January 11, 2016
How unnecessary complexity and confusion are hurting adoption of new payment technologies
By Ralph Bianco, President, Ralph Bianco Advisors
Over the last few years, when was the last time a day passed without another story about “alternative payments”? Readers are subject to a constant barrage of attention-grabbing—if not outrageous—headlines about the growth and ultimate dominance of alternative payments. Such a story ran recently on CardNotPresent.com. It caught my attention—as many of its kind do—and moved me to finally respond.
The article in question claims that “e-wallets will surpass credit cards as the most popular online payment method.” The author defines “those methods” (alternative payments) to include “bank transfers, direct debits, cash on delivery, e-invoices, e-wallets, prepaid, postpaid, carrier billing and digital currencies.”
Wallets will surpass credit cards? Alternative payments being defined as bank transfers, direct debits, cash on delivery, e-invoices, e-wallets, prepaid, postpaid, carrier billing and digital currencies (basically everything except credit)? Are you confused? I sure am. What does not confuse me is why merchant and consumer adoption of new payment technologies has been so low. [hide for=”!logged”]It’s the propensity in our industry to redefine—and therefore complicate—simple things.
Here is what I mean. Essentially, there are only three payment categories—though each category provides multiple ways to pay for something (trade and barter are intentionally excluded for the purposes of this article). The categories are pay before, pay now and pay later. Pay before typically includes prepaid and travelers checks. Pay now comprises cash, digital currencies and bank accounts. And, pay later is a line of credit extended by a creditor.
How a consumer or commercial entity may access the various “ways to pay” is what technology enables. These access methods are generally referred to as “form factors” and play a vital role in providing anytime/anywhere access to the underlying account (e.g., a bank account or credit account). A card bearing a magnetic stripe or chip is a form factor. So, too, is a mobile phone or digital wallet. A digital wallet that contains one or more credit, debit and/or prepaid account is not really a new way to pay. It is a new way to offer convenient access to any one of those accounts.
In this context, statements that claim wallets will surpass credit cards make no sense. A credit account is part of what is in the wallet just as a debit or prepaid card might be. I think the industry—merchants and consumers in particular—deserves better articulation of what defines an alternative payment, a wallet or some new way to pay.
We should minimize confusion by demonstrating that capabilities enabled by current technology are an evolution of what has been happening for 50 years. For example, at one time, access to a bank account was limited to checks or face-to-face transactions performed through a teller at the bank. Over time, ACH/EFT access and ATM cards appeared, followed by debit cards, online ACH, online debit access, digital wallets and mobile access. In all cases the underlying bank account was the same and technology enabled new form factors to make the account more accessible, more convenient, more secure and safer.
Some may say that debating over what to call something is not as important as agreeing on how it works. I would argue that what you call something is as important and in some cases even more important. There is great confusion and apprehension amongst consumers and merchants which serves to slow adoption. Why not keep it simple?
Ralph Bianco began his career as an engineer, but moved into payments nearly 30 years ago. He has worked for and advised companies representing virtually every link in the payments value chain including issuers (US Bank), networks (MasterCard) and processors (JetPay, Gensar/TransNet, which became Paymentech).[/hide]