The market size and app richness in the new payments area begs the question, where is this all going? And what should the perfect payment solution of the future look like? In this final part of the blog series I look at issues that should be addressed to fast-forward the way we conduct payments.
- (Sore) Point of Sale technology
If merchants are not convinced that new POS solutions will give them an advantage, wider distribution will be hard to achieve. Although some first movers have already started using mobile-enabled POS terminals, they tend to be based on specific technology, such as NFC, BluetoothLE or QR codes. Should the future solution be technology-agnostic and combine the best elements that are available today? Or would it be something completely different to what’s available today, reinventing the whole approach?
- Funding interoperability
One of the main problems is funding accounts on the various platforms. There is no interoperability. You hardly know in advance what application you will need to conduct a transaction or that the other end across the counter will support what you are using. Banks still have the advantage of accessing ACHs (Automated Clearing Houses) directly, connecting them to accounts around the globe, but these models’ sell-by date might be fast approaching, given the emerging smart payments network infrastructure. How can we achieve interoperable funding flow between accounts and platforms?
- Authentication vs regulation
All new platforms so far rely on minimal authentication requirements and offer easy sign-up. Compare that with opening a bank account, where users go through several sign-up procedures and provide physical signatures. Bank accounts are heavily regulated, and as they are the origin of all payments chains, this is where regulators can get in the way of new payment solutions. Multiple and stringent legal requirements can also have a devastating impact on new business models and innovative ideas. Assuming that regulation will eventually catch up, can we create an open system that secures identities easily while keeping the regulator happy and before more legal demands stifle innovation?
- Do it yourself?
Almost anyone can build an app. Still, it doesn’t appear that many financial institutions have come up with great payment inventions that really work. Banks have some catching up to do with payments providers whose solutions are further along the maturity curve. Should banks search instead for technology partners to drive their own ideas forward?
- How real is real time?
Real-time experience is still very limited, as all transactions require a bank account to fund their platform and bank accounts transfers only work in real time between participants of the same network. Can banks create and share an interoperable, real-time infrastructure and would that then make recent mobile payments applications redundant?
- What about risk?
Risk mitigation is still a major concern and risk is inherently greater in the new world of alternative payments markets that can shrink wealth faster than a stock market crash. What happens if alternative payments providers fail? Will they be protected by account guarantee schemes in future? On the other hand, would there still be risk when all transactions are conducted in real-time, on a network-based payments system, where accounts communicate directly, check balances and immediately settle against all counterparties involved?
Innovative solutions in payments remain highly dynamic and interesting. Repeating the tests described in Parts 1 - 3 in a year or so might produce very different results. But are we likely to see a solution that answers all of the above questions? That would be a true disruptor and mind-blowing innovation. The answer, I believe, is yes. It’s just a matter of how soon.
Read parts 1-3 of Markus’s blogs on new mobile payments: