Payments evolve. Consumers adjust and quickly. We are in a growth window that should and will open up new opportunities over the next five years. Before any of our modern systems, there was the gold standard, where all money produced was backed by an equivalent amount of gold in our federal reserves. As a fun bit of history, most people refer to 1971 as the time The United States left that system. Actually, it was FDR, backed by Congress in 1933, that created a joint resolution where creditors could no longer demand payment in gold. Nixon’s move in 1971 simply stopped allowing foreign governments to trade dollars for gold in our federal reserves. Nixon was literally trying to secure the bag. Today, the bag is being replaced by a chain—the blockchain.
Ian Gertler– blockchain industry thought leader and founder of Symplegades–shared his perspectives. “Change is constant, even though many are apprehensive. Most value convenience and speed. Today, financial services extend beyond the economics of supply and demand, where security and trust reinforce a world of human connection (facilitated by technology rather than being replaced by it).” Gertler notes that this progression of financial services goes beyond money alone. He passionately stresses that it is quickly becoming the foundation of identity management, trust and authentication. This ongoing convergence of physical and digital presence and environments (think multiple metaverses) will touch all areas of life across the world (banks, healthcare, government, retailers, schools, individuals and communities).
In The Beginning, There Was Cash (And Credit)
Cash has long been on the decline with one UK study citing that cash transactions have decreased nearly thirty five percent at the start of the pandemic. Meanwhile, the wire transfer has been around since 1872 but you can argue the credit card, now easily accepted as a part of everyday life, was the first modern leap of faith in payments, debuting in 1950. At its onset, the idea of paying for something instantly with the promise that you pay back a third-party institution within the month, rather than right away, probably seemed even more foreign than cryptocurrency does now.
The Rise of Digital Payments
The initial desire to make purchases online necessitated PayPal, mostly to meet the new demand for secure transactions of online auction sites like eBay (which acquired PayPal in 2004). This grew larger even if online retail did not grow as fast as some expected over the decade. Square, CashApp, and Venmo all also were born later out of necessity. People started using less cash and it created a gap where some small merchants weren’t properly equipped to take cards. There would be many situations like wanting to pay a contractor, going to a high school football game where preferred payment methods didn’t match what was being accepted. Large POS systems were cost prohibitive for SMBs and certain operations were too mobile to have them. Square jumped into that space, allowing any small contractor to easily accept payments and signatures on their phone.
Venmo, CashApp, Zelle, jumped into the other, interpersonal gap, in payments over the past five years. If people aren’t carrying cash, they need to quickly and easily trade money, pay for their part of the pizza, and more. These offerings are already expanding into a middle space where PayPal and them compete now when it comes to online purchases. Expect more of that convergence.
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Payments Latest Players: Crypto and the De-centralized Blockchain
The Lakers will now play at the Crypto dot com Center, formerly Staples Center. Money is flowing into crypto. Some will argue that the initial purpose of a decentralized blockchain was to level the playing field between banks, governments, and the general public after the housing crisis and Occupy Wall Street. For those that use it regularly, it is the ultimate, unbiased, trust-based system. Each transaction is built upon a ledger that is checked and double-checked by thousands globally to verify the authenticity of a transaction.
Perhaps an apt comparison to cryptocurrency is electric vehicles. We’ve had the technology since the 1980s to produce a quality electric vehicle but didn’t have the industry appetite to change the system or infrastructure. Companies were making money, people were buying cars, hence no change was demanded. Tesla disrupted just enough, sales of new gas-powered vehicles dipped just enough and car companies knew a change was necessary to gain market share in a new category or become Blockbuster. Giants like Ford, GM, Volkswagen, and others almost exclusively advertise their new and upcoming fleet of electric vehicles.
There may need to be a similar event for cryptocurrency. Right now, built off the massive success of pandemic Robinhood traders, Bitcoin and other cryptocurrency are functioning as a stock. People are making or losing money on its fluctuation but it can’t be used easily across retailers or online. Someone walking into a Walmart or buying something at Banana Republic isn’t using it, yet. It’s coming. It’s inevitable, just like electric vehicles.
The Future of Payments
Where we are still most inefficient is B2B sectors and legacy industries. While the general consumer has Venmo, can pay for things quickly, and has a multitude of methods, other industries have been slower to adapt. This is common in B2B. It’s why companies like Salesforce, Adobe, Slack, and others were able to have so much success in the 2010s by creating faster offerings in CRM, CXM and workplace communications for businesses that kept pace with consumer advancements.
We are already seeing this same pattern in payments. MeridianLink, which creates digital lending solutions, went public in July valued at over $2 billion. They partnered with podcast host and financial expert Jim Marous to produce the Future of Digital Lending Report that shows just how rapid the adoption of digital payments and offerings has been post-pandemic in lending.
One of the world’s largest companies, $64 billion fintech giant FIS, has been using its resources to create a bundled future of payments. They created their own real-time payments network, RealNet, which in layman’s terms helps B2B transactions happen instantly and not in 30, 60 or however many days. They created a B2C shopping cart solution, GoCart that eliminates redirects, pins, and passwords so retailers will have fewer abandoned shopping carts. That kind of current friction usually accounts for half of abandoned online carts and lost retail revenue.
Their CEO Gary Norcross is following a similar path like Adobe and Salesforce where they are bundling services for banks and retailers that puts everything B2B, B2C, and beyond into one enterprise solution for all things payments. In their earnings call last month, an interaction between FIS and JPMorgan Chase made the growth of fintech as a whole apparent. Norcross was asked about a shift from point solutions to bundles and said,
“…we now have completely completed our transition to the cloud. So we’ve made that migration, and we’re getting all the benefits of the cloud platforms that are available. We leaned in with next-generation application stacks, and we talked a lot about that through componentization, whether it’s Modern Banking Platform, whether it’s Payments One, whether it’s Digital One, whether it’s NAP, the list goes on and on. So now the next phase is how do you bring that together and weave that together to a one-stop place for innovators, large conglomerates, anybody looking to take advantage of various capabilities in the open market, and we see it as a huge opportunity.”
But the really interesting byproduct of something like RealNet is a potential use case. Most gig economy workers do not get paid instantaneously. Your Uber or Grubhub driver is most likely being paid weekly. With something like RealNet, payroll could instantly change. For a culture that is already used to transferring money instantly via Venmo and other channels, we haven’t thought to fundamentally challenge that being paid daily or after every job could really help people living paycheck to paycheck have less stress and create more convenience. The multitude of things being created right now in fintech could lead to more growth, change, and convenience than in any period since 1950.
It won’t be perfect in the short term. You still might know one person that only uses CashApp and you use Venmo. Your WiFi might crash when you are being redirected to PayPal to pay for something. Payroll still isn’t vastly different than it was in the 1970s with a direct deposit but know that the next big change probably won’t be using Bitcoin at McDonald’s (although that would be fun) but more likely it will be in making sure payments are seamless and without friction whether it’s B2B or B2C. Look forward to a not too distant future where everything payments, even the really hard ones right now, function like an Amazon Buy Now button — without a second thought and instantaneously.