Achieving The Elusive “10x Factor” In Payments Innovation

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Originally published May 6, 2014 in TSYS n>genuity Journal   With startups galore, how will new innovations gain traction? And who is leading them? With 73 mobile payment startups in the first three months of 2014, it’s obvious that mobile payments are a hot topic.  But, the problem with mobile payments is a perennial one: […]

Originally published May 6, 2014 in TSYS n>genuity Journal


With startups galore, how will new innovations gain traction? And who is leading them?

With 73 mobile payment startups in the first three months of 2014, it’s obvious that mobile payments are a hot topic.  But, the problem with mobile payments is a perennial one: new payment types hardly ever succeed.  History is littered with failed payment approaches including Pay by Touch, Mondex, and contactless cards.  And the jury is still out on today’s mobile wallets including ISIS (mobile wallet founded by three large U.S. telephone companies), Google Wallet and Merchant Customer Exchange (MCX, a wallet founded by a group of large US merchants).  The fact is, the well-established legacy payment infrastructure that we enjoy in North America is hard to beat. 

Displacing cards is a tough proposition
It’s very hard to improve the speed and convenience of swiping a payment card.  Ironically, mobile technology has even served to prolong the life of 300-year old paper checks by making checks easier to deposit using cell phone cameras. 

According to Andy Grove, former Intel CEO, for a change to achieve mass adoption by consumers, it must be at least ten times better than consumers’ current experience—something he referred to as the “10X” factor.  How have payments innovators achieved the 10X factor?  Looking at some successful recent payment innovations reveals the common denominators for payments innovation success: the “Three E’s”:

  1. Easing checkout
  2. Eliminating friction
  3. Enabling marketplace

This trend is noted by the latest research.  For example, according to Capgemini’s World Payments Report 2013, origination players, those that enlist customers while they go about their daily life, are embedding propositions to trigger commercial transactions from anywhere. Achieving one or more of the Three E’s ensures that the payment approach meets an unmet consumer need, or improves experience enough to drive behavioral change. This helps ensure that people will want to use the service. Let’s look at some of the more successful payment innovations and see how they achieved the Three E’s.

  1. Easing checkout
  • Starbucks: more than 14 percent of all Starbucks transactions in the U.S. are now made with a mobile device.  Starbucks achieved this phenomenal level of adoption with an intuitive, easy-to-use mobile app that is faster than fumbling for cash and is coupled with Starbuck’s loyalty card.
  • Loop: Loop solves the “fat wallet” problem by allowing users to store every payment, loyalty and identity magnetic stripe card into a mobile app, then interacting with the any point of sale device in the world using patented Magnetic Secure Transmission technology to send out a burst of data that tricks POS terminals into thinking a card has been swiped. The fob passes along the same card data that swiping a standard card would, but users can now carry a single device to replace almost every card in their wallets.
  • OpenTable: OpenTable provides demonstrable value to restaurants with its tool allowing potential diners to search, rate and make reservations.  Now consumers can use OpenTable to pay the bill. Rather than waiting for a check or, worse yet, being late for the theater, with the new OpenTable payments feature, you will be able to tap to pay – and be on your way.
      2.  Eliminating Friction
  • M-Pesa: the Kenyan mobile money system is the most successful and arguably most famous system of its type in the world.  A textbook example of eliminating friction, M-Pesa was initially conceived to solve the problem of domestic person-to-person funds transfer.  Before M-Pesa, the most common way a worker could send money home to his village was by bus service. M-Pesa literally saved people from highway robbery.  After a successful launch including thousands of cash-in and cash-out agents, M-Pesa rapidly expanded into point of sale proximity and other person-to-person payments, such as taxi payment.  M-Pesa is now used by more than two thirds of Kenya’s adult population.
  • Amazon 1-Click Payment: what’s worse than typing 23 digits, your name and address onto a tiny screen, pressing “go” and then having to type it all over again because you made the inevitable keying error?  Amazon 1-Click eliminates that problem securely through its patented and highly secure 1-Click Payment method.
  • Jamba Juice and PayPal Order Ahead: PayPal is always on the look-out for ways to eliminate commerce friction with mobile technology.  Its Order Ahead service, first deployed with Jamba Juice, imbeds payment into the experience of ordering your favorite drink before arriving at Jamba Juice, and letting the customer pick-up her drink without having to stand in the predictable long lines.

      3.  Enabling marketplace

  • PayPal and eBay: One of the most exciting recent developments is creating trust in marketplaces, and PayPal with eBay is the poster child for that insight. PayPal achieved a viral level of success by enabling commerce between two strangers who never meet face to face – a type of commerce that had been impossible before PayPal. 
  • Uber: This car service mobile ordering system is a more recent phenomenon which creates trust in a different kind of marketplace.  Incorporating best practices like rating systems and frictionless payment, Uber users are more likely to use a car service because they don’t have to make sure they have enough cash to pay the driver, and because of the system’s success in ensuring reliable on-time pickups. 
  • Airbnb: A service for people to rent out lodging, the service is successful because it leverages social media and community ratings in a manner similar to Amazon and eBay. 

Don’t expect a mobile slow-down
There will continue to be a proliferation of new alternative payments approaches. The winners will be chosen by consumers from among the payment options that merchants offer.

A successful new payment method has to satisfy an unmet need, or offer an improved experience that has enough value to drive behavioral change. These will be the game changers we believe will drive innovation. Remembering the Three E’s will be vital to the success of any new payment innovation. 

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