The future of payments

The need for a new trust architecture

Peter Evans-Greenwood, 18th August 2016

What will the future of payments look like?

electronic payments increase

cash on the way out

cheques retreating to the high ground

Paliofuture

predictions of the future often fail as we dont acknowledge social factors

nuclear reactors didnt result in nuclear powered cars

Our assumption

the future is mobile payments via an e-wallet

the cash metaphor moves to the digital world

This may not be true

What well cover today:

Retail is a constructed environment

This environment is breaking down

A new trust environment will require us to rethink payments

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We forget, shopping is:

a constructed environment

a learnt experience

John Lewis store in Westfield Stratford City Shopping Centre, 2012. Source: Editor5807

Online simply copies the offline paradigm

catalogues

shopping carts

checkouts

Omnichannel blurs online and offline

but we dont know how to measure it

Prior to the 19th century retail as we know it didnt exist.

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Un Galerie du Rayon de Modes, Le Bon March, Paris, 1920. Hliographie de N. D. Phot.

Modern retail was invented at Le Bon March around 1850

A consequence of mass production

A shift from purchasing within the community, to purchasing from

strangers (the firm)

Its built around search and transaction, characterised by:

Amenities to attract customers

Merchandise on display to handle/try with no obligation

Fixed prices, clearly displayed, not negotiated (no manager present)

Payment in cash at the point of sale, rather than store credit

The model has been incrementally optimised:

Store formats optimised as supply chain improved (big box etc)

The point of sale mechanised, and then automated

Merchandising is more sophisticated (planograms etc.)

Omnichannel might well be the ultimate expression of this model

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However, this is still the same model.

As retail

As online

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Need
Search
Cash

Transact

Retail has been built around

Need

Search

Transaction

This is the source of the various buying cycles

and its facilitated by money

Were told that cash and payments were invented to solve the double
coincidence of wants

I want a fish but have a hat, you have a fish but want a bicycle

This is wrong though

Historically we had little use for money

We exchanged goods with people we know,

These relationships ran on debt, shared obligations

Debt: The First 5,000 Years -> David Graeber

It was the invention of the mass market that pulled everyone into currency
and payments

Money as a tool to manage risk when we transact with someone we dont

know and therefor cant trust

Interesting, the main use of money in the old days was to calculate
damages

Were seeing two signs that this retail model is breaking down

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End of the mass market

The first sign: the end of the old mass market.

Consumer behaviour is changing the merchant-consumer relationship

Trends

The internet and express freight killed the mid market.

Smart phone (ne iPhone) flipped the balance of power.

Brand power is being replaced by peer recommendations.

The nature of value has changed

it as feature-function-price, objective, defined by producer

now its multi dimensional, subjective, defined by consumer

This is splitting the market in two

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Source: Lisdavid89

On one side we have high value

Relationships that are heavily invested in:

communities

religions

Theres a narrative / experience that the customer identifies with, and cost
is a minor concern

Examples:

the exclusive music pack or backstage pass

the cobbler who learnt their fathers trade

the local butcher selling products from boutique producers

hand crafted furniture from sustainable forests

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Source: Lisdavid89

On the other we have low cost

Give me convenience or give me death -> Dead Kennedys

We want it cheap

We dont want to put a lot of effort in

We dont want to make decisions

We dont want to be bored

Ideally, we want it as a service

Examples:

music streaming: I just need background music for my life

$4 thongs at Target: for the holiday

Dollar Shave Club

Flexicar: I need to move something

Aldi: I just need tomato sauce, dont waste my time

Were all arbitraging the difference, and individually were doing it different
ways

Were also becoming more impulse driven rather than searching

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Payments move away from the

point of sale

The second sign: payment is moving away from the point of sale

Were seeing this in two dimensions:

space: off the PoS, to another location

time: forwards, backwards

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Space: moving from your PoS to somewhere else

Focused on optimising the payment slicing a few seconds of weve

forgotten that the bulk of the customers wasted time is in:

going to the PoS

tallying the goods

Were seeing a few examples of companies moving the PoS to the

customer, rather than the customer to the PoS

Aisle buying

HiPay -> image

purchase via the customers phone and WeChat account

cash transmitted from to merchants account

Note that its common in China to leave home with only your phone and
WeChat account

