What’s the alternative?

[Dave Birch] There are plenty of extinct “alternative” payment mechanisms already: c2it, Yahoo PayDirect, Billpoint, eMailMoney and so on. And there are a few that survive. But where does the label come from? I saw the comedian/musician Tim Minchin tell an excellent joke when I went to see him earlier this year. I paraphrase, but the joke was essentially:

Q. What do you call an alternative medicine that he been tested and shown to work in double-blind clinical trials?

A. Medicine.

Quite. So when we call something an “alternative” payment method, what do we mean? What is it the alternative to? I made a note to ask a couple of people about this last year, when I read that

During this year’s holiday shopping season we project $7.8 billion will come from alternative payments versus $35 billion from traditional online payment methods.

[From Payments News: Javelin’s 2008 Online Retail Payments Forecast – November 10, 2008]

The forecasts for the coming holiday season will be out soon, and they’ll be even bigger despite the recession, and I never got round to asking the question then, so I’m going to ask it now. How are payment methods that account for more than 20% of the market “alternative” in any sense?

The benchmark, I suppose, used to be Visa and MasterCard so that alternative just meant “not Visa or MasterCard”. It then moved on to mean that unless a payment mechanism was accepted by every merchant that accepted both Visa and MasterCard it was labelled alternative. Neither of these seem right to me any more, and although I wouldn’t have called Revolution Money alternative (since it was a straightforward card product, albeit with a different business model) it certainly isn’t an appropriate categorisation now that it’s been bought by Amex for $300 million.

I always had a soft spot for Revolution. As this extract makes clear, one reason why I was interested in the product originally was that it embodied something that I have often thought to be a key component of next-generation payment products: privacy,

Let’s get identity out of transactions that don’t need it. Here’s someone who’s having a go: Steve Case (of AOL fame) is launching a new credit card to compete with Visa and MasterCard.

[From Digital Identity Forum: Where you don’t need identity, don’t use it]

When I again wrote about Revolution last year, it was the context of a discussion about innovation.

Sooner or later, technological change has to come, and that will inevitably mean new business models. This is a point made by the people at Revolution card: “What I wanted to do was create a payment platform that leveraged modern technology and the Internet essentially so that we could give the power of how to transact back into the consumer’s hands and back into the merchant’s hands”.

[From Digital Money Forum: More on innovation]

I wasn’t predicting whether Revolution would succeed or fail (I’m not smart enough for that) but was reflecting on the fact that it needed an organisation outside the payments mainstream to begin to capitalise on new technology, even if the new technology is available to all. Anyway, I agree wholeheartedly with Scott’s summary. While it’s true that Amex paid not much more for Revolution than had been invested in it, that doesn’t mean that Amex could have spent the money themselves to produce a similar product. Life doesn’t work that way.

One of my favorite authors, Clayton Christensen, has pointed out that truly disruptive products must be developed away from the “mother ship” – or they simply won’t survive.

[From A Revolution in Payments — Payments Views from Glenbrook Partners]

Quite. I hope that Amex build on the key innovative features of Revolution (in particular, I want a “stealth” Amex card with no name printed on it, no embossing etc) while they use them drive further development of the basic card-based product.

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