New Zealand


  • Service: Advisory, Business Performance Services, Strategy and Performance, Management Consulting
  • Type: Business and industry issue
  • Date: 15/08/2012

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Jack Carroll

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Payment pathways – Pain or prosperity? 

payment pathways


Internet and smart phone technologies are disrupting traditional payment pathways and generating new horizons for the value of loyalty programs and customer data. We provide a perspective on how these developments will impact the market and potential coping strategies.


For many years the payment systems which underpin our economy have drawn little attention, much like the plumbing infrastructure which we all utilise on a daily basis but are rarely forced to consider. However, with rapid technological advancement and fast-altering consumer behaviour there is a mobile and social revolution occurring.


A revolution which is thrusting the entrenched payment pipelines above ground and challenging the conventional ownership and direction of those pipes. If your company is one that takes customer payments, a bank, a merchant, or a payment intermediary, then there are key developments that will change the competitive dynamic for your business. Below are a few of these developments.


The power of the payments relationship is shifting towards the consumer


Access to technology has become easier and cheaper resulting in sufficient scale to enable new business models that displace traditional payment systems and mechanisms. 'The Cloud' has enabled payments anywhere, from any (smart) device. As such, products such as the mobile wallet (your mobile phone replacing your wallet), and mobile payments (contactless payment via your phone, internet or apps) and m-commerce (payment online) have emerged along with their receptive merchant-focussed solutions.


To address these demands two broad payment pipes have emerged: Bank-Anchored, which leverages technology to reinforce traditional payment channels (such as credit cards), and Non-Bank, which leverages technology to provide channel choice (such as peer to peer).


Put simply, if non bank channels such as Telecom, Facebook, Apple and PayPal (among other players) offer payment solutions that align with what the consumer values, why does a consumer need a bank? The power is now with the consumer to choose their preferred payment channel.


Loyalty is the new currency


Part of this alignment with consumer needs is via new currency. Air points (Frequent Flyer Miles) are reportedly the world's second largest currency, with which you can buy everything from a trip to Hawaii to a toaster. Place this alongside the trend of extending social networking into deeply personalised consumer-retailer relationships – further enabled by smart phone technology that can put hundreds of loyalty programs on to one consumer device, and loyalty quickly becomes the new currency.


Alternative players have already jumped on this opportunity. For example, early last year Starbucks introduced a white label mobile payment application that is directly connected with its loyalty program. Recent reporting from Starbucks (2012) states 42 million transactions have been processed on the application in the past 15 months. Especially in hard-hit economic times the idea of earning currency in exchange for loyalty has perhaps never been stronger for consumers – and never more valuable as a marketing lever for merchants.


Banks are still in the game


To be fair to banks it is not a level playing field, with far greater requirements on them (including regulatory oversight) to maintain transaction security, magnified by a poor "trust-worthy" perception post the Global Financial Crisis. To the extent this sense of mistrust extends to personal data, banks have a measure of consumer goodwill to recapture.


Although not the first to move, banks have begun to react with innovative measures to maintain their traditional payment pipeline whilst responding to consumer trends. For example Commonwealth Bank have developed a (beta) facebook banking app that allows customers to do all their banking transactions, including paying others and collecting money, without leaving the social network.


Banks may also be aided by advancement in NFC (near field communication) technology (bank-anchored contactless mobile payment solution) by German firm Giesecke and Devrient who have bridged the delay in NFC-capable phone uptake through developing NFC payment stickers.


When the sticker is attached to a device, contactless payment becomes possible even if the device itself is not NFC-enabled. Cardholders using the 48 x 28 millimetre G&D stickers as a MasterCard credit card can make payments at over 350,000 contactless PayPass payment terminals in 37 countries worldwide.


So what does this mean for you?


No one player has taken control of the market, yet. Both Bank-Anchored and Non-Bank technologies continue to progress. Regardless of the pipeline, transactions will become increasingly direct, affording merchants a more efficient method of communication and transaction with their customers. This will enable a unique perspective on each customer and a clearer picture of their entire customer base—in real time.


This data becomes part of a greater network which will then be aggregated and organised for both consumer benefit and the greater merchant ecosystem. Customer data is the new oil1. Those businesses who can effectively orient themselves around consumer identity will be the winners of tomorrow.


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