[Dave Birch] Deloitte, a management consultancy, have published a report called “is the retail payments industry heading for disruption?”. It looks to me as if it is based on the disruptive innovation concepts of Clayton Christensen (our favourite guru). I think this is a very useful way to look at the evolution of the retail payments sector — I have used the same analysis myself for a couple of years ago in a course I teach at the Visa Business School — and it can help with product and service development in very practical ways. Deloitte says that

Credit card companies are showing classic signs of “overshoot,” which makes them vulnerable to disruption, especially disruptive innovation.

I agree, but I think this is only part of the story, and the example of EMV helps to illustrate why.

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The transition from magnetic stripe cards to EMV chip cards has, I think, left many card portfolios caught between two stools. They have overshot a mass of consumers who don’t need (and are not prepared to pay for) any chip-based services as well as a mass of merchants who (in some cases incorrectly) don’t see the need to pay more in order to cut down other people’s fraud. Meanwhile, they have undershot a smaller number of more sophisticated customers who would like to use their chip cards to do new stuff and might even pay for it — I would happily pay $20 for a card reader I could plug into my computer so that I could log into my bank using my debit card if it meant that I never had to remember a password again and that Ukrainian fraudsters could not loot my account — if offered. Similarly, as the discussions with Aneace often come back to, they are also undershooting the merchants by not delivering additional payment-related value to them either.

I think what this all means is that the very idea of a single payment product (card product, in this case) for all customers and all merchants might be rather old-fashioned. Right now, it might seem quite annoying to have to choose between different products depending on who and where you are. But look into the mobile phone-based future: I wander into a coffee shop in Australia to buy a latte. I wave my mobile phone at the point-of-sale terminal: now the phone knows where it is, the issuer knows where the phone, the acquirer knows what merchant it is, and so on. The phone also knows what payment instruments it has available, my ranking of those instruments (based on which one gives me the most frequent flier miles) and other factors (eg, the balance in a prepaid account) that might be relevant. They are perfectly capable of deciding between themselves which specific instrument to use in these circumstances: instead of choosing a payment instrument, I will choose a payment strategy and let my stuff get on with implementing it. I’m not sure if the marketing guys in card issuers have taken on board that they will be marketing to my stuff, rather than me, in this future…

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

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