01 December 2016
The Point 2016: In Focus
The next big thing in retail payments isn’t going to be Bitcoin or cryptocurrency and it isn’t going to be biometric watches or smart spectacles. We already know what it is going to be, it’s going to be instant payments driven by mobile applications. As was evident from all of the panels and presentations at the Payments NZ conference “The Point 2016” in Auckland, the regulatory pressures, the business models and the technology drivers are aligning.
In my presentation, I used one of my favourite Planet Money stories to illustrate the pressure for change. The story concerned a woman in the US who took her baby to visit a friend. But when she got to her friend’s house she remembered that she had forgotten extra diapers, so at night her friend ordered some from Amazon and they arrived first thing next morning. The woman logged in to her internet banking service and sent her friend the money for the diapers. The diapers took five hours to arrive, the money took five days. Now, admittedly, the American payments infrastructure is changing and the same day ACH transfer will soon be with us as will The Clearing House instant payments service, but this example drives home the discrepancy between the consumers’ experiences of other industries and their experiences of payments.
Instant payments will align these experiences, however they are implemented. In the Antipodean context this is a live debate. Australia has opted for a very sophisticated (and expensive) instant payment infrastructure and, as was discussed during the C-Suite Keynote Panel at the event, New Zealand is now looking at options for its own instant payments service. As in many other countries, the forces for change are aligning there. Whichever flavour they choose, they will have an instant payment infrastructure and it makes sense for businesses to start thinking about what this means for their payments strategies downstream.
The regulators want instant account to account transfer in order to facilitate economic activity and to lower the total social cost of payments. They are also starting to want, if you look at the European drive in this direction, instant payments to be a platform for new businesses. When Paul Stoddart, VocaLink MD, said in his keynote presentation at Payment NZ that “open access to the payment infrastructure will drive innovation” and that the instant payment rails are a “platform for innovation", I couldn’t have agreed more. The nature of the payment infrastructure is shifting: it is no longer a “neutral” backdrop to economic activity it is becoming an active participant in the process
Incidentally, Paul also noted that moving instant payments into the retail space means that there is now emerging a realistic challenge to the payment card. I built on this theme in my presentation on “Cardmageddon”, asking the audience to speculate on when more than half of the non-cash payments in New Zealand might be non-card. I also asked them to think about “narrative Cardmageddon”, the day when a kid in New Zealand will click on the icon of a payment card to buy something online without ever having seen a payment card, much as my kids used to click on the icon of a floppy disk to save something without ever having seen a floppy disk.
My guess is that this child will be born soon, because the advance of in-app and in-browser instant payments will be swift. When consumers press the “pay” button in their favourite retailer’s app or click on “pay” at their favourite retailers web site, the money will be sent directly from their account to the retailer’s account. The card icon will join the disk icon, the telephone handset icon and the camera icon as a nostalgic nod to a device that exists only in the public’s collective memory not in their homes.