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October 2014 
PAYMENTS & 
CURRENCY 
THE FUTURE OF
2 
Introduction...............................................................................................3 
Trend dri...
3 
INTRODUCTION 
It seems that suddenly most aspects of the established payments system are on the verge of 
disruption. A...
4 
METHODOLOGY 
This report is the result of quantitative, qualitative and desk research conducted by 
JWTIntelligence thr...
While technology is opening up myriad possibilities in payments and forms 
of currency, the mobile wallet and other innova...
6 
TREND DRIVERS 
MILLENNIAL 
MINDSET 
Millennials moving away from traditional payment methods: Digital natives are shift...
7 
TREND DRIVERS 
MILLENNIAL 
MINDSET 
(cont’d.) 
Millennials more open to new ways to pay: In tandem with their shift awa...
8 
TREND DRIVERS 
Recent high-profile data breaches have 
severely impacted consumer confidence in the 
payments system an...
9 
TREND DRIVERS 
[Alternative currencies] usually emerge in periods of economic 
uncertainty and in small, tightly knit c...
Digital technology is opening up new ways to pay, many of them more 
seamless and secure than traditional methods. Foremos...
11 
NEW WAYS TO PAY 
MOBILE 
WALLETS 
Broadly speaking, mobile wallet users swipe, tap, wave or otherwise prompt a smartph...
12 
NEW WAYS TO PAY 
MOBILE 
WALLETS 
(cont’d.) 
Alipay Wallet: The financial-services affiliate of Alibaba, China’s bigge...
13 
NEW WAYS TO PAY 
PayPal: PayPal launched in mobile with a 
simple digital wallet app in 2011 that could 
send and rece...
14 
NEW WAYS TO PAY 
Image credits: Paym; Venmo 
MOBILE 
WALLETS 
(cont’d.) 
Peer-to-Peer Payments 
Various startups are l...
15 
NEW WAYS TO PAY 
BRANDED 
APPS 
As banks, tech giants and new entrants vie to dominate in the mobile wallet space, Sta...
16 
NEW WAYS TO PAY 
Fast food apps: Quick service restaurants, particularly fast food chains, are a natural fit for mobil...
17 
NEW WAYS TO PAY 
Image credits: MyCheck; Heritage Bank 
Dine and Go 
Some see a role for payment apps beyond the fast ...
18 
NEW WAYS TO PAY 
Glasses: Some mobile-payment players are betting on consumers paying with a gesture, tap or voice 
co...
19 
NEW WAYS TO PAY 
Wristbands: For people willing to link up credit or debit card information, smart wristbands may 
hav...
20 
NEW WAYS TO PAY 
Image credit: Artefact 
Finally, Artefact, a company that designs technology products, has developed ...
21 
NEW WAYS TO PAY 
Vein patterns: 
Several companies 
are touting payment 
methods that rely 
on a palm’s unique 
vein p...
22 
NEW WAYS TO PAY 
PayPal began in 1999 as a way for people to email payments to each other. Eventually, services 
inclu...
23 
NEW WAYS TO PAY 
The gradual migration from cash and card payments to digital and mobile payments will require 
the re...
24 
NEW WAYS TO PAY 
Cater to Millennials: As outlined in the drivers section, Millennials will push the transition to 
ne...
25 
NEW WAYS TO PAY 
WHAT IT MEANS 
FOR BRANDS 
(cont’d.) 
Compel consumers to opt in: Convenience is a good starting poin...
26 
NEW WAYS TO PAY 
Image credit: PayPal 
WHAT IT MEANS 
FOR BRANDS 
(cont’d.) 
Security and privacy above all: The payme...
A growing array of alternative currencies—ranging from cryptocurrencies to local 
currencies, branded currency and social ...
28 
NEW FORMS OF CURRENCY 
Image credits: Tilt; COjacks; Brixton Pound 
NON-FIAT 
CURRENCIES 
Dollars, pounds, euros, peso...
29 
NEW FORMS OF CURRENCY 
Image credit: Wikipedia 
CRYPTO-CURRENCIES 
In 2009, an entity operating under the alias Satosh...
30 
NEW FORMS OF CURRENCY 
CRYPTO-CURRENCIES 
(cont’d.) 
…are here 
to stay 41+26+19 41 
26 
19 
28% 
…are a good 
investm...
31 
NEW FORMS OF CURRENCY 
CRYPTO-CURRENCIES 
(cont’d.) 
Businesses accepting bitcoin: Experts place the number of busines...
32 
NEW FORMS OF CURRENCY 
ALTERNATIVE 
BRAND 
CURRENCIES 
Brands creating alternative currencies is nothing new: For year...
33 
NEW FORMS OF CURRENCY 
Image credits: Birds Eye; Marc Jacobs; Weight Watchers 
ALTERNATIVE 
BRAND 
CURRENCIES 
(cont’d...
34 
NEW FORMS OF CURRENCY 
Image credit: Walkers 
ALTERNATIVE 
BRAND 
CURRENCIES 
(cont’d.) 
Vending machines: Along with ...
35 
NEW FORMS OF CURRENCY 
Image credits: Sharewall; Nokia 
ALTERNATIVE 
BRAND 
CURRENCIES 
(cont’d.) 
Companies Facilitat...
36 
NEW FORMS OF CURRENCY 
ALTERNATIVE 
BRAND 
CURRENCIES 
(cont’d.) 
Incentivizing good behavior: Some brands have turned...
37 
NEW FORMS OF CURRENCY 
ALTERNATIVE 
BRAND 
CURRENCIES 
(cont’d.) 
Branded currency: For years, loyalty has translated ...
38 
NEW FORMS OF CURRENCY 
*Source: U.S. Department of Commerce 
Image credits: Nestlé; JWT 
ALTERNATIVE 
BRAND 
CURRENCIE...
39 
NEW FORMS OF CURRENCY 
Image credits: Burger King; Montana’s Cookhouse 
ALTERNATIVE 
BRAND 
CURRENCIES 
(cont’d.) 
• A...
40 
NEW FORMS OF CURRENCY 
Image credit: Westin & New Balance 
In tandem with the emergence of multiple new ways to pay, t...
41 
NEW FORMS OF CURRENCY 
Image credit: McDonald’s 
Turn loyalty into instant currency: Technology has greatly improved l...
Disruption in the payments and currency sphere is opening the way for new 
players to act as intermediaries between consum...
43 
NEW PAYMENT PLAYERS 
*Source: Accenture’s 2014 North America Consumer Digital Banking Survey 
Image credits: Millicom;...
44 
NEW PAYMENT PLAYERS 
Image credits: Google; WeChat 
BRANDS AS 
FINANCIAL 
INTERMEDIARIES 
(cont’d.) 
Tech giants: As w...
