So Techrunch have been spending a lot longer looking at Payments lately. Their high level overviews suggests that they just don’t get it yet.
The article suggests the 5 or flavors of the month in Payments (Facebook, Square, Apple, Google and PayPal) respectively, all have a viable play at the wallet. Which is fair, but misses the big picture. They’re not playing in whitespace. Payments already happen.
What’s really happening
Let’s skip right past the hyperbole and make a bold prediction.
2011 isn’t the year for payments at all, because nobody quite see’s all the parts of the puzzle. Bricks and Motar retail is a $4 Trillion industry. Online Commerce is a $400 billion industry. Mobile, Social and Virtual Currency payments combine to about $4 Billion in 2011 (US based figures, do some googling…).
Defining the Change
The likely outcome is that these will all converge. They can only converge by working with the infrastructure that already exists within western markets (emerging markets are a much more open play for startups). Try as they might in the West the start up brigade cannot circumvent financial institutions or the schemes.
By the same token: Try as they might, financial institutions can’t ignore the fact that a large percentage their customers are on Facebook.
What financial institutions need to do
So your customer is on Facebook, and everyone is gunning after payments, outsourcing CRM and your brand is losing value. Whether it’s PayPal, the Mobile operators or the startups, the squeeze has started. Your branch network and existing customer base is a great asset, but consumers are changing.
If I were a financial institution I would:
- Develop a strong presence on facebook
- Build your e-portal into the page on facebook
- Talk to customers via the web chat / page
- Help them with the e-banking portal
- Speak to facebook about a revenue share on virtual currency payments funded via ACH / Direct Debit
What the startups need to do
Google are interesting, they’re making a more direct play at sitting on top of Mastercard, and working with verifone to win the physical card sales, and bring those into the searchable world. Selling advertising revenue to reduce interchange is smart. Facebook, Square and Apple all have some way to go to reach that point, with segmentation strategies. Amazon too have a horse in this race.
If I were a startup I would:
- Work with schemes (Visa / Mastercard) under a revenue share
- Develop an e-wallet capability
- Sell that to financial institutions as a whitelabel, brandable product
The dream would be if you knew a company who already works with financial institutions for technology, that was able to do all of this for you. In my opinion there is a killing to be made, helping banks go social. Consultancies will spring up in this gap in the next couple of years. Although having seen a recent KPMG presentation on the subject. 2011 isn’t the year for payments.
I have my eye on 2014.
- Who’s going to win the start up race?
- Which banks are embracing social well?
- Does anyone in the market have a holistic view?