In my previous post, we discussed the confusion created by the various payment-related products, apps, and services that have come to market in the past few years. Despite the major players in the industry working to create the ultimate payment method/platform, a variety of factors have kept any one company — or even a few — from becoming the standard. This week, I want to discuss what it will take for a solution to rise above the rest.
To create such networking effects, the winning solution will have to provide benefits to several market participants.
In order to win the market, someone needs a solution that’s “good enough,” but not necessarily the best. It needs to offer competitive pricing, but not necessarily the cheapest. In some cases, it needs to come with significant brand equity, but that very much depends on the type of solution. The company needs pull from the market with the right partners and early adopters providing it with the right networking effects. I would argue that the last point is the most important. To create such networking effects, the winning solution will have to provide benefits to several market participants. That implies 360-degree thinking in terms of:
- The consumers will want methods that work, are trusted, are convenient, and are ubiquitous. These are “needs.” However, even with these needs, it’s probably not enough to win the market. The winning solution will also have to address “wants” such as integration/consolidation (one method does it all), loyalty with relevant offers and compelling rewards (all on an opt-in basis). As far as data sharing is concerned, it cannot come across as creepy or invasive to the majority of users.
- The merchants want solutions that are cheaper than current offerings, which may require solutions with fewer market participants. They also want solutions that help them increase revenue and lower their own cost by making informed decisions. In this regard, it truly is all about the data. However, data captured by a small business may fall far short of what is required to compete with larger businesses. The fact is, most small businesses cannot gather enough relevant data to make intelligent decisions, and many lack the resources to analyse and make sense of the data. This means that the winning solution has to allow for generalized, meta data (data about data, not the data itself) to be shared in some way. In this regard, I really like First Data’s Insightics service that provides Big Data benefits to small businesses.
- Other market players need to be incentivized as well, otherwise the winning solution will not gain reach fast enough. The focal point for such sharing of benefits again has to be about the data, or more precisely about the meta data. If a company participates, they must provide data and then they can benefit from the meta data, or they get the service for free (heavily discounted) against sharing of their data (the Google model).
Considering all that it takes to win the market, Apple Pay might be the closest to ticking a number of these boxes, and yet, they are so far away from becoming the standard. For starters, Apple Pay is limited to iPhone users only (although with the new Apple Pay in-app payments, online payments will open up). Obviously, coming out on top is not going to be easy for anyone. If Apple hasn’t been able to do it, who can?
My guess is that we will continue to see many co-existing solutions in the market for quite some time simply because of the size of the reward (everyone wants access to valuable data) and the number of very cash-rich market players.
My guess is that we will continue to see many co-existing solutions in the market for quite some time simply because of the size of the reward (everyone wants access to valuable data) and the number of very cash-rich market players. In the meantime, confusion will ensue until a solution emerges that is sufficiently compelling, sufficiently integrated, sufficiently benefiting from networking effects to take the grand prize. This will, of course, also continue to evolve and there will be the dominating solutions of the time, only to be replaced by others as the industry evolves toward ever more integrated and value-creating solutions. With the many channels and contexts of payments, there will be many winners, one or two each per application domain or sector. I, for one, will enjoy watching all of this play out in the coming year.
Insights from Lars Pedersen, Creditcall CEO
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