45 
NEW PAYMENT PLAYERS 
Image credits: Coles; GoBank 
BRANDS AS 
FINANCIAL 
INTERMEDIARIES 
(cont’d.) 
Retailers: Retaile...
46 
NEW PAYMENT PLAYERS 
Fintech Innovators 
The payments space is moving at incredible speed, with new technologies and s...
47 
NEW PAYMENT PLAYERS 
The financial space is ripe for disruption. Consumers are growing open to the idea of nonfinancia...
48 
NEW PAYMENT PLAYERS 
Pursue the underbanked opportunity: In some emerging markets, mobile providers are offering 
fina...
October 2014 
APPENDIX
50 
APPENDIX 
MORE 
ABOUT OUR 
EXPERTS AND 
INFLUENCERS 
Deborah Baxley, consulting services principal, Capgemini Financia...
51 
APPENDIX 
APPENDIX 
CHARTS 
FIGURE 1F 
MILLENNIALS COOL ON 
CASH AND CREDIT (U.K.) 
Percentage of British adults 
who ...
52 
APPENDIX 
Percentage of British adults who agree 
“With today’s technology, it doesn’t make sense that we mostly 
stil...
53 
APPENDIX 
FIGURE 1I: 
MILLENNIALS WARMER ON NEW WAYS TO PAY (U.S.) 
Percentage of American adults who used the followi...
54 
APPENDIX 
Percentage of American adults who agree 
“The sooner we move away from cash, debit and credit cards and adop...
55 
APPENDIX 
APPENDIX 
CHARTS 
(cont’d.) 
FIGURE 2C: 
INTEREST IN MOBILE PAYMENTS (U.S.) 
Percentage of American adults w...
56 
APPENDIX 
APPENDIX 
CHARTS 
(cont’d.) 
FIGURE 2D: 
INTEREST IN MOBILE PAYMENTS (U.K.) 
Percentage of British adults wh...
57 
APPENDIX 
APPENDIX 
CHARTS 
(cont’d.) 
48383722PayPal 
A mobile app 
(e.g., Starbucks, 
Uber, Venmo, etc.) 
FIGURE 2E:...
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evolution of payment methods and scenarios

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  1. 1. October 2014 PAYMENTS & CURRENCY THE FUTURE OF
  2. 2. 2 Introduction...............................................................................................3 Trend drivers.............................................................................................5 New ways to pay ...................................................................................... 10 Mobile wallets......................................................................................... 11 Branded apps.......................................................................................... 15 Wearables.............................................................................................. 17 Biometric payments.................................................................................. 21 Emails, texts and tweets............................................................................ 22 What it means for brands........................................................................... 23 New forms of value exchange....................................................................... 27 Non-fiat currencies: local and cryptocurrencies................................................. 28 Alternative brand currencies....................................................................... 32 What it means for brands........................................................................... 40 New payment players................................................................................. 42 Brands as financial intermediaries................................................................. 43 Fintech innovators.................................................................................... 46 What it means for brands........................................................................... 47 Appendix................................................................................................. 49 THE FUTURE OF PAYMENTS & CURRENCY
  3. 3. 3 INTRODUCTION It seems that suddenly most aspects of the established payments system are on the verge of disruption. Apple Pay has just arrived, Facebook is reportedly mulling peer-to-peer payments, more merchants are accepting bitcoin, banks are testing payment-enabled wristbands or creating pay-by-tweet schemes, and the ranks of “fintech” innovators are growing. Some argue that these new systems are still clunky and consumers have little incentive to adopt novel habits. Many experiments have fallen flat, but Apple Pay and other smartly conceived tools will help change that, along with tech advances that make payments more seamless and secure. Slowly the case against cash and physical cards is getting stronger, with Millennials already moving away from the status quo and adopting alternative ideas. The successes point to the potential here: More than 15% of Starbucks’ U.S. revenue is processed through its mobile payment app, for instance. Tech giants and startups, retailers, phone carriers and others are jockeying for position in a bid to capture a piece of the huge payments market, along with a mass of consumer data and the chance to boost customer loyalty. Everyone from messaging apps to retail consortiums to the fast food giants is testing mobile-enabled payment platforms. But mobile isn’t the only new idea: Others are focused on the opportunities in wearables, biometrics (paying by fingerprint or vein pattern) or simply paying by tweet or text. In tandem with the emergence of multiple new ways to pay, the concept of what a currency can be is evolving—with digitization, value can easily be stored in anything from cryptocurrencies like bitcoin to loyalty points. Meanwhile, marketers have been more creative in bypassing the currency system, turning everything from social media shares to mobile minutes into forms of value exchange. Some are even creating their own currencies, like Amazon with its Coins. Disruption in the payments and currency sphere is opening the way for new players like Amazon and many other brands to act as intermediaries between consumers and their money. We’ll see consumer interaction with banks and other traditional financial institutions wane as established brands and startups alike offer innovative or compelling solutions. This report examines the rise of new ways to pay and new forms of value exchange, along with new players in the payments space, and what it all means for brands. $425 BILLION 2013 transaction revenues generated by payments businesses* *Source: BCG Perspectives, “Global Payments 2014,” Sept. 17, 2014 Never in the history of the payments industry has there been a time of such disruption and opportunity across regions. Digital technologies will upset the competitive order and the role that payments play both in the operations of businesses and in the daily lives of consumers.” —BCG PERSPECTIVES, “Global Payments 2014,” Sept. 17, 2014 THE FUTURE OF PAYMENTS & CURRENCY
  4. 4. 4 METHODOLOGY This report is the result of quantitative, qualitative and desk research conducted by JWTIntelligence throughout the year. Specifically for this report, we conducted quantitative surveys in the U.S. and the U.K. using SONAR™, JWT’s proprietary online tool. We surveyed 1,000 adults (500 Americans and 500 Britons) from July 24-28, 2014. In addition, we interviewed experts and influencers in payments and currency. (See Appendix to learn more about these experts.) DEBORAH BAXLEY, consulting services principal, Capgemini Financial Services CRAIG ERICKSON, creative director and designer, Artefact ROB GIRLING, co-founder and principal, Artefact BILL MAURER, dean of social sciences and professor of anthropology and law, UC Irvine THE FUTURE OF PAYMENTS & CURRENCY
  5. 5. While technology is opening up myriad possibilities in payments and forms of currency, the mobile wallet and other innovations have taken off in fits and starts. Skeptics say consumers have little incentive to adopt new systems. But Millennials are ushering in a new mindset: They’re much less attached to the status quo than their elders and far more open to alternative ideas. 5 TREND DRIVERS Image credits (clockwise from left): Warren Goldswain; Branislav Jovanović; Sean Locke [1], [2]; Lumina; Ondine Corewijn; Alejandro Moreno de Carlos
  6. 6. 6 TREND DRIVERS MILLENNIAL MINDSET Millennials moving away from traditional payment methods: Digital natives are shifting away from cash and credit cards. Only 63% of Americans and Britons ages 18 to 34 in JWT’s survey said they have used a credit card in the past year, significantly less than other cohorts, and 85% of Millennials said they have used cash in the past year vs. 95% of older generations. (See Figure 1A; for country breakdowns, see Appendix, Figures 1E and 1F.) Some 44% of U.S. and U.K. Millennials in our survey also agreed that they would like to use their mobile phone to pay for small transactions that usually require cash, vs. 35% of Gen Xers and fewer than a quarter of people age 50-plus. Millennials see traditional forms of payment as outdated: In our survey, half of Millennials agreed that “With today’s technology, it doesn’t make sense that we mostly still rely on cash, debit and credit cards to pay for things”— vs. only a third of Gen Xers and 16% of the oldest generation. (See Figure 1B; for country breakdowns, see Appendix, Figures 1G and 1H.) Overall, Millennials are the most apt to question the status quo and envision a better system. According to Viacom’s Millennial Disruption Index—a study of more than 10,000 Millennials over three years that was released in March—some 70% believe the way we pay for things will be totally different in five years. FIGURE 1A MILLENNIALS COOL ON CASH AND CREDIT Percentage of American and British adults who used the following in the past year Age 18–34 Age 35–65+ 6382CREDIT ++ CARD 82% 63% 8595CASH++ 95% 85% FIGURE 1B Percentage of American and British adults who agree “With today’s technology, it doesn’t make sense that we mostly still rely on cash, debit and credit cards to pay for things” 51% AGE 18-34 33% AGE 35-49 17% AGE 50-65+
  7. 7. 7 TREND DRIVERS MILLENNIAL MINDSET (cont’d.) Millennials more open to new ways to pay: In tandem with their shift away from traditional payment methods, Millennials are much more likely to use or express interest in newer forms of payment than older generations, although as yet adoption is still very limited. (See Figure 1C; for country breakdowns, see Appendix, Figures 1I and 1J.) Among survey respondents who have not yet used a mobile wallet, Millennials are significantly more interested in doing so than older generations, especially if it makes transactions faster. (See chart on page 24.) FIGURE 1D Percentage of American and British adults who agree “The sooner we move away from cash, debit and credit cards and adopt more advanced and sophisticated payment systems, the better” 46% AGE 18-34 25% AGE 35-49 11% AGE 50-65+ FIGURE 1C: MILLENNIALS WARMER ON NEW WAYS TO PAY Percentage of American and British adults who used the following payment methods in the past year Age 18–34 Age 35–65+ 267++26% 10+7+ 7% 4+ 4% 10% 1+ 1% 7% TAPPING TO PAY WITH A PHONE MOBILE APP (E.G., STARBUCKS, UBER, VENMO) VIRTUAL CURRENCY (E.G., BITCOIN)
  8. 8. 8 TREND DRIVERS Recent high-profile data breaches have severely impacted consumer confidence in the payments system and motivated retailers to seek more secure tools. In the U.S., Neiman Marcus, Home Depot, Supervalu and, most notably, Target are among the prominent businesses to have suffered data breaches. These have compromised millions of credit and debit cards, with Target’s breach affecting up to 110 million people. Fear of fraud will both drive adoption of new systems and inhibit some consumers from embracing relatively untested systems. New technologies are enabling more ways to make payments than ever before, from NFC and mobile apps to wearable devices and biometrics. And as more things gain connectivity, from cars to appliances, we’ll see payments get integrated into devices beyond smartphones and wearables. “We think every [consumer] device you have is going to be a commerce device,” MasterCard chief emerging-payments officer Ed McLaughlin told USA Today. “Our lives are moving to these intelligent connected devices, and what we do and how we interact and transact moves to them also.” Digital technology makes payments more seamless, more secure or both. Indeed, for those with little attachment to the status quo, there are plenty of arguments in favor of more advanced payment systems, as Capgemini’s Deborah Baxley points out below. While levels of awareness and comfort will both need to increase before we see widespread adoption of these tools, slowly they are changing how we view and use currency and make payments. A December 2013 Consumer Banking Insights study in the U.S. found that 8 in 10 respondents believe the bank conglomerates caused the financial crisis. So it’s no surprise that since the Great Recession, consumer confidence in financial institutions has plummeted. Just 26% of American adults have a great deal or quite a lot of confidence in banks, according to Gallup—compared with more than half (53%) of respondents a decade ago. This distrust opens up opportunity for nontraditional players to enter the financial space. UC Irvine professor Bill Maurer, a specialist on money and finance, says the global financial crisis in tandem with the Occupy movement, debates over net neutrality and PayPal’s freezing the WikiLeaks account have prompted more American Millennials to see payments in a political light—“that maybe there need to be alternatives to payment that aren’t routed through traditional intermediaries in the form of banks or even some of what we might call yesterday’s disruptive players, like PayPal.” DISTRUST IN FINANCIAL INSTITUTIONS TECHNOLOGY DATA BREACHES There are so many advantages to going to electronic, including the germs on cash, the cost it takes to manufacture the cash, to print it and secure it, and then to recycle it. It’s just a very old-fashioned thing. It’s going to take probably hundreds of years to totally eliminate cash, but as with checks, we’ll see a gradual decline in the use of cash in favor of all these alternatives. It doesn’t really matter what the alternative is. It could be anything; in the future, it’s a cloud. [The alternatives are] all interoperable with each other.” —DEBORAH BAXLEY, card payments expert, Capgemini
  9. 9. 9 TREND DRIVERS [Alternative currencies] usually emerge in periods of economic uncertainty and in small, tightly knit communities where there’s a sense that if people can keep things local, then everybody can sustain themselves during tough times.” —BILL MAURER, dean of social sciences and professor of anthropology and law, UC Irvine Alternative currencies can help protect consumers and local businesses from economic chaos. In countries where inflation is high, including Vietnam and Argentina, bitcoin evangelists see cryptocurrency as a hedge against wild fluctuation. Likewise, hyperlocal currencies are generally intended to buoy local economies, especially when the larger economy may be suffering. TRICKLE-UP INNOVATION HEDGE AGAINST ECONOMIC CHAOS With less competition and fewer regulatory restrictions, emerging markets serve as fertile testing grounds for new payment methods and new players. And with many consumers in these markets unbanked— outside the commercial banking system— alternative systems like mobile money are flourishing. This is one example of Trickle-Up Innovation: innovative ideas from emerging markets making their way to developed markets (for more on this trend, see JWT’s 10 Trends for 2010). Telecoms have led the way when it comes to sending and receiving payments via basic cellphones. Safaricom, in partnership with Vodafone, launched the most successful of these services in Kenya in 2007. Nearly two-thirds of Kenyans now use M-Pesa, and 43% of the nation’s GDP moves through it. The service has expanded to nine other countries so far, from India to Romania (M-Pesa’s first European launch). The success of M-Pesa and similar services is prompting new ideas in developed markets. In the U.S., mobile carriers T-Mobile and Sprint have both entered into the mobile money space.
  10. 10. Digital technology is opening up new ways to pay, many of them more seamless and secure than traditional methods. Foremost among these is the “mobile wallet”—using smartphones to make purchases or peer-to-peer payments—but various other ideas are coming to fruition, including wearables (tapping a watch, scanning a ring, etc.) and biometric technology like pay-by-fingerprint. NEW WAYS TO PAY Image credits (clockwise from left): PayPal; Artefact; PayPal; Dunkin’ Donuts; Barclaycard; Amazon; MCX 10
  11. 11. 11 NEW WAYS TO PAY MOBILE WALLETS Broadly speaking, mobile wallet users swipe, tap, wave or otherwise prompt a smartphone to pay after initial setup (providing credit card or bank account information and potentially linking to various loyalty programs). Technologies vary but include near field communication (NFC), Bluetooth and bar code systems. For people with little to no access to commercial banks, the advent of mobile money—texting to send or receive payments using basic phones—has been a godsend. (See sidebar at right.) In developed markets like Japan and parts of Europe, many people have picked up the habit of using their smartphones to pay for certain goods and services. But skeptics say there isn’t enough incentive for a wide-scale shift toward mobile wallets. Forrester Research reports that while 61% of Americans have heard of digital wallets, only 11% have used one. But around three-quarters of respondents in JWT’s recent survey expect to make payments via mobile phones more often within five years. Tech giants and startups, retailers, phone carriers and others are jockeying for position in the “wallet wars.” By and large, financial institutions have lagged here, in part because of high up-front costs and low returns. The next few pages spotlight some key names in the space and their approach, plus the rise of peer-to- peer payment solutions. *Source: GSMA Mobile Money Mobile money services that let users make financial transactions using basic cellphones are opening up access to financial systems for people with no bank account. Nine countries now have more mobile money accounts than bank accounts, according to the GSMA. The best-known mobile money service, Vodafone’s M-Pesa, now handles more than $1 billion in transactions a month in Kenya. With competitors circling— Kenya’s Equity Bank is aggressively pushing in to mobile money—M-Pesa has added M-Shwari, for micro-loans and micro-savings. Vodafone is expanding the service, which now operates in 10 markets, including India and Romania. Rivals include Tigo Money from Millicom, available in five African and four Latin American countries. 61 MILLION+ active mobile money accounts worldwide as of June 2013*
  12. 12. 12 NEW WAYS TO PAY MOBILE WALLETS (cont’d.) Alipay Wallet: The financial-services affiliate of Alibaba, China’s biggest online retailer, Alipay is a leader in mobile payments worldwide, processing some $150 billion in 2013, compared with PayPal’s $27 billion. The Alipay Wallet app allows users to transfer money, pay bills and make micropayments, such as buying a snack at a vending machine. Its success has drawn Chinese competitors including Tencent, which operates mobile payment service Tenpay, and Baidu, which launched a mobile wallet app in April. Amazon Wallet: Amazon recently introduced a basic mobile wallet app that stores loyalty and gift cards but doesn’t yet link with credit or debit cards. But it has the potential to tap Amazon’s 244 million active account users and offer them an easy transition to mobile payments. Apple Pay: Announced with great fanfare in September, Apple’s first mobile wallet could prove a tipping point in ushering in new ways to pay. Apple Pay uses NFC, requiring owners of the new iPhone 6 (and the upcoming Apple Watch) to tap their device at an enabled terminal. To push wide acceptance, Apple is partnering with American Express, Visa and MasterCard, along with major retailers like Target, Macy’s and Whole Foods. Apple touts the system as easier than traditional payment methods as well as more secure and private, thanks to the back-end technology it’s using and “touch to authenticate”—users must confirm a purchase via the fingerprint reader. Google Wallet: Launched in the U.S. in 2011, Google Wallet has so far failed to gain critical mass. The Wallet stores debit, credit, gift and loyalty cards; users can also send money to friends and use the service to pay online. While Google moved away from the Wallet’s NFC exclusivity last year, tap-to-pay can only be carried out at merchants with NFC terminals. Image credits: Amazon; Apple; Google Amazon Wallet Apple Pay Google Wallet 82 Number of retailers on the 2014 Internet Retailer Top 500 that support Google Wallet
  13. 13. 13 NEW WAYS TO PAY PayPal: PayPal launched in mobile with a simple digital wallet app in 2011 that could send and receive money. Among other things, the app now provides links to coupons and deals stored in the phone, as well as wallet balance. The latest innovation is PayPal Beacon, an upcoming service that will enable customers who opt in to pay “hands-free” thanks to in-store beacons. PayPal parent eBay is planning to split off the company in 2015. Softcard: This venture from AT&T, T-Mobile and Verizon—which recently changed its name from Isis for obvious reasons—represents a major bid to win Americans over to a mobile wallet system. The system relies on NFC and an enhanced SIM card, and can be used only with certain smartphones and credit cards. Since rolling out in the U.S. last year, Softcard has been a proactive marketer, offering deals such as one with American Express that gave New York cab riders who registered with Softcard 50% back in statement credit. Image credits: PayPal; Softcard MOBILE WALLETS (cont’d.) Kuapay: This startup says it’s “converting electronic transactions into a worldwide commodity,” enabling payments by generating QR codes for mobile users to scan at point of sale. It’s only accepted in Spain, by a few merchants in Los Angeles and New York, and by a gas station chain in Chile. PayPal says its Beacon service would include a “check in to pay” option for seamless transactions. A Softcard promotion for New York City cab riders.
  14. 14. 14 NEW WAYS TO PAY Image credits: Paym; Venmo MOBILE WALLETS (cont’d.) Peer-to-Peer Payments Various startups are looking to digitize peer-to-peer transactions, mostly by way of mobile apps. Business Insider estimates the global volume of P2P payments at more than $1 trillion annually, with only “a sliver” made through mobile today. Some services, including Dwolla and Ribbon, encompass both consumer transactions and peer-to-peer payments. Others, like Paym and Venmo, position themselves as an easy way to compensate friends or family. Usage skews heavily Millennial. In our survey, 45% of U.S and U.K. Millennials agreed they would like to use their mobile phone to pay when splitting bills or other expenses with friends, significantly more than older generations (see chart on page 24). Dwolla: Vying with PayPal and credit card companies, U.S.-based Dwolla lets users send money to “email addresses, phone numbers LinkedIn connections, Twitter followers and businesses” that accept it. Dwolla charges 25 cents for transactions over $10. The company recently raised an additional $9.7 million in funding. Paym: A British P2P system operated by the U.K.’s Payments Council that lets users send money to anyone who has registered their mobile number with the system. More than 1 million people have signed up with Paym since it launched in April. Ribbon: Boasting that it offers “the most frictionless and intuitive way to send and receive money online, on any device,” Ribbon works via the web (using profiles that follow the formula ribbon.co/ yourname) and doesn’t require a user to sign up before paying a friend. Venmo: This U.S. app, owned by Braintree (which in turn is owned by PayPal), lets friends send notes along with payments. Indeed, Venmo has become a form of social media, and a way for users to share what they’re up to and with whom. Venmo recently became a pay-out option for sellers using apparel-resale site Twice.
