Well, the short answer is YES. What I am confident to say is that these two acquisitions were not created by the fact that the CEO of NCR woke up one day and thought I must have those two companies. The reality is the payments industry is fundamentally moving to a new place; in fact it’s the world moving not just payments.
So why is the world changing, how, what is driving it and what does it all mean, for me the Payments Expert?
I am sure many people in the world’s elite will give better answers than myself, but I will give mine and try to explain how I connect it to many recent acquisitions such as NCR’s and perhaps more importantly the overall world of Payments. If I actually write this piece correctly then it should give some payments people more confidence in understanding, then predict what else is coming and even hopefully, open the opportunity for more to personally capitalise on it a bit more.
Firstly, why do I believe that I am in a better place to see this picture more clearly than others? Well, as CEO of PayX, our experts and I sit inside working day in day out with many of the top & different types of organisations in the Payments Ecosystem all around the world; including Banks, Processors, Vendors, Start-ups, financial analysts/advisors, Private Equity companies and institutional investors. We work worldwide and interestingly the cultural and economic differences do not muddy the waters – Payments really does seem to be a globally consistent business. At PayX, we see and are involved in a vast array of basic discussions in these organisations which then transform into strategies and actions. Again interestingly the basic discussions really are very similar no matter who we have them with. They include the likes of “Is there demand for what my business does today in the future?”, “Will Acquirer’s exist in the future?”, “Will the new players and new models take over?”, “What do tomorrow’s customers want?”, “I know the answer is Mobile but what do I do and when, how do I make money?”, “I must change but to what and how?” It is always those at very senior levels who are the most serious about these questions. I guess the first few times we were involved, we struggled as the questions seemed so vague and open. After being engaged in much the same discussions around the world constantly for several months, and even years now, it has got to be actually quite simple to understand the questions and even give reliable answers. The key is to recognise the question and answer it in terms of the new world and not the old world – more on what that means later.
So what is causing all this change?
It all starts with the rise of the Digital Native. All credit to authors like Don Tapscott and Brett King who have pioneered the concepts and the consequences of this foundational change. The bottom line is that the next generation of people in an increasing part of the world are born into an online world, i.e. they learn digital techniques before they even learn to speak – be it internet, mobile, Xbox or however you like to describe it. They expect, no actually they demand online. It’s not a desire for efficiency or a fashion, being online is a fabric of who they are. They do not understand nor behave with anything but online and it is not something that many older generations can replicate nor fathom. Think about a whole generation of the world being totally proficient with using email and using it all the time, then throw that thought away as old fashioned and think again, replace email with instant messenger because email is “waaay tooo slow and awkward!”. That is who the Digital Natives are.
The reality is that these Digital Natives are now of the age that they are running businesses on their fabric of understanding. The more they progress in life and the more successful they are, the more likely they are to be displacing traditional businesses that “just don’t get it”.
This is what is driving change in the world. The more Digital Natives become more predominant and the faster technology changes, the more exponential the change and the more radical.
In Financial Services and particularly banks, the foundation of sustainable banking is customer life management. Banks know (at least traditionally) that they don’t lose masses of customers through wrong products or poor customer service etc. – they call that churn and basically what they lose they regain from somewhere else, so typically it nets out as zero or negligible change over time. What they do care about a lot is capturing (excuse the word) young customers/consumers into the life cycle. The idea is the bank has most of its early consumers from before working life (not making a profit on them) through to ok profit on loans/mortgages etc. through to really good income on those that are successfully running businesses with them and then of course as people retire banks make steady income too. The problem is that banks today are seeing that they are not capturing young consumers (Digital Natives) like they expected, and when they examine it closer, they find they are not even able to engage with them. This disconnect is really worrying the banks foundationally and so they are looking to all channels, lines of business and approaches to engage with the entry consumers that are all so important to the banks’ sustainability. Looking at Digital Natives’ behaviour technology & mobile is clearly seen as a key engagement channel and so naturally Mobile Banking, and along with it consumer Payments, has therefore risen in its importance in the banks, not from a pure payments perspective but from the far bigger foundational banking perspective. Now the next step is more subtle. The top banks and their experts in Payments examining how to really win the attraction game with (Digital Native) consumers, realise that actually these consumers don’t want nor even think Payments per se but actually want digital commerce. They want and actually again demand, that all things commerce, i.e. trading value in or out, is done at a touch of a (mobile) button and its the effort spent on getting the commerce definition right that is important (“what” to buy/sell) – once that definition is made then the trading of the value (the actual buying or selling including the “payment” part) is to be seamless as it is considered an obvious and nonconscious step once the “what” is confirmed. The challenge to banks is significant and must be solved.
