the thing about Taka Torimoto: Heís more likely to
remember his smartphone than his billfold. And that
spells opportunity for a whole raft of new players in
the lucrative payments industry.
41-year-old technical consultant with an engineering
degree from Georgia Institute of Technology, Torimoto
has paid for fast food with the tap of his phone and
sent money just as you would attachments in emails. His
father digitally sends the grandkids cash for Christmas.
No more checks.
voice rises with excitement as he talks about the new
possibilities. "Payments is one area that is going
in so many different directions."
the first time since the advent of credit cards, there
are new ways to pay that donít involve cash, check or
plastic. Most are built on top of the existing payments
system, but ó courtesy of that hand-held computer in
our pockets and purses ó offer new vistas for both
consumers and tech entrepreneurs.
clear that the mobile phone is the device that people
are going to be using in the future to pay," said
David S. Evans, chairman of the Global Economics Group.
"Itís not going to be a plastic card."
2017, Forrester Research estimates, Americans will spend
roughly $90 billion using a smartphone or other handheld
device, a more than seven-fold increase from the amount
spent in 2012. The firmís figures include mobile
remote commerce; mobile peer to peer payments and
remittances; and mobile proximity payments.
if its estimate is too optimistic ó as projections in
this arena have tended to be ó the pace at which
startups are emerging is already head-spinning: Stripe,
PayNearMe and WePay, among more than a thousand others,
fueled by billions of dollars in venture capital.
consumers, mobile payments mean greater convenience and
better security. For merchants and banks, they present
new opportunities to track you and target sales pitches
and rewards to you. And they give tech entrepreneurs a
low-cost entry point into the multi-billion dollar
why arenít already living in a post-plastic world?
part, because everyone involved in the chain ó
merchants, card issuers, traditional processors, tech
innovators and consumers ó is looking to maximize how
much money they keep at the end of the day. Sometimes,
the interests of two or more players align, but often
it out ó via market forces and regulation ó is
likely to make for a period thatís exciting,
bewildering, messy and frustrating. And right now, weíre
at an inflection point, where what emerged as a handful
of novelties is becoming a new way of doing business.
evident in the changes the incumbents are making. Banks,
payment networks such as Visa, MasterCard, Discover and
Amex, and the tech companies that serve them, such as
FIS and Fiserv, are scrambling to keep up.
2014, youíll see larger payments entities scramble to
accelerate the pace of their innovation to catch up to
these smaller and more nimble competitors," PayPal
President David Marcus predicted in a blog post.
smaller players will scramble to achieve the scale and
experience needed to compete in a global business,"
he wrote. "As a result, billions of dollars will be
at play in the payment industry, and 2014 will be a year
of game-changing disruption."
year, PayPal launched 58 new products, partly because of
new threats, according to a recent New York Times
earlier this year the e-commerce arm of eBay announced
PayPal Beacon, a Bluetooth device that reads payment
information from a smartphone. With that device, someone
like a restaurant server would no longer have to take
your card away from the table to complete a transaction.
in addition to a partnership with Discover, which lets
folks use PayPal in the checkout line at some of the
nationís largest merchants. PayPal has also recently
acquired progressive payment processor Braintree, which
has regulatory approval to move money nationwide.
marketing its services to mobile-based innovators such
as Uber, Airbnb and TaskRabbit, which facilitate
transactions between individual sellers and buyers of,
respectively, rides, lodging and doers of household
errands and other tasks.
we havenít even talked yet about bitcoin and other
cryptocurrencies, which operate in a parallel payments
universe, completely outside the existing system.
be sure, some of the innovations wonít stick.
and disruption is an inherently inefficient and lofty
process," said Matt Harris, managing director at
Bain Capital Ventures. He harkens back to the first wave
of dot-coms, with its rash of failures.
are at that now, at least in consumer financial
services," he said.
some of the experiments will succeed, and at least a few
will change the landscape for all of us.
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practice of paying others is at the psychological core
of who we are. It lets us buy, sell and, most
importantly, earn through our labor. It allows us to say
thank you in a tangible way.
anything can be a form of payment as long as it is
widely distributed, safe, accepted by both buyer and
seller, and regulated by a system of rules. Over time,
forms of payment have included cattle, wampum, notes
issued by individual banks (which were IOUs for gold and
silver held in their vaults), and currency backed by the
"full faith and credit" of the United States.
current system, in which we carry plastic cards that
identify us and vouchsafe our ability to pay the debts
we incur to the people who accept them as payment,
evolved in the 1950s and í60s.
understand who all is in the chain, first you have to
get hold of the process. Hereís how it works:
swipe your card, say, at your favorite deli counter.
Several different things happen almost simultaneously.
a card reader, the black box in front of the cashier,
scans the magnetic stripe on the back of your card. That
information is transmitted through an acquiring
processor, such as First Data or Total System Services
Inc. (TSYS), which sends your personal details to the
payment network whose logo is on the card ó say, Visa
company forwards the information to the issuer, such as
your bank, which makes sure you have enough money. If
you do, the issuer sends an authorization code back down
the food chain to the merchant in milliseconds.
money doesnít move quite as fast; itís transmitted
to the merchant in a settlement process that happens
performing its role in the dance, each intermediary
receives a small cut.
year, issuers, which tend to receive the largest cut,
earned an estimated $230 billion in transaction-specific
revenues globally, according to a report from the Boston
a part of that, merchants pay anywhere from 2 percent to
3 percent of the sales price to accept a credit card,
and 21 cents plus 0.05 percent of the transaction value
to accept debit cards, a rate thatís gone down because
of action by Congress.
want to step inside that system. In return for adding
something of value, such as a more seamless experience,
they want to receive something of value, either an added
fee or information about your buying habits that they
can parlay into money.
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Atlanta-based Sionic Mobile, which asks merchants to pay
a 1 percent transaction fee when customers pay with ION
Rewards. Today, shoppers can earn and spend those
loyalty rewards at roughly 25,000 stores nationwide. The
rewards program gives them an incentive to do more of
their shopping at those stores.
merchants (think: Starbucks) have jumped directly into
the fray, developing apps that generate codes you can
scan at the point of sale to complete a purchase.
is in that mix, an avatar of whatís to come. Heís a
former employee of Alpharetta, Ga.-based CorFire, which
helped Google create its first iteration of Wallet and
Dunkin Donuts build payments into its mobile app.
for his own usage of Wallet, arguably the farthest
mobile payments have crept in the real world, heís
barely touched it ó except of course for that one time
in a McDonaldís a year or so ago just to see if it
merchants donít yet have the technology to let him tap
his phone rather than swipe a card; others, even some of
the big-boxes, are reportedly turning the capability
the points you get on your credit card donít
necessarily get passed through in the same way. Yet.
year, in Torimotoís view, wonít be one of
breakthroughs. But he does expect spurts of innovation
cropping up across the payments horizon.
I feel like everything, right now, is almost like a hack
job," he said.
each successful hack accelerates the pace of change. Itís
just a matter of time.