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With all the innovation in technology and business as well as new consumer behaviors, it’s sometimes difficult to separate what will shape the future of payments from what is just hype. By closely examining “innovation clusters” — that intersection of new technology and consumer simplicity that signals that a payment innovation is ready for prime time, the picture can become a bit more clear.
We see hundreds of great ideas, but only a few have the right combination to get traction and scale right now. With that in mind, here are a few predictions for the payments industry in 2012.
Mobile payments continue to skyrocket
We got a taste of mobile payments growth in 2011, and this growth will continue. The mobile industry is shifting into “third gear,” with smartphone penetration reaching global scale and well on the way to becoming the dominant connected device for 2 billion+ people over the next few years. Add mobile innovations like the iPad, which has already become the fastest adopted electronic device in history, and mobile is really hitting its stride. The future of computing is happening now, and quickly reaching a level of scale to enable global innovation.
Although scale is impressive, the true power of the connected mobile device lies in how dramatically it is changing consumer behavior and disrupting existing franchises. Use an app like Uber to get a town car, and you never do it the old way again. The new Nordstrom iPad App replaces a salesperson with a whole new in-store experience. Living Social can fill a restaurant in hours with a mobile offer, allowing local restaurants to skip the process of building a website. Payment helps accelerate these models through convenience and accessibility and, in turn, is forced to innovate itself to keep up.
Don’t think that mobile devices will be your future identity? Try spending an hour walking around without your phone, wallet, or keys. I barely made it to the end of the block before the panic set in. That was not the case just two years ago.
A fuller integration of the online and offline commerce worlds
When we talk about the blend of online/offline in terms of commerce, we tend to focus on the ability to find local inventory or scanning a product in store. In truth there is much more happening here than that. In 2012 we will see a rise in virtual currencies and the ability to use them to pay for “real” goods. Imagine paying for groceries at Safeway with Facebook Credits or using extra frequent flyer miles for that cup of coffee at Starbucks. If you are 15 years old with no credit card or bank account, this future needs to be here yesterday, and retailers looking to attract the young digerati, who already switch seamlessly between their online and offline lives, will welcome virtual currencies with open arms.
Social commerce has seen some exciting developments recently that show more ways that the online and offline worlds are becoming more closely integrated. We just watched Louis C.K. disrupt the media industry by profitably producing and selling a comedy special directly to his audience through his website, clearing more than $1 million in 12 days. Zynga just went public at a multi-billion dollar valuation, thanks to its ability to sell digital tractors and barns to its ever-expanding user base. It’s not hard to imagine more social commerce innovation, such as person-to-person payments of non-cash currencies (“Help me fly to visit my mom by lending me your miles”) or creating massive fundraising movements (“Take a photo of my charity road race number so you can donate directly to my cause”). The possibilities seem endless — and are incredibly powerful if you think about it.
As our online and offline worlds continue to merge, the war of commerce will land right on the doorstep of small merchants. In early December, Amazon offered to give consumers a store credit of up to $5 if they used the Amazon Price Check app to scan in the price of a product in a physical store. And that’s only the beginning. Small merchants will need to adapt, while at the same time making sure the online world doesn’t drown them in fraud. Louis C.K. isn’t crazy to go direct to his fans — those who don’t know their customers and communicate with them regularly will take a beating from competing on margins in this connected economy.
Birth of alternate commerce devices
I’m a big believer that a key driver of payment innovation is going to be the enabling of alternate commerce devices. We’re seeing requests for payment capabilities on everything from gas pumps to Laundromats. As all devices become “smart and connected,” it provides more consumer choice and enables the digital wallet in the cloud to show its true value. I know we all can’t wait for the day that we don’t have to clip coupons and remember loyalty card numbers, and our wallet intelligently figures out how you should pay for things. 2012 will see this come to life in many forms, and the “a-ha” moment around digital wallets will make sense to many. As payments move to the cloud, essentially anything with an “on” switch and an IP address can become a payment device. Think about Samsung’s Wi-Fi enabled refrigerator or cars from manufacturers like Cadillac and Audi. It’s a small jump to turn them from Internet enabled to Internet-payment enabled. And, this experience is already making its way into our living rooms with t-commerce (commerce from your television).
I think 2012 is also going to be the year where t-commerce will happen. Yes, it’s been talked about a lot, but the pieces and players are beginning to fall into place more so than ever before. eBay’s recently updated mobile app for the iPad includes the ability to “Watch with eBay,” so I can watch my favorite sports team on TV and buy the latest jersey, all from my couch. (Note that PayPal, my company, is part of eBay.) By this time next year, you should be able to buy from your TV as easily as changing the channel. Scary to imagine, but you would do it, wouldn’t you? If a signed Jimi Hendrix guitar popped up for auction while I was watching his biography, I’m not sure if I could control myself.
These are exciting times for consumers, and it’s bringing a ferocious level of change to a payment industry that quite frankly could use it. 2012 will provide enough innovation clusters to give this industry a good shake. It’s exciting to have a front row seat!
Scott Dunlap serves as the VP of Emerging Opportunities at PayPal, exploring new technology and user experiences for payment, mobile commerce, virtual goods, virtual currencies, deals and couponing, multi-channel commerce, point of sale integration, analytics and risk management.