  15. 15. 15 NEW WAYS TO PAY BRANDED APPS As banks, tech giants and new entrants vie to dominate in the mobile wallet space, Starbucks and other brands are creating their own apps, enabling frequent customers to pay seamlessly. In some cases—notably with taxi services like Uber and fast food brands—the apps let users both order and pay, reducing wait times or hassle. In other cases, as with Starbucks, the apps draw users by folding in loyalty rewards or coupons. Brands benefit by collecting extensive customer data and drawing in impatient, cash-averse Millennials. Starbucks: Perhaps the biggest mobile-payments success story to date, Starbucks’ app has nearly 12 million monthly active users in North America. More than 15% of the brand’s U.S. revenue is processed through the app. It’s so successful that CEO Howard Shultz has said he is redefining his role to focus on Starbucks’ potential as a mobile payments company. Rolling a loyalty program into the app was key, letting customers access deals and instant rewards. The app includes P2P gifting and digital tipping, and Starbucks is planning to add the ability to order en route to a store. CurrentC: A coalition of America’s biggest retailers—including Walmart, 7-Eleven, Best Buy, CVS, Sears and Target—formed the Merchant Customer Exchange (MCX) two years ago, aiming to “directly impact the way the world will transact tomorrow.” Customers will be able to pay using MCX’s CurrentC app, and merchants can also integrate its payments and loyalty functionality into their own apps. MCX is testing CurrentC in selected locations around the U.S. and plans to roll it out broadly in 2015. Supermarket apps: Supermarkets have been slow to adopt pay-by-phone systems, in part because they already have extensive consumer data. Notably, U.S.-based MyWebGrocer, which powers many branded supermarket shopping apps and sells advertising on them, does not yet include a general mobile payment solution. But this is changing. Australian supermarket chain Coles debuted a mobile payment service earlier this year, tying it to its branded credit card and loyalty program. During an 18-month trial of a Pay Tag NFC patch applied to mobile phones, Coles says, 77% of its credit card customers found the method was more convenient than traditional credit cards, a good sign for the mobile app. Other supermarkets that enable mobile payments include Netto, owned by German chain Edeka; Tesco, which is piloting an app named PayQwiq in the U.K.; and Harris Teeter in the U.S. Image credit: Starbucks; PayQwiq
  16. 16. 16 NEW WAYS TO PAY Fast food apps: Quick service restaurants, particularly fast food chains, are a natural fit for mobile payments, which make fast food even faster for the core Millennial target. Pursuing coffee rival Starbucks, Dunkin’ Donuts has been among the most proactive here; its app, launched in 2012, includes payment, rewards, virtual gifting and promotions. Some major brands are still in the early phases with their mobile payments. McDonald’s (one of the first brands in the Apple Pay stable) currently offers an order-and-pay app in Austria and started U.S. trials of the concept earlier this year. KFC has been testing mobile payments in the U.K. Others including Burger King, Wendy’s, Pizza Hut and Subway offer payment by mobile app in some regions and markets. Meanwhile, white-label solutions like LevelUp and Paydiant let fast food and other merchants create branded apps on top of their software platforms. LevelUp is also integrated into the Apple Pay system. Image credits: Wendy’s; Burger King; Dunkin’ Donuts BRANDED APPS (cont’d.) 62% of Millennials in our survey would be comfortable connecting their payment info to an app from a retailer or service they use frequently
  17. 17. 17 NEW WAYS TO PAY Image credits: MyCheck; Heritage Bank Dine and Go Some see a role for payment apps beyond the fast food sphere, with patrons at bars and restaurants harnessing mobile to more quickly and easily settle their checks. Customers can tap, pay and leave without flagging down an employee; from the merchant’s point of view, this frees up staff and potentially opens up tables more quickly. Several startups in this space let users check in at a restaurant, then use their phones to see the bill, add a tip, split the check if they want to do so and pay using a registered credit card. MyCheck, which has a partnership with PayPal, launched its app in Israel in 2012 and has moved into a few cities in the U.S., the U.K. and Brazil. Users have the option to settle the bill using PayPal (while users of PayPal’s app will find MyCheck integrated within). Similar services include Cover, Dash and TabbedOut, which claims more than 5,000 bars and restaurants in the U.S. Meanwhile, online reservation service OpenTable added mobile payments to its app earlier this year in a San Francisco trial and recently expanded to New York. It plans to add 20 more U.S. cities by the end of the year. WEARABLES Wearables—Internet-connected devices worn on the body— promise an even more seamless method of payment than mobile phones. The vision is that consumers will simply hold up a watch, tap a wristband or perhaps issue a verbal instruction to Google Glass. Some startups are pushing smart rings that could conceivably integrate payment functionality. Apple’s impending smartwatch and new payment system are likely to give a major boost to the category. Created by Australia’s Heritage Bank in partnership with menswear brand M.J. Bale and Visa, a concept men’s suit conceals an antenna and contactless chip that transmits payment information through the cuff at Visa payWave terminals.