So all that means in summary is two things; 1.) Banks “need” engagement with Digital Natives to have a sustainable future bank (a big big statement) and that means utilising mobile and payments heavily, and 2.) Payments are actually not the challenge but how to keep bank involvement with payments necessary, but making it seamless inside of “commerce” is the challenge. To make matters worse banks don’t really get involved in consumer commerce today so the only way to get the connection is through the payments and expanding the relationships. The common question then is – “ok fine but what exactly is Commerce?” The answer in brief is that consumer commerce is the retail (physical and virtual) interaction with consumers for supply of products and services.
This next part is where it gets great for payments people. Banks today only really have an interaction with commerce through business to business relationships with Retailers (or in payments terms – The Merchants). Retailers and Merchants are the common face of commerce with consumers. Banks typically have multiple relationships with these companies (business banking, loans, cards, factoring, and of course payments merchant accounts) but banks traditionally have been distant suppliers delivering standard products/services rather than close partners really helping the Retailers and Merchants improve their business. Retailers in the new world are all struggling with the changing variables too and they typically operate on lower profit margins meaning they are more sensitive to change. Retailers need to be smarter in order to know their consumers and be able to provide better quality targeting, service and individual pricing. In order to do this they need to engage far more with consumers, they need to provide their consumers with more “Value Added Services (VAS)” to attract and better their lives. In the ecommerce world the tools to mine and target better profitability are there, retailers just need to become more aligned with the concepts, and more IT proficient to utilise them. In the physical world though retailers are still far from quality engagement with consumers. The merchants see their consumers using more electronic payments (card/contactless/mobile) and see that as a superb data capture point which could be mined like the ecommerce tools do. Unfortunately for many retailers the payments transactions disappear up to the bank and the quality of useful Management Information (MI), or in many cases “any” MI, is poor to say the least. Merchants believe that Banks have a wealth of information that could help them run their businesses better. Unfortunately even if some of the Banks agree, it is typical that the bank infrastructures and processes do not deliver well to Merchant desires. All in all, the physical commerce path today is fragmented from consumer marketing right through to payment and fulfilment. All parties are frustrated. One thing about Digital Natives is that they are far from patient yet they are resourceful – the result being bad news for any Retailer or Bank who does not make things intuitive and painless, when someone else does.
Of course in the perfect new world the consumer marketing is individually built by the retailer based on social medial profiling to attract the best customers and the life cycle of the consumer is managed based on personal behaviour. The physical experience with a Merchant is content personalised and made easy using MI and the payment and fulfilment is performed within an unconscious seamless set of events once the consumer has selected the “what” to buy. The great news for Payments is that a lot of the intelligence used in this new world comes from quality analysis of pooled information on the consumer which is collected through the sale and payment. Banks are in a superb position to service this need as they touch a large portion of consumer commerce behaviour, far larger view of consumers than Retailers do. The challenge of course is the banks to not only make sense of this but also to deliver value to their close business partners so it is a win-win for all. So to clarify from the Payments point of view; 1) get rid of the hassle of the physical actions of “doing” a payment, and 2) make sure the “big data” usage, analysis and power of the data is appropriately utilised by the Retailer/Merchant (and then consumer) to make the new world “Commerce” experience real. Real means retaining the consumers and increasing profitability – i.e. the foundation of running and growing a business
Even better for the Payments people is that the Banks truly “need” this wider play on payments to work. It is a crucial part of engaging with young and new consumers to get them into the start of the basic banking business life cycle, which if they don’t, threatens the whole existence of the bank. Translated that means Banks will throw big big money and power at transforming payments into a crucial part of commerce in the next few years.
