INNOVATION TALK:IMAGINE THE future. You walk into a shop, pick up whatever it is you're looking for – a vintage 2014 Bordeaux, say – and bring it to the counter. "How would you like to pay?" asks the sales assistant. And it's at this point that the future happens – instead of cash or card, you just say your name.
The assistant looks back down at the screen, sees your face, taps to confirm the sale and thanks you for your custom. You get a text message with your receipt. You walk out the door.
The future really is amazing, you think to yourself, but here’s the really amazing part – that future is already here.
San Francisco-based payments start-up Square is pioneering a smartphone app, recently renamed Pay With Square from the somewhat less apt Card Case, that allows shoppers to pay by just identifying themselves at the counter – the app communicates with a Square Register app running on the merchant’s iPad, which lists all the customers in the shop who have the smartphone app installed.
Pay With Square is probably the most startling example yet of the technologies that are threatening to massively disrupt the process of how we pay for things. The implications are far-reaching and potentially transformative.
Square, co-founded by Twitter creator Jack Dorsey and James McKelvey in 2009, made its name with a card-reading dongle that attaches to a smartphone, allowing even the smallest operator to accept credit card payments without all the hassle and fees of registering as a merchant.
It has proven so successful, with more than a million US merchants processing payments worth more than $2 billion a year, that internet payment giant PayPal has followed suit with its own equivalent, called PayPal Here.
At the same time, PayPal’s core business, processing online payments, is being challenged by another start-up, Stripe. The brainchild of Co Limerick brothers Patrick and John Collison, Stripe offers a streamlined, easily implemented alternative to PayPal to anyone trying to sell products or services online and with much more transparent fees.
Stripe has recently been valued at $100 million, demonstrating how lucrative this sort of disruption might be.
Of course the tech behemoths aren’t sitting this race out either. Google Wallet hasn’t been an unqualified success, while Pay With Square makes the near-field communication smartphone technology on which it relies look archaic before it has even achieved mass adoption, but the search giant is unlikely to give up easily.
Prefiguring the onslaught of new payment start-ups was the success of Apple’s iTunes store – one-click payment was shown to be a major factor in the store’s success. It proved a rather elementary equation – the less friction there is at every point of purchase, the more purchases there will be.
On Forbes.coma few weeks ago, LinkedIn co-founder and former PayPal executive Reid Hoffman and some fellow venture capitalists wrote about "the early stages of a massive wave of innovation in the payment industry".
The innovations they talked about involved credit and debit cards effectively becoming an app platform in their own right, facilitating the integration of gift cards and coupons right on your credit card, validated consumer reviews after purchases and something called “the quantified self”.
None of these “innovations” sound like anything that customers might actually want, and I suspect they rather miss the real promise of payment innovation – reducing the vast power of the major credit card companies by altering the fundamental payments architecture we’ve come to rely on.
For years, the assumption was that credit cards would lead to the extinction of cash – all that paper just amounted to hassle and security concerns and overall inconvenience, went the thinking – but credit and debit cards just introduced a whole new layer of inconvenience for everybody, both customers and vendors.
For customers, the security risks just became more difficult to legislate against. For vendors, the interchange fees they have to pay on credit and debit card transactions is growing all the time.
It was the source of a major legislative battle in the US, where a bill trying to put a cap on debit card fees was at the centre of a bitter, protracted lobbying effort by major retailers and major banks.
Felix Salmon, a blogger at Reuters and probably the most astute observer of the payments business, summed up why it is crucial that the field be disrupted by innovation.
“Visa and MasterCard essentially levy a non-negligible tax on a huge percentage of retail payments and do so in a largely invisible manner,” he wrote recently. That transaction cost is borne ultimately by the consumer, of course.
The potential of the likes of Square and Stripe is that once they achieve a certain critical mass, they can begin to eliminate the credit card companies from the picture, in that users can supply the service with their bank account details instead of their credit card numbers.
The hurdles are not insignificant – disrupting an industry with entrenched banking institutions with a vested interest in maintaining the status quo, duopolistic rent- seeking credit card companies and a daunting global regulatory framework is a long-term process – but once people experience the future, they don’t like going back to the past again.
