While the potential for new technologies and currencies to disrupt the existing payments ecosystem is high, the role of sovereign currencies and established payment solutions is secure in the short to medium term
. Any shift in consumer behaviour will be gradual due to the need for consumers to develop a level of trust in these alternative payment methods; trust in the payment solution, trust in the stewardship of the organisation that operates the solution, and trust in the regulatory environment that the solution operates under. The vast majority of people are, and will continue to be, paid in a sovereign currency. Established payment networks (i.e. technologies and business relationships) also provide a significant barrier to newer players. As with most disruption, the shift will start in the niches before gradually working its way to the centre. While solutions are currently targeted at niches toward the bottom end of the market, they will quickly move up market as they mature. Consumer trust in these alternative payment mechanisms continues to grow despite a number of very public incidents that might test their confidence
, such as the recent insolvency of the REDGroup and subsequent devaluation of all the outstanding gift cards issued by its collection of retailers.
Increased adoption of alternative platforms and currencies will drive us to take a more nuanced view of payments and how we exchange value. Organisations need to adopt a design- and customer-centred approach; one founded on how the consumer’s ‘job they want done’ is changing as their behaviour evolves, putting aside the old technology and infrastructure-centric approaches to payments that we have used in the past.
As payments blend with virtual communities (and the new contexts and currencies this implies), and the distinction between real and virtual spaces is eroded, it is important to ensure that a payments strategy aligns with how people interact and transact in these new environments, and how they bridge between the old and new worlds. A longitudinal approach is required, centred on the need to simplify the customer’s entire buying journey by ensuring that the right payment solution is available at the right place and time to service the customers’ transaction. The next generation of solutions will enable consumers to transact when they want, how they want, with whom they want and in the currency that is most convenient. Payments need to take effect immediately, allowing consumers to exchange value with a merchant or a friend and then continue with their day. The solutions need to be ubiquitous, with payment providers able to support consumers transacting in the context the consumer finds most convenient, whether it might be at the cash register, in the aisle, standing with friends infront of a restaurant after a meal, on the internet, or in a virtual social environment. Providers must also support transactions in the consumer’s full portfolio of currencies, and not just sovereign currencies.
In the background is the risk, for all stakeholders, of new regulatory regimes driven by governments’ need to provide a safe environment for consumers and merchants, and to assure tax revenue. As these new payment platforms become ubiquitous, the risk increases of a failure affecting a significant proportion of the consumer population, as does the possibility of transactions moving offshore. How will governments’ react if one of these non-banking institutions fails? Some of these organisations might be the largest in their sector, such as Google with Google Wallet, but will they be considered financial institutions? Governments will be concerned with solvency and the security of firms that offer non-traditional payment services. Central Banks which are responsible for the smooth running of the payments infrastructure, such as the Reserve Bank of Australia, will move to integrate these new payments providers into existing payments frameworks. Accordingly, these firms may be required to apply for banking licences as they are, in effect, taking deposits. Other non-banking institutions might also be brought under the regulatory umbrella to ensure that the complementary currencies they offer, the gift cards and social media credits, remain solvent and to prevent them from becoming platforms for money laundering and fraud.
Regulators also need to consider the transnational nature of the emerging (virtual) complementary currencies. Where previously a complementary currency could be outlawed (as many local currencies were in Germany during the Great Depression), or regulation passed to bring the complementary currency inline with sovereign currency (which happened to Bartercard), these new complementary currencies are managed by foreign, transnational organisations. In the case of Bitcoin there is no central authority. Transactions, and the tax revenue associated with them, can move offshore, even when the product or service is manufactured and provided locally. The transnational nature of these currencies will make regulation challenging, while also making the currencies virtually impossible to eliminate.
Our relationship with merchants has moved away from the cash register and we now stand at the edge of a dramatic shift in where, when and how we exchange value.
Organisations that cannot work with regulators to engender trust in their solution’s operation or follow the consumer-merchant relationship and provide payment solutions that are not instantaneous and ubiquitous, risk being left behind.
Posted to Reddit.