  18. 18. 18 NEW WAYS TO PAY Glasses: Some mobile-payment players are betting on consumers paying with a gesture, tap or voice command using Glass or other high-tech specs. Eaze, a startup pushing the idea of “Nod to Pay,” links to two bitcoin payment systems and plans to add fiat currencies. GlassPay is a system whereby users would scan in-store items using their Google Glass and pay with a bitcoin wallet. Meanwhile, payment services including MasterCard, LevelUp, Dwolla and Intuit’s GoPayment are experimenting with Glass apps. Watches: Several payment apps work in tandem with early entrants on the smartwatch market. These include PayPal’s app for Samsung’s Gear 2, which lets users pay at participating retailers by tapping the watch’s interface. WearBucks is for owners of Android Wear watches, enabling them to command “OK Google, start Pay for Starbucks” after initial setup. LevelUp has apps for Android Wear and Pebble watches that are activated by voice or tap, after which users hold their watch up to a scanner. The big question is whether Apple’s smartwatch, to be released in early 2015, can kickstart the concept of payment-by-wearable. The watch will integrate the company’s new Pay system and use NFC, like the newest iPhone. Apple says users simply double-click a button on the watch’s side and hold it near the merchant’s reader; a pulse and beep confirm payment. Some theorize the watch’s heart rate sensors may eventually be used to authenticate payments. Image credits: Eaze; Apple WEARABLES (cont’d.) Apple Watch users will double-click a button to start the payment process. Glass app Eaze says it makes payments “actually fun and pleasurable” 45% of Millennials in our survey would be comfortable connecting their payment info to a wearable device in order to make fast, hassle-free payments
  19. 19. 19 NEW WAYS TO PAY Wristbands: For people willing to link up credit or debit card information, smart wristbands may have a long-term role to play as a way to make fast purchases at events like music festivals or destinations like theme parks. Last year Disney started rolling out its RFID-enabled MagicBand, a wristband that lets Disney World visitors make contactless payments, among many other things. This year, smart wristbands have also been popping up at music festivals. Lollapalooza’s RFID-enabled Lolla Cashless bracelets let attendees at the Chicago fest buy refreshments and merchandise by scanning their wrists and entering a PIN. PayPal introduced similar bracelets to VIP-section guests at Spain’s Low Festival. Barclaycard tested its bPay wristband at London’s Pride event and some summer concerts. Barclaycard’s wristbands enable contactless purchases of up to £20 by scanning at enabled terminals after users connect any MasterCard or Visa card. Fraud protections for lost or stolen bands follow the same refund guarantee as typical credit cards. In September, Barclaycard offered free bands to the first 10,000 people in London to sign up, emphasizing that bPay can be used across the city’s transport network. Spain’s CaixaBank has distributed similar wristbands to customers using its contactless-payment Visa cards. Image credits: Barclaycard; Lollapalooza WEARABLES (cont’d.) Just imagine a typical day in the near future. You leave the house, hop on the train and head to the gym. After your workout, you grab a coffee and go to the office. The money or information you need for every stage of that journey will be integrated into a single device like bPay band—from your travel card to your gym membership to the money for your coffee and lunch. It’s a time that isn’t quite here yet, but it’s not far away.” —Barclaycard.com
  20. 20. 20 NEW WAYS TO PAY Image credit: Artefact Finally, Artefact, a company that designs technology products, has developed a concept for a wristband, Token, that’s intended not only to make payments easier and more secure but to help wearers make smarter decisions about how they spend. Users would link their checking and savings accounts, debit and credit cards, as well as payment and virtual-currency apps, and be able to see how a purchase affects their budget before spending money. WEARABLES (cont’d.) We challenged ourselves to think about how a wearable form factor can transform experiences that are less about measuring and more about interacting with each other and the services we use. The focus on financial and retail services came from the realization that wearables give us a unique opportunity to improve the security of these transactions. … Finally, we wanted to explore a way to help people be smarter consumers and minimize impulse purchasing by showing them the impact of the potential purchase on their balance before they hit the ‘pay’ button.” —ROB GIRLING, principal and co-founder, Artefact Artefact’s Token concept watch integrates payment options, aiming to help consumers make easy, secure and smarter purchases.
  21. 21. 21 NEW WAYS TO PAY Vein patterns: Several companies are touting payment methods that rely on a palm’s unique vein pattern for authentication, including Swedish startup Quixter and Biyo, formerly known as PulseWallet. Biyo uses Fujitsu’s PalmSecure technology and relies on a credit card terminal that incorporates an infrared palm reader; the device was released in the U.S. in February. Quixter says payment takes just five seconds with its system. Currently it’s being tested at a Swedish university campus. To improve security, businesses are starting to adopt systems that identify and authenticate people based on physical or behavioral characteristics: iris scans, digital fingerprints, voice prints, facial maps and so on. The method is also more convenient for users than typing passwords, although privacy will be a concern for some. Fingerprint recognition, the most widely used biometric system thus far, will become increasingly common now that Apple is embracing mobile payments. *Source: Frost & Sullivan Image credits: PayPal; Biyo BIOMETRIC PAYMENTS 471 MILLION Forecast number of global biometrics smartphone users by 2017,up from 43 million in 2013* Fingerprints: Apple’s new Pay system, which works in tandem with its latest iPhone, requires fingerprint scans for every purchase: Users place a thumb over the home button when the phone is near a contactless reader. As Apple puts it: “Touch. Pay. Go.” Samsung’s Galaxy S5, released in April, enables users to pay for products with a fingerprint by using PayPal’s app in stores that are set up to accept it. In Vietnam, Eximbank started enabling ATM transactions and over-the-counter payments by the touch of a finger earlier this year; the bank plans to extend the system to various point-of-sale networks. And France’s interbank network Groupement des Cartes Bancaires CB is currently evaluating a biometric system in which consumers would make in-store purchases or ATM withdrawals by touching a finger to a screen. Initially, users would need a key fob as well, for two-factor authentication. The Samsung Galaxy S5 enables fingerprint payment via PayPal’s app
  22. 22. 22 NEW WAYS TO PAY PayPal began in 1999 as a way for people to email payments to each other. Eventually, services including Amazon’s TextPayMe, Obopay and Square began enabling micropayments between people via email, text or online. Today more and more companies—from startups to financial institutions and tech giants like Google—are enabling person-to-person payments, bill payments and product purchases via a simple message. Square’s Cash app, for instance, recently added the ability to make P2P payments by email or text, and the company is texting $1 to anyone interested in trying the service. Some financial institutions have formed consortiums to facilitate these types of money transfers. ClearXchange is a partnership between Bank of America, Wells Fargo and Chase that lets customers send and receive P2P payments using an email address or mobile number. Popmoney is a similar network made up of Citibank, PNC, Ally and other banks. As discussed on page 8, mobile money services like M-Pesa enable payment by text in regions where many people are unbanked. In the U.S., text payments gained mainstream attention after the 2010 Haiti earthquake, when $43 million was donated to relief efforts via text messages, according to Pew Research. Text-to-pay is increasingly going beyond donations. In the U.S., AT&T allows text-to-pay for its mobile phone service, as does Cricket Wireless. Mobile payments firm Boku recently added text-to-pay subscriptions for IPC Media titles in the U.K., which include Marie Claire and InStyle. While Twitpay, which launched in 2008 to enable payments by tweet, is now defunct, the idea is still alive. As of October, French bank Groupe BPCE will enable people to tweet money to one another via its S-money mobile-wallet subsidiary, thanks to a partnership with Twitter. Image credits: Square Cash; Popmoney EMAILS, TEXTS AND TWEETS Popmoney, a P2P service backed by a a range of banks, lets people send money by email or text.
  23. 23. 23 NEW WAYS TO PAY The gradual migration from cash and card payments to digital and mobile payments will require the rewiring of long-established systems and habits—presenting thorny challenges along with exciting opportunities. Brands have new ways to insert themselves into the payment process in order to strengthen loyalty, collect more data and open a new marketing channel. Banks and credit card companies may no longer hold the default financial relationship as consumers begin to use mobile operators and other alternatives to deposit, hold and pay out funds to businesses and peers. Many other players—from telecoms to tech giants to fintech startups—are vying for their share of the giant payments sector. Some innovators are rethinking the system top to bottom for the digital age. Younger consumers especially are open to such radical change. Of course, novelty itself won’t ensure adoption but rather services and features that save money, time or effort while guaranteeing privacy and security. Prepare for a “cash-limited” future: In the near term, we’ll see wide discrepancies across markets and across generations when it comes to use of cash—but the broad trend will be away from paper money. In Sweden, already just 27% of retail sales are made in cash, according to the European Central Bank. “We’ll probably not see a totally cashless society in the near future, but a society where cash is reduced to a minimum and used in very few situations is probably quite realistic,” researcher Niklas Arvidsson of Stockholm’s Royal Institute of Technology told The Local. Cashless transactions are good news for merchants since research shows, not surprisingly, that consumers tend to be more restrained when using cash. And the more seamless the transaction, many believe, the less restrained a consumer will be. Meanwhile, a branded mobile wallet like Starbucks’ provides the merchant with reams of data on consumer habits and preferences. While some people won’t want to give up the anonymity afforded by cash transactions, cryptocurrencies offer somewhat more shelter by avoiding big financial institutions. WHAT IT MEANS FOR BRANDS Real innovation will result from a different approach to payments. The real opportunity lies in approaching payments in the context of the overall customer experience and in delivering value based on the insights we glean from these interactions.” —ROB GIRLING, principal and co-founder, Artefact The pain of handing over money is more than the pain of handing over a credit card. And not handing over anything at all is the least painful.” —MARK EGERMAN, co-founder, Cover, Eater.com, Sept. 23, 2014
  24. 24. 24 NEW WAYS TO PAY Cater to Millennials: As outlined in the drivers section, Millennials will push the transition to new methods of payments—they’re significantly more open to new transaction technologies and more apt to see the potential benefits. Our survey found that among people who have not used a mobile wallet, 18- to 34-year-olds are more enthusiastic than older generations when asked about various potential benefits, like enabling faster transactions and splitting bills with friends. (See Figure 2A; for country breakdowns, see Appendix, Figures 2C and 2D.) To gain momentum in mobile payments, first consider the priorities, habits and circumstances of younger users and tailor messaging accordingly. By addressing their needs initially, brands can establish utility, trust and reliability with those most likely to adopt these payments, a generation that will eventually bring more reluctant consumers into the fold. PayPal-owned Venmo, for instance, has gained traction among Millennials in part because of its social element, which replaces any awkwardness in peer-to-peer transactions with fun messaging. Business Insider estimates that it’s processing as much in total dollar value as Starbucks’ mobile payment app. WHAT IT MEANS FOR BRANDS (cont’d.) FIGURE 2A: INTEREST IN MOBILE PAYMENTS Percentage of American and British adults who have not used a mobile app, tapping to pay with a mobile phone or virtual currency in the last year who agree Millennials (18-34) Gen Xers (35-49) Boomers (50-64) Silents (65+) I would like to use my mobile phone to pay if it makes transactions faster 50+31+26+18 32% 50 31 26 18 I would like to use my mobile phone to pay for small transactions that usually require cash 44+35+23+21 31% 44 35 23 21 I would like to use my mobile phone to pay when splitting bills or other expenses with friends 45+31+12+15 25% 45 31 12 15 Keeping track of my purchases sounds much easier with a mobile wallet 52+27+20+13 28% 52 27 20 13 Image credit: Venmo
  25. 25. 25 NEW WAYS TO PAY WHAT IT MEANS FOR BRANDS (cont’d.) Compel consumers to opt in: Convenience is a good starting point, but consumers need more than the promise of a lighter wallet and a tap instead of a card swipe to compel them to use alternate payment methods. “See payments as a platform, not simply as a product,” advises Boston Consulting Group. To put it another way: Create an experience, not just a transaction. With many options to choose from, consumers will be more firmly in charge when it comes to how they pay. Starbucks gets it: Its loyalty program is rolled into its payments app, allowing instant rewards, relevant offers, gifting and, soon to come, ordering ahead and bypassing the line. Its easy mobile payment system is now a branded affinity powerhouse. In another use case, mobile phone payments at restaurant tables through apps like MyCheck allow impatient diners to leave as soon as they like. Brands might offer searchable coupons and discounts at the register, immediate loyalty rewards and status updates, activity alerts and digital store receipts. For instance LevelUp, used by 14,000 small and medium-sized food and service businesses, packages mobile payments with a customizable platform through which users can find places to eat and shop, pay by phone remotely and receive loyalty points. McKinsey finds that the highest-scoring features that would drive mobile wallet adoption are the ability to pay with points, targeted deals and integrated payments. Credit cards and banks can offer their own perks, such as tracking and budgeting tools, discounts tied to location and links to current reward programs. It is clear that neither consumers nor merchants will adopt mobile payments simply for the payments portion of it. There is nothing fundamentally wrong with the way we initiate and accept payments today. However, there are a number of activities that take place before and after the transaction that can deliver tremendous value to the consumer and the merchant, both in terms of relevance and the ability to drive top-line growth, respectively.” —ALBERTO JIMENEZ, director of mobile payments at IBM, TechCrunch, Aug. 16, 2014 Open a personalized marketing channel: New payment methods provide new ways for brands to communicate with their customers in a personalized way. Every mobile app or wearable device is a direct connection and messaging channel to a consumer with unique preferences and needs. Supermarket chain Auchan created its Flash’N Pay branded wallet, which adds loyalty cards, coupons, receipts and shopping list features to a payment strategy, in part for its ability to send targeted communications.
  26. 26. 26 NEW WAYS TO PAY Image credit: PayPal WHAT IT MEANS FOR BRANDS (cont’d.) Security and privacy above all: The payments realm carries with it the twin vulnerabilities of security and privacy breaches. Consumers are on high alert following the recent rash of data breaches suffered by retailers and others—but while confidence in established systems is flagging, most won’t embrace unfamiliar new ideas and technologies without strong assurance that both hackers and brands themselves won’t find ways to exploit users. In our survey, around 8 in 10 respondents across generations said they would prefer sticking with cash, debit and credit cards so they don’t have to worry about security and privacy issues. And as Figure 2B shows, significant percentages are very concerned about potential fraud when it comes to new forms of currency or mobile-enabled payment methods. By contrast, only around a fifth of respondents are very concerned with fraud when it comes to established forms of payment like bank cards or automatic payments linked to bank/credit info (not pictured in chart). PayPal has been assuring consumers that it protects their financial information “like it’s sealed in a vault with titanium locks, guarded by ninjas,” as one commercial put it. Apple is touting its Pay system’s use of unidentifiable numerical coding. Credit card information isn’t stored on the iPhone, and Apple says it doesn’t track purchases. (So for instance, if the government requests a person’s purchase history, Apple would not have the ability to produce it.) For security, a user confirms purchases with the iPhone’s fingerprint scanner. 49403922 PayPal A mobile app (e.g., Starbucks, Uber, Venmo, etc.) FIGURE 2B: FRAUD CONCERNS BY PAYMENT TYPE Percentage of American and British adults who are very concerned about potential fraud with each of the following forms of payment Tapping to pay with a mobile phone (e.g., Google Wallet) Virtual currency (e.g., bitcoin) 49 40 39 22 81% of U.S. and U.K. respondents in our survey said they would prefer to stick with established payment methods (cash and bank cards) so they don’t have to worry about security or privacy issues PayPal emphasized security in a 2014 commercial
  27. 27. A growing array of alternative currencies—ranging from cryptocurrencies to local currencies, branded currency and social media currency—is supplementing or even replacing conventional money. Image credits (clockwise from left): Old Navy; Dish Network; Brixton Pound; Weight Watchers; Amazon; Coinvoice; McDonald’s 27 NEW FORMS OF CURRENCY All the events since the financial crisis, which co-occurs with the explosion of new payment options and interest in new kinds of moneys, bring to the fore for people the fact that money is always only a human creation, kind of a collective illusion—that it’s something we invent as societies and states and communities, and we can reinvent it if we want to.” —BILL MAURER, dean of social sciences and professor of anthropology and law, UC Irvine
  28. 28. 28 NEW FORMS OF CURRENCY Image credits: Tilt; COjacks; Brixton Pound NON-FIAT CURRENCIES Dollars, pounds, euros, pesos, yen—these are all fiat currencies, or legal tender. But even with the backing of a government, their value exists only by po pular consent. So increasingly people are thinking more creatively about what money can be, fr om local currencies to cryptocurrencies like bitcoin, which can function just as well—if not better, in some instances— as a medium of value exchange. Local currency resurgence: While local currencies—issued by municipal governments, businesses or even individuals—have long existed, they’re undergoing a resurgence thanks to the economic crisis and rising income inequality. A local currency can help to mitigate the impact of a troubled economy on communities, potentially stimulating growth by increasing demand for local goods and supplies through an influx of cash while keeping money from flowing out of the area. Examples of local currencies, which generally function similarly to national currencies, can be found around the world. Dozens of local currencies circulate in Brazil. In the U.K., examples include the Brixton Pound and Bristol Pound—both of which recently launched mobile payment apps—and the city of Hull’s HullCoin, a digital cryptocurrency launched earlier this year that functions like bitcoin. The Chiemgauer in Germany started as a school project 11 years ago. Local U.S. currencies include Equal Dollars in Philadelphia, BerkShares in the Berkshire region of Massachusetts and Ithaca Hours, introduced in 1991 to help buoy that New York city’s economy during a recession and keep residents employed. And in Colorado this August, two men launched COjacks, a statewide currency that nearly 100 businesses already accept.
  29. 29. 29 NEW FORMS OF CURRENCY Image credit: Wikipedia CRYPTO-CURRENCIES In 2009, an entity operating under the alias Satoshi Nakamoto c reated bitcoin, a so-called cryptocurrency that currently has a market capitalization of several billion dollars (the amount fluctuates significantly). Bitcoin relies on cryptography to control the currency’s creation and transactions: To generate the currency, users “mine” for it by solving complicated math problems via special software. Bitcoins are then circulated through online exchanges or transactions. While bitcoin dominates the space, hundreds of other such currencies have followed, including Litecoin, Ripple, Peercoin and Dogecoin. In the last year or so, a number of major businesses have started accepting bitcoin, most via bitcoin middlemen (see box), lending the novel currency greater credibility. And there are now more than 250 bitcoin ATMs worldwide. The average person is gaining greater access to bitcoin and more options in where to spend it. Bitcoin pros and cons: While they have serious downsides, cryptocurrencies appeal to users for a number of reasons. They allow people to send and receive money around the world instantly, without the need for banks as intermediaries. This means little to no fees for processing transactions, as well as greater privacy, although cryptocurrencies are not anonymous, as is widely believed. For people with little trust in government and the banking system, cryptocurrency provides a way to transact without relying on either. Virtual currency—it may or may not be bitcoin—is a technology that solves a commerce friction problem. And as in any case where you’ve got friction and commerce, it’s going to work eventually.” —DEBORAH BAXLEY, card payments expert, Capgemini Bitcoin Middlemen Merchants interested in accepting bitcoin have a way to do so without getting entangled in the volatility, security and legal issues surrounding the currency: using payment processors that act as middlemen. Customers pay in the currency, while merchants can receive fiat currency. Conversely, some services allow people to invoice in U.S. dollars and get paid in bitcoin. Startups in this space include BitPay, Coinvoice and Coinbase. And payment processors Stripe and PayPal’s Braintree are working to integrate bitcoin acceptance, which would open up the currency to all their existing merchants (although exact functionality remains to be seen). Furthermore, PayPal is now partnering with BitPay, Coinbase and GoCoin to let merchants accept bitcoin for digital goods like online games. Until bitcoin becomes more stable and regulated, payment processors such as these will be a safer option for merchants.
  30. 30. 30 NEW FORMS OF CURRENCY CRYPTO-CURRENCIES (cont’d.) …are here to stay 41+26+19 41 26 19 28% …are a good investment 33+13+8 15% 33 13 8 33+17+9 18% …will become a primary method of payment 33 17 9 FIGURE 3A: DIGITAL CURRENCIES LIKE BITCOIN… Percentage of American and British adults who agree Gen Xers (35-49) Boomers & Silents (50-65+) Millennials (18-34) Digital currencies like bitcoin are just a fad 54+49+54 54 49 54 53% I worry that digital currencies like bitcoin might be too volatile or risky to use 64+74 68% 64 64 74 63+65+75 69% Digital currencies like bitcoin are too new to really know how secure they are 63 65 75 FIGURE 3B: BITCOIN SKEPTICISM PREVAILS Percentage of American and British adults who agree Gen Xers (35-49) Boomers & Silents (50-65+) Millennials (18-34) In our survey of U.S. and U.K. adults, Millennials emerged as the most enthusiastic generation when it comes to cryptocurrencies: 38% said they are interested in using digital currencies such as bitcoin, while a third view them as a good investment and believe they will become a primary method of payment. (See Figure 3A; for country breakdowns, see