The payment industry is at a crossroads today as the traditional players face a choice to reinvent themselves or risk being displaced through a metronomic drift from relevance. Similar to the early days of the Internet, where the promise and possibilities were evident but the broader impact to business and society was uncertain, the industry knows it needs to modernize payment systems but fears the uncertainties and broader ramifications to the established model. However, history has shown that embracing change at the right time can lead to market benefits that can make a company a staple in the new economy.
PayPal was among the early pioneers of making digital payments with a PC in 1998, and new innovations have come from companies such as Apple, Bitcoin, and Square to extend the capability to mobile devices. These companies introduced solutions to fill a void left by financial institutions that were slow to change.
Consumers were ready for a modern payment system that matched the convenience of mobile devices and applications, but banks and credit card providers still relied on magnetic strip technology that was first conceived in 1969. Fortunately, banks and credit card companies have finally accepted the fact that consumer behavior has changed and they must update their technology or risk consumers choosing a modern mobile method that does not include them.
The question the industry is facing isn’t whether or not change will occur; it is which technology standard the industry will embrace as the model moving forward and what that future will look like.
A group of retailers called the Merchant Customer Exchange (MCX) have been working on a mobile payment system called CurrentC that uses QR codes for point of sale (POS) payments and bypasses credit card companies. This system is currently in the pilot phase with a national rollout planned for next year. On the other hand, the three major credit card companies are backing a different system that uses near field communication (NFC) technology that requires merchants to completely update their POS machines. So which one will become the de facto standard of the future?
There are some similarities to the VMware enterprise end-user computing business that we can draw from to help answer that question.
Often what sets enterprise end-user computing companies apart is a supporting infrastructure, reputation, history of success, practicality of solutions, and the partner ecosystem. I believe these factors will also be the critical elements that go into determining the next digital payment standard.
For example, one of the many reasons VMware is a leader in end-user computing and enterprise mobility management (EMM) is because we offer a seamless user experience through a combination of partnering with top-tier companies and developing exciting new features in-house. We strategically select our ecosystem of mobile application partners because if you don’t, you’ll end up spending all your time chasing the latest mobile app startup and developing patches for interoperability. This seems to be the strategy of some of our competitors but not ours.
We dedicate a lot of development time to make sure the experience is seamless—starting from the provisioning through the installation and setup, and all the way through to their day-to-day experience where customers use a combination of our product and other 3rd party mobile apps to conduct business.
Likewise, the digital payment model that ultimately becomes the industry standard will need to have similar accomplishments. It will need to recruit a list of notable retail companies to adopt their model to help promote the approach and expose it to consumers. Consumers need to experience the convenience of the technology in multiple settings in order to change their behavior from swiping a credit card to a new way of paying for goods and services. The new approach needs to be available in grocery stores, retail outlets, pharmacies, gas stations, restaurants and fast food chains—all the establishments frequented by the buying public.
In addition, this new digital payment approach needs to be seamless and error-free to ensure a good user experience. Similar to end-user computing software, if the user experience is poor, then user adoption becomes more challenging. Consumers will eventually stop trying the new and revert back to the old because there is comfort in predictability. The vendor must devote a lot of time in the development process to quality control to avoid this potentially devastating mistake. The purported benefits need to be realized immediately by the user and merchant in their very first exchange, and the potential use cases need to be in line with real-world user behavior.
Lastly, there needs to be a long-term vision that makes sense. Merchants and consumers alike will not want to move to a new model just because it is trendy. The new digital payment model needs to be worth the effort and costs. I believe this is where examining the players behind each model and looking at their expertise, history of success, and reputation comes into play.
It is easy for new companies to show up in the market and appear as disruptors—I know. I work in Silicon Valley, and startups seem to pop up every month. But the definition of a disruptor in my mind isn’t simply a company that shows up with the potential to change the status quo; it is a company with the technology that is the most innovative and applicable to make a difference today along with a vision that combines multiple trending factors that will come together in the future.
This is an exciting time for all of us as the payment industry prepares to enter into the era of the mobile wallet. Regardless of which model becomes the de facto standard, we will all benefit from the modernization of the payment industry because it is another way that consumers and businesses will realize the benefits of the mobile cloud. These last few years, consumer technology has been at the forefront of driving business change, and this is another recent example.