Apple Store App

purchase in-store via customers phone & iTunes account

aggregates purchases

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Forward in time

Starbucks moved their loyalty scheme to a stored-value card

Customers add value to the cart

Use the card for purchases

Source: HAO XING

Advantages:

Ties loyalty accumulation to purchase (one card, not two)

Creates a sunk cost: the customer has already purchased the coffee

Disadvantages:

Need to preload the card, making some transactions more complicated

Still tied to the PoS

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Back in time

Skip: skip the queue

Use the app to pre-order

Pickup-and-go

Pay every fortnight (not using the PoS)

Advantages

Skipping the queue (some people)

Avoiding transacting (many people)

We forget our cultural prohibitions against handling money

We dont like having the transaction in the middle of the relationship

We prefer services where they payment happens somewhere/somewhen

else

Uber is an example

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Customers dont come to your store looking for products, and they dont
want to transact at the point of sale.

What is retails new trust

architecture?

They define value relatively, in their own terms, not absolutely in terms of
features and functions.

Brands are supplanted by peer-to-peer relationships. You need to be part of

their tribe.

The old model based on need, search and transaction is a relic of

the industrial era.

Experience stores, and our inability to quantify omnichannel, are signs of

the growing gap between the old model and what customers want.

So the question is then:

What is the new trust architecture (and where do payments sit)?

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Mobile payment terminal, in Fornebu, Norway. Source: HLundgaard.

The existing trust model need, search, cash at the point of sale will
probably endure for quite some time.

However, simply moving the current paradigm to the digital world runs
counter to consumer preferences.

Consumers dont seem to want e-wallets, no matter how many times we

present them. Even Apple Pay is having trouble driving adoption, and is
willing to pay $5 per user.

Despite optimising the payment (or hiding it with gift wrapping) we cant
ignore the fact that, in a world where consumers know the firms they
deal with, that consumers dont want the payment in the middle of the
relationship.

We forget that the payment cash was a solution when customer and
merchant didnt know, or couldnt trust, each other, and that is no longer
generally true.

So if the old trust architecture is on the wain, then what is the new trust
architecture?

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Well, theres probably three, rather than one, based on the emerging trust
relationships.

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Payment via a social platform

First, we might burry the payment in the social platform that consumers use
to interact with the merchants, with settlement via a low-cost mechanism
(BPay? NPP?). In many all? cases the act of ordering will trigger the
payment, as with Uber. Our social platform(s) of choice become our remote
controls for the world.

Trust for both customer and merchant has moved from currency to
platform.

Payments are moving away from the point of sale, to happen seamlessly in
the background.

Buy it now buttons on Pinterest.

Ordering products or services via a social platform: WeChat -> Skip, Uber
etc.

Even using the platform as a substitute for cash or a traditional payment

It will be interesting to see if Facebook, Twitter can make the leap.

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Payment via a social platform

Payment for a service

Second, payments for products are being converted into subscriptions for
services, with periodic settlement via a low cost settlement mechanism
(BPay? NPP?)

This is simply a streamlining of the existing utility model.

Payments are moving away from the till to be seamlessly executed at the
point where the product is consumed.

Music streaming

Dollar shave club

and so on

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Payment via a social platform

Payment for a service

A shared store of value

Third, where customer and merchant have a less transactional relationship,

payments may be via an evolved loyalty scheme, a shared store of value,
with any settlement via a low-cost mechanism (BPay? NPP?)

Value is now multidimensional, rather than solely focused on transactions.

Customer and merchant know each other.

Both want the payment moved to the edge of the relationship.

A shared store of value commitment by mutual debt just like before

the Industrial Revolution

Merchant rewards customer for prosocial behaviour, not just transactions

Customer commits funds to create a sunk cost and show commitment

Acts like a complimentary currency, which means that the banks might be
best positioned to offer white-label services.

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So what will the future look like? Given that were bad at predicting the
future.

The current payment model is a response to the mass market

a future of mobile payments via a e-wallet looks unlikely

New models are emerging and no one owns them

but theyre by no means certain yet

Our best guess:

via social platforms

subscriptions

evolved loyalty programmes

Of theses, the idea of evolved loyalty programmes is the most interesting.

What would I do if I was a:

Merchant

Loyalty programme provider

Payment network

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Peter Evans-Greenwood
Fellow, Centre for the Edge
pevansgreenwood@deloitte.com.au
@pevansgreenwood

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