Some people don’t really understand the big picture around innovation, and how it takes inventions and turns them into sustainable new value-adding processes. Here’s one example.
Last Friday, Congressman Jesse Jackson Jr. (D-IL) took to the floor of the House of Representatives to decry the iPad as a job killer, as people are using the device to read books rather than buy them from bookstores.[From Lesson to Congress: iPad Doesn’t Kill Jobs, Government Does – Gary Shapiro – The Comeback: Innovation Economy – Forbes]
But wait a minute: surely books were destroying jobs in the scribe industry. Jesse’s job creation scheme ought to be banning books, not praising them. Anyway, many popular books are written by non-Americans—why should American’s hard earned dollars flow to J. K. Rowling’s UK bank account? Hold on though—scribes were destroying jobs in the storytelling industry. Jesse needs to attack the problem at source: we need to stop people from reading and writing. Unless we’re going to do that, we should instead welcome and encourage innovation because we need an economy that adds more value. I’m not smart enough to know what that means for individual companies, although I am lucky enough to have a job that means I can experience many different organisations approaches and learn from them.
In 1994, the dominant global provider of mobile handsets was Motorola: its shares were trading at an all-time high and it was seen as an outstanding innovator and even described by a senior consultant at A. T. Kearney as “the best-managed company in the world”[From Why Nokia’s Collapse Should Scare Apple – Patrick Barwise and Seán Meehan – The Conversation – Harvard Business Review]
That’s the thing about technology-based innovation: it doesn’t follow the smooth distribution of best practice that is the realm of management consultants. It didn’t matter if you were the best urine trampler in the land, when a German chemist synthesised urea you were on the scrapheap. It doesn’t matter how good your printing company is when e-book sales exceed printed book sales.
Motorola missed most of these market trends, was slow to invest in digital (it was a classic victim of the innovator’s dilemma),[From Why Nokia’s Collapse Should Scare Apple – Patrick Barwise and Seán Meehan – The Conversation – Harvard Business Review]
This “innovator’s dilemma” analysis, which says that it’s just too hard for companies to invest in their own disruptors, suggests that it may be difficult for the incumbents in the payments world to innovate in the right direction. The case study that everyone is focused on right now is mobile.
Bill Gajda, Visa’s head of mobile innovation, is confident that Visa and the other card networks, in conjunction with banks, will be at the center of mobile payments in the future.[From Leading Mobile Payments | Visa’s Blog – Visa Viewpoints]
I understand where Bill is coming from, but have to admit that I can see other scenarios as well, where Visa interconnects non-bank, sector-specific, mobile-centric payment accounts rather than only bank accounts. It must be said though that Visa have made a number of substantial investments in the mobile payments space and have been actively developing products and services. Not all observers think that this strategy is optimal.
Visa for you to execute in this space, spin out Bill Gajda and team to build a new network. You certainly have the capital and intellectual horsepower to do it.. Don’t think of mobile as a service on VisaN[From FinVentures]
In the medium term, the existing players (by which I mean banks, the international schemes and processors) will find it more and more difficult to compete with IP-based alternatives because their cost base is just too high. Therefore, it might make sense for a company like Visa to start building one of these, but use their experience to build a better one. Alternatively, they could look for someone else who is building one, and then invest in it. This is what they have done recently with Square (Visa invested an unspecified amount in Square in April 2011). Square is much in the news at the moment, but what is actually interesting about it? As I wrote before, it is not the stripe reader, it’s the niche…
So where is Square seeing the most traction? Without a doubt, small businesses, independent workers and merchants comprise most of Square’s rapidly growing user base.[From Square Now Processing Millions Of Dollars In Mobile Transactions Every Week | TechGoo]
In a way, this real-world PSP is a small but interesting niche play in a large acquiring market, and as we’ve advised our clients for many years that the mobile-phone-as-POS meme will be more revolutionary than the mobile-phone-as-card meme, it’s an existence proof of new opportunity.
While merchants have to qualify for the app, Square’s qualification rules are more relaxed than those of standard credit card processors.[From Square Now Processing Millions Of Dollars In Mobile Transactions Every Week | TechGoo]
Never in a million years would I consider signing up as a merchant with my bank. Yet I went into an Apple Store in the US last time I was there and bought a Square (actually, we bought eight of them to play with). It took a couple of minutes to sign up on the web and I accepted my first payment (in Stuart Fiske’s iPad) a minute later!
Pretty cool, although naturally I was outraged when I got off the plane in the UK and discovered that my lovely Square only works in the US. Anyway, Square were making me think about innovation again yesterday. They just announced their wallet product, Card Case. Once you’ve paid with your card at a retailer once, Square’s server stores the card details, so from then on the merchant has only to identify you. They can even do this without you having a card or phone, because they can look up your picture (although I have good reasons for thinking that this won’t scale).
The obvious idea is to make payments “frictionless”—easier and faster for the user and merchant. (Assuming that the app is fast enough that it is actually more convenient to pay this way than just to have your card swiped. Wireless data networks aren’t always reliable, etc.)[From Jack Dorsey’s Square Starts Its Bid To Kill The Credit Card]
Indeed, they’re not. But imagine what this will look like with NFC in place: you have an iPhone, the merchant has an iPad, you place your iPhone on the iPad, they beep, done. And it’s a card present transaction. Now, we all know that Square Card Case isn’t the only wallet game in town, because anyone with any sense is already developing a wallet proposition since that’s what the merchants want. Right now we are helping clients in the financial sector and the telecommunications sector with ideas in this space. Visa, being smart, are of course already in the game.
Fourteen US and Canadian banks have signed up for the launch later this year of a multi-platform digital wallet that can be used for e-commerce, m-commerce and mobile contactless transactions and includes mobile payment, NFC and coupon capabilities.[From Visa unveils mobile wallet plans • NFC World]
But now continue the Square-related thought experiment. Suppose that Square are successful at signing up lots of people, so that people don’t want an AT&T wallet or a Citi wallet or a Visa wallet? If all of the transactions are now between the secure element in a mobile phone, via Card Case, to the secure element in another phone, via the Square app, then aren’t Square at some point going to get rid of intermediaries and just move the money from one bank account to another, in a retailer-centric decoupled debit proposition (which won’t be called debit, because of Durbin) that is proactively marketed by the retailers? That really would be disruptive.
just as the iTunes store completely upended the sale and distribution of digital media, Square just might upend the entire real-world payments industry—whether it meant to or not.[From How Jack Dorsey’s Square Is Accidentally Disrupting The Entire Payments Industry | Fast Company]
So, in response to the e-mails I’ve had over the last couple of days, let me say that the Square trajectory confirms the strategic advice that we gave our clients some years ago (which is great!) and that is it not a “rival” to NFC but an exploiter of it. Square might be a niche in the payments business, but it shows a really interesting innovation path that sees payment cards going the way of books, and probably without Jesse Jackson Jr. to plead their case. That doesn’t mean that Square will succeed, but if they don’t, them someone else following that same path will.
These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers