Engineering a Mass-Market Payment Revolution

The act of paying for something is already radically simple: Swipe a card or hand a piece of paper to someone in exchange for a good or service.

So why is now the time to shift consumer behavior to mobile payments? It would appear that we’re fixing a problem that doesn’t exist. Are we simply attempting to engineer a revolution?

Actually, no. There’s far more happening behind the scenes that must change — and change fast — for the economy’s sake, and for the sake of the consumers who fuel it.

Many people are speculating about how mobile payments can capture the mainstream’s interest, and their wallets. Here are a few of the things that will drive the mobile payments revolution.

Get Merchants by Crushing the Silent Economic Threat
One of the biggest invisible taxes on our economy (to the tune of $50 billion a year) is interchange, also known as “swipe fees” on credit cards and other forms of payment processing. Merchants pass along these fees to consumers simply because of the need to move money.

For the longest time, the only true zero interchange way of paying was cash (the oldest and arguably the least convenient). But prices for cash-toting customers are often exactly the same for credit- or mobile-paying customers. Up until last year’s passage of the Durbin Amendment, that price equality was actually mandated by federal law. This means that whenever you pay cash, you’re subsidizing the credit card-carrying masses. Credit cards are faster and more convenient, so why not jump on board? And the more people jump on board, the more fees the credit card companies can rake in. You get the picture.

The good news is that increased competition, and some helpful legislation, is already driving these fees down — slowly, but surely.

It’s this shift toward real savings that will motivate merchants to adopt a new payment infrastructure. Not the cool factor, not the desire to be on the leading edge, but cold, hard, economic facts. If mobile payment companies lead this shift (as many like Dwolla are), merchants will adopt them — and consumers will follow. If credit card companies were to lead this shift and price interchange competitively, mobile payment would stop in its tracks.

The good (and bad) news is that the existing players won’t cannibalize their own interchange-driven revenue streams. So it’s up to the new companies — mostly mobile in variety — to push the shift. This means that the opportunity for existing players to shift to mobile is open, but that it’ll take a lot longer because the big guys won’t structure their networks to fuel mass merchant adoption.

Get Widespread Acceptance by Making It Painless
Instead of trying to rebuild decades-old payment constructs or the point-of-sale systems that millions of businesses run on, build a payment ecosystem that’s as painless as possible for merchants to adopt. Entrenched players (Micros, Aloha, PosiTouch) won’t be going anywhere overnight, so it’s incredibly important to take a more open approach to support the systems merchants already have in place.

On the flip side, mobile payment apps have to be easy for any user with a phone to download and access. Everyone is speculating over whether an NFC-equipped iPhone will catapult mobile payments into the mainstream, and the answer to that question is: Probably not. NFC, QR codes, stating your name, swiping your finger, retina scans or the deposit of first-born children should all be acceptable ways to pay. It’s not the medium that matters.

What I’m getting at is simple: Make it as easy as possible for both merchants and consumers to adopt your mobile payment technology, and mobile payment technology will become more mainstream. We don’t need to have painfully long meetings about it. (Disclaimer: I didn’t get invited. I’m totally not cool enough.)

Put Something (Other Than a Phone) Into the Hands of the Consumer
The act of paying with your phone is only a fraction of what’s cool about mobile payments. In theory, paying with my credit card and paying with my phone will do the exact same thing (get me that sandwich or fully functional Iron Man suit I’ve been wanting). So why would I want to make an unnecessary change to the way I’ve always paid?

There has got to be some kind of larger benefit to the consumer to force this change. Just as credit card companies introduced rewards points and benefits to get people to use their cards, mobile payment companies need to do something to sweeten the deal for consumers.

Getting There Might Take Awhile
In conclusion, revolutions don’t happen every day, and for good reason. Change is never comfortable. Many technological shifts throughout history have started out awkward. Just think about how far we’ve come since we started downloading the interwebs through a CD we got in the mail. For now, mobile payments seem messy and fragmented, but a future in which everything just works (and works very much in favor of both the consumer and the merchant) is not all that far off.

At the age of 12, Seth Priebatsch founded his first web start-up. It failed gloriously, achieving profits several times those of Twitter. After completing his freshman year at Princeton (the official requirement to achieve the term dropout), Seth took a leave of absence to found SCVNGR, the parent company of payment network LevelUp.


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