Payments Innovation: Learn From the Experience of Others

Payments Innovation: Learn From the Experience of Others

Mobile wallets, peer-to-peer lending, credit card readers for smartphones, crowdfunding, new remittance services, online loan providers... there is no doubt that the payments industry is currently undergoing a rich period of innovation. It is telling that firms such as PayPal, Funding Circle, Kickstarter and Square are not just familiar names between financial services specialists, but amongst the general public as well.

The payments sector is now a crowded market and it's not just traditional financial institutions getting in on the act: mobile network operators are creating e-wallets; tech giants like Google, Amazon and Apple are entering the payments space; the card schemes are pouring money into innovation to retain market dominance; and a host of tech start ups are trying to persuade potential customers to switch to their innovative products.

However, not all these new products and services are going to be successful. In fact, the majority are inevitably going to disappoint their creators and investors.

While there are many armchair pundits predicting payment service X or Y to be the next big thing, I believe that the real insight comes from listening to those who have had success in payments before. With this in mind, I convene the Payments Innovation Jury every two years. This year's panel consists of 25 payments innovators from 14 countries and 5 continents. Each member of this select group has held executive roles at major payments organisations and many have had outstanding commercial success with their own payments companies.

The Payments Innovation Jury Report 2013 sponsored by Ixaris and Anthemis Group is the third study to be based on the Payments Innovation Jury's recommendations. The report covers a range of topics including where innovation comes from, technology trends, money and innovation, innovation within organisations and the media buzzword of the moment -mobile payments.

On the question of where payments innovation will come from geographically, the Jury believes that Asia will show the most innovation over the coming years with Africa, North America and Latin America following closely after. Europe will lag behind. Why is it the case that the emerging markets will show the most innovation? Well, because they have to. In some parts of Africa, less than half of people have bank accounts and fixed line telephone technology does not exist. This is the reason why payments projects like M-PESA in Kenya have been so successful. Most people there have mobile phones (not smartphones) but don't have access to traditional financial services. Paying through your mobile makes perfect sense.

Which sorts of companies will innovate the most over the coming years? Certainly not the banks if we are to believe the Jury. Some banks do innovate but most fear the risk of failure. Product development budgets are low in a time of straitened financial circumstances and most institutions don't have a risk taking mentality. The Jury believes that the best way for banks to approach payments innovation will be by partnering with innovative start ups or tech vendors which are less restricted in their capacity for innovation.

Unsurprisingly the Jury deemed the rise of smartphones/tablets to be the biggest tech trend driving payments innovation (although open payments APIs are another key trend). However, what is interesting is that the Jury believe 'mobile payments' (e.g. contactless/NFC payments or e-wallets) to be completely overhyped, based on the key argument that although NFC technology may become ubiquitous, it won't necessarily drive profit. We also haven't yet reached critical mass for mobile payments where fraud might become an issue: mobile payments volumes are too low for them to attract the attention of criminals. The Jury is perhaps cautious over the success of mobile payments because of security concerns.

Before committing to a project, a company must consider whether it is really capable of delivering ROI. Payments is a sector with tremendous potential for revenue but innovators must be sure they are filling a market need - otherwise they are creating a solution in search of a problem.

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