Why the Company That Figures Out Frictionless Payments Will Dominate the Tech Industry
The next few years are when 'invisible' payments will really proliferate, touching almost every type of everyday financial transaction.
In 10 years, payments will be largely invisible and increasingly sophisticated. Your connected car will not only automatically pay for gas when you fill up at a gas station; it may also negotiate a new insurance premium for you each month based on how you've been driving -- based upon data easily picked up by onboard sensors. In retail shops and restaurants, "checking out" or "getting the check" will be a thing of the past -- simply walk out of the building, and your mobile device will pay your tab automatically.
Articles that dwell on the largely flat adoption curves of mobile payments apps are missing the point. Today's apps like Apple Pay and Samsung Pay are merely a stepping stone on the way to a truly frictionless payments future, when taking your phone out of your pocket to tap it at a near field communication (NFC) enabled point-of-sale device -- much less swiping a plastic card -- will seem quaint and retro. As the world transitions away from apps and mobile first to AI first, we will see a growing number of innovations that drive both retail and payment innovation.
To some degree, that future is already here thanks to innovations like Amazon Go's cashierless stores and recent developments in China like Bingobox, where customers pay using WeChat at self-checkout machines. But, the next few years are when invisible payments will really proliferate, touching almost every type of everyday financial transaction. According to Juniper Research, invisible payments will process $78 billion in in-store retail transactions by 2022, driving revenue growth of about $300 per customer.
The tech company or companies that dominate payments during this phase -- by making them frictionless, secure, user-friendly and, well, invisible -- will be poised to dominate the tech industry as a whole. Because today, payments may seem like just one fintech vertical among many, but in reality there is a mass payments competition being waged in your pocket. On average, 80 percent of the interactions we have in a given day end in a payment, from our morning coffee to our evening ride home. There is enormous potential, and the future of payments is largely up for grabs.
Convenience will drive consolidation.
Here's why consolidation in the payments space is inevitable: Consumers don't want to sign up for a separate payment service for each of their connected devices. That has been the problem with many previous attempts to do "invisible payments" with wearables, like Mastercard's partnership with Atlas Wearables and Coin -- they require users to input their credit card again, after they've likely already signed up for Apple Pay, Google Pay, Amazon Pay or some combination of all three services on another device.
By contrast, companies with large user bases can simply expand their services for existing customers by porting over credit card information from their existing accounts, making the sign-up process frictionless. (For example, around 50 percent of Amazon Pay customers were existing Amazon Prime customers, and both WhatsApp and Instagram are now launching payment solutions.) We'll see this happen increasingly, as invisible payments gain steam, with users connecting the payments in their smart TVs, connected cars, mobile devices and voice-operated devices like the Amazon Echo or Google Home to the same accounts with one click.
Consumers may come to develop a sense of personal brand affiliation to whichever company wins their loyalty, considering themselves "Amazon Pay" people or "Venmo" people, similar to how there's a divide between Mac and PC users and iPhone and Android users today. Payments will become the linchpin of horizontal platforms upon which all other services are built. We're seeing this transition already in China, where internet giants Alibaba and Tencent offer a constellation of products and services powered by Alipay and WePay payments systems, respectively.
In the U.S., Amazon has a head start on this sort of expansion thanks to the 2011 launch of Amazon Lending, which issued loans to Amazon merchants and other small businesses. Growth of its loan portfolio has stalled out in recent months reportedly not because of lack of demand, but because volume grew so fast that Amazon became concerned about taking on more credit risk. In Europe, the liberalization of data-sharing regulations for banks under PSD2 should open the floodgates to similar such innovations. The time is ripe for one tech company to pull ahead.
Consumer trust will be crucial.
There's another reason why big companies like Apple, Amazon and Google have the advantage in the payments space today: the question of trust. As payments apps move from merely processing transactions to making decisions about what to pay for and how much -- as in the connected car example -- customers need to feel confident that those decisions will be sound. They also need to be sure their private data will be safe and protected, beyond their banking log-ins and credit card numbers. Remember, the payment system in your car will one day know how safely you drive, and where you've been driving. Google and Amazon in particular are two of the most trusted tech companies in the world, giving them a particular advantage in the race to dominate the payments space.
It's hard to know exactly how the payments wars will play out in the next few years. What is clear is that to the victor belong the spoils. Tech companies that establish themselves as payments powerhouses today will be poised to profit tomorrow.