Technology

Six Factors That Will Change the Future of Payments

‘Creative destruction is the new norm.’

May 06, 2014
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Credit unions hold a valuable asset amid all the turmoil in the payments industry: members’ checking accounts, Karen Webster, CEO of Market Platform Dynamics, told participants at CUNA’s Payments Roundtable in Las Vegas Monday.

Karen Webster
"There is no point of sale anymore," says Karen Webster, CEO of Market Platform Dynamics.

“You have the ability to connect and make the [checking account] more valuable and useful for your consumers,” Webster said. “You have the relationship, and you have the funding source. Everyone wants access to that asset.”

Webster cited six factors that will change the future of payments:

1. Payments will become invisible.

Anything that involves a merchant and a consumer interacting in the physical world can be reinvented by a new idea in the online world, Webster said.

“The scary part for you is that consumers no longer whip out a plastic artifact that has your logo on it,” she explained. “That's a reality that you have to think about when you… design your strategy.”

At the same time, as payments become invisible, lots of other commerce opportunities are opening up for new players, Webster said.

2. Payments will move to the cloud

In the future, payment will be less about devices and more about the software that connects those devices to the cloud and elsewhere.

“There is no point of sale anymore,” Webster said. “Point of sale used to be a fixed location—it doesn't have to be anymore.”

Retail in-store checkout could be transformed, she said. Sales representatives could patrol retail space with tablets that maintain a running inventory, ready to serve consumers on the spot.

3. Creative destruction is the new norm

Those who ruled the payments industry for the last 50 years may not lead the way going forward, Webster said, citing the recording industry and online retail as examples of business sectors where new leaders have emerged in recent years.

In addition to new competitors and innovators, regulation can be a force of creative destruction in the financial services industry, she said. She called regulation a “double-edge” of creative destruction.

“Certainly regulation is essential to protect consumers, but there’s a point where it can go too far,” Webster explained. “We certainly don't want to eliminate the opportunity for consumers to access the services they need because of unintended consequences.”

4. Business models are changing

The way money flows across payments systems will look dramatically different in the near future, Webster said. Regulation already has affected the traditional business model on the debit side.

“For better or for worse, merchants no longer value paying for acceptance,” Webster said. “One thing the industry has to come to grips with is how to monetize what merchants and third parties value—that’s the exchange of value that these technologies and devices and data facilitate.”

As an example, Webster cited ShopRunner, an online mall that competes with Amazon on two-day shipping. Where Amazon provides a marketplace, ShopRunner offers individual storefronts.

5. Consumers will decide the winners and losers

If consumers don’t see value in a technology, they won't adopt it, and neither will merchants, Webster said. Cash may not be safe and efficient, but a lot of consumers prefer it—and consumers’ habits can be hard to change.

“When you think about trying to get consumers to do something new, it's a hard habit to break,” she said, adding the value exchange has to be very compelling. “Merchants are waiting for consumers to have accepted something different before they invest in anything new.”

6. Change marches to its own beat

Webster said moving the needle to digital from plastic is a function of two factors: How quickly solutions are available and how many people with spending power are willing to adapt to it.

One holdup to the process: Millennials are motivated to use new technologies but don't yet have the spending power to create a dramatic change. Boomers, however, have the spending power but lack the motivation.

RON JOOSS is an editor for CUNA's News Now.

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