other hand, companies that are equipped with the right vision, culture and processes, can and will play a significant role in delivering the promise of technology, in a way that benefits them, but also and more importantly consumers and society at large.