Another key part of that “big data” bank analysis and engagement with its partners (merchants and consumers) utilising it, is that payments is as they like to say now ‘Omni-channel’. This means that the consumer (or business customer) wants to use any and all channels with a constant look, feel and capability and have a single coherent interaction with the retailer or bank. Not only does the consumer demand that, but in order for the bank to deliver to the “big data” need then the bank has to have that single “big data” view as well. Another superb statement for Payments people. Everyone has tried to do this “single customer view” for years and failed for a plethora of reasons from technologies not matured enough, budgets not sufficient right through to silo politics and top level commitment not being strong enough. Well now that the future life of the banks is at stake, the money is starting to flow and the commitment is there. We are already seeing this in real projects – tier 1 bank CIOs doing daily status calls on payments projects (P2P in the case I am thinking of) and when issues are identified he resolves them the same day. No politics, no barrier, just results – it is quite remarkable to ‘see the elephant dance’ as one of our top consultants called it! Banks around the world are already signing off budgets sometimes above $250m on these payments/commerce consumer experience transformation programmes and the world will see a wave of them in the next few years. It is either do this or get out of a foundational consumer life cycle management model. Again great for Payments people is that these budget numbers are very small to the consequences at bank level of not spending.
So let me summarise the banks’ perspective:
A one line the summary is – Payments has become the future lifeblood of sustainability for Banks and given it is today a siloed and legacy nest of infrastructures then it needs to be foundationally rejuvenated, it will be solidly funded, fast tracked and will have total top bank executive commitment to succeed. (Apologies it’s a long summary line!)
This is all amazingly good news for Payments people and in fact for the payments ecosystem. I just described the banks perspective which I would call the custodian of payments today (accepted PayPal and others now have massive market shares of payments too). When I talk about the ecosystem I start to describe the other 3rd parties involved in payments, everything from electronics suppliers, software, and managed service etc., basically anyone involved in assisting the custodians and their operation.
To me the story above is why you see these acquisitions by the likes of NCR of Alaric and Digital Insight. Many players see the picture and then devise a strategic plan from their own perspective to be able to play within a bigger picture as it ramps up. We are at the beginning of the payments DOT COM where the amount of money in play, invested, won and lost is going to be in the hundreds of billions if not trillions. It will attract start-ups daily (already happening) , cowboys and marketing/PowerPoint only solutions with no substance will be prolific (already happening), big ecosystem players such as (NCR, Wincor, ACI Worldwide, Fiserv, First Data etc.) will make substantial moves to transform their organisations and some will succeed, some will not. The transformation change will attract billions from the investment community (already happening example Bain Capital & Advent etc. for WorldPay) and this is only the start. The likes of IBM & HP who I think of owning the world’s infrastructure, will be wrapped up in all of this in a very big way too. The amount of change is going to be global and enormous. I guess you could say that Payments is just entering its adulthood stage joining the mainstream mega-world of commerce. The change will be fast, and full of DOT COM level opportunities and threats.
So Payments people strap yourselves in and get ready for the best ride of your life. For those that really know payments this is the time to really use your knowledge and trusted colleagues/3rd parties and help the organisations succeed. Many many people will be pretending they know and many people will buy what they think sounds solid but actually isn’t. There are going to be some spectacular successes and failures.
Of course a last plug for us at PayX; we see this picture very clearly, we have been involved helping shape it with many of the top players in the ecosystem for a number of years in its building, and we continue to be a trusted premium quality organisation that can be relied upon to advise and deliver. We see incredible good times ahead for PayX and look forward to working with you all.