Live at Apex: Knowing the Unknowable
By: Matt
Gertler
Welcome to the
official All Payments
Expo Blog. The purpose of the “Live at APEX” series is to
highlight the key takeaways from this year’s panels in a manner that is both
informative and enjoyable, even if you were unable to attend this year. If you
have any questions that you would like answered in a future post, tweet me
@magertler using, #APEXLV15.
We just wrapped up
the “Knowing the Unknowable: Payment Predictions” panel. While it is impossible
to know the future, our panel of payments experts, Stefan Happ (American Express), Jack Stephenson
(First Data), and Amir
Wain (i2c) did an awesome job explaining
what they think the payments ecosystem is going to look like in the not-to-distant
future. I would like to thank them and our moderator, Matt Harris (Bain Capital Ventures) for
joining us today.
What impact does Bitcoin have on the existing payments infrastructure?
Bitcoin is a technological
innovation that will radically change the existing payments infrastructure. Bitcoin
solved the Byzantine Generals’ Problem, which is a computer science problem
that asks how trust can be established between two unrelated parties over an unsecured
network, such as the Internet. Bitcoin offers the first practical solution to
this problem in that it allows for the
safe, secure, and permanent transfer of ownership in digital property at a
near-zero cost. Accordingly, Bitcoin offers a potential alternative to
conventional payment processers that charge merchants 2-3% in fees.
Fraud is the biggest
reason that payment processors charge these fees. During an earlier APEX
workshop, Rich Stuppy (Kount) reported that
there were more than 1500 data breaches in 2014 and 76 percent of them occurred
in the United States. This “perfect storm of fraud” is increasing as mobile
payments become more ubiquitous. M-commerce makes up a disproportionate share
of credit fraud relative to its share of transactions. In fact, a Jan. 25, 2015
survey
by LexisNexis Risk Solutions found that “mobile payments account for 14 percent
of transactions among merchants who accept them, [but] make up 21 percent of
fraud cases.”
Bitcoin can prevent fraud. In his, “Why
Bitcoin Matters” article, Marc Andreessen (Andreessen
Horowitz) offers an example of how Bitcoin could have made the “Target hack”
impossible. He writes:
“You fill your cart and go to the checkout
station like you do now. But instead of handing over your credit card to pay,
you pull out your smartphone and take a snapshot of a QR code displayed on the
cash register. The QR code contains all the information required for you to
send Bitcoin to Target, including the amount. You click “Confirm” on your phone
and the transaction is done (including converting dollars from your account
into Bitcoin, even if you did not own any Bitcoin).”
A third impact that
Bitcoin will have on payments is that “micropayments” will offer new
monetization options for companies. Micropayments are transactions that involve
payments between about 75 cents and a fraction of a penny. They have never before
been practical because conventional payment system fees are too expensive for such
small amounts. Since Bitcoin is divisible to the eighth decimal point, it
provides a practical way to transfer values as small as fractions of pennies. For
example, this offers content producers a new way to monetize their content, rather
than having to rely on traditional subscription and advertising methods.
What current crazes will be irrelevant in 5 years?
There is a current
craze of characterizing payments based on the device being used to conduct the
transaction. We use terms such as point-of-sale (“POS”), e-commerce, and
m-commerce; but, this is going to change. The lines between POS and mobile are
being blurred, and they will continue to blur further. For example, eating at a
restaurant has traditionally been considered POS, but OpenTable allows people
to not only make reservations, but also pay for the meal via the app. Other
companies, such as Lyft, Starbucks, and Subway are all changing the purchase
experience.
The likely
trajectory of this is that all types of payments will be streamlined. It is not
hard to picture a future where you can go to a market, fill up your cart, type
a few buttons on your phone, and leave (or maybe you will not even need to take
out your phone). Monday’s keynote speaker, Jim McKelvey (Square) suggested that “Indoor Location
Services” will allow for the streamline of payments in retail establishments
and the technology is only a year or two away from becoming “good enough” to be
mass adopted. He suggests that many retailers are not adopting now, thinking
they have time to do it later. The risk of this is that a market-leading
retailer (e.g. Barnes and Noble, Blockbuster) may wake up and realize that all
of their customers switched to a competitor offering a better service (e.g.
Amazon, Netflix).
What will the mobile operating systems (Apple, Android) bring to the
table?
Mobile operating
systems are going to radically change POS transactions. Both Apple Pay and Google Wallet work at retail
establishments that have NFC-enabled POS systems. This is a total of only
220,000 merchants, or less
than 3% of the market. The number of merchants is expected to significantly
increase this year with the upcoming October 2015 deadline requiring merchants
to convert from magnetic-stripe payment cards to the Europay-MasterCard-Visa
(EMV) chip card standard. A merchant that cannot accept NFC payments after this
date will be liable for any resulting credit fraud.
Another potential
product from Google is a POS system named “Plaso,”
which is currently being tested by Google employees. It leverages the Android
platform to notify retailers when a Plaso-enabled device enters an
establishment. Customers pay for goods and services at checkout by giving their
initials to the checkout clerk. While there is no guarantee that Plaso will
ever be released to the public, it is clear that mobile is changing how we pay
for goods and services.
Mobile operating
systems allow us to interact with our environment. While today this is somewhat
limited to smartphones, in the coming years, “mobile” will include wearables.
Samsung is already in the market and has its own operating system, “Tizen.” As
wearables take new forms and are adopted, it is likely that new mobile
operating systems will emerge that enable these devices to perform previously
impossible things.
Matt Gertler is the Head of Strategy at the Digital Currency Council
(“DCC”) and is pursuing his JD/MBA at USC. He is experienced in FinTech, having
worked for Venmo, Braintree Payment Solutions, and Earnest before joining the DCC.
If you have any questions, please tweet @magertler using, #APEXLV15, and they
may be included in a future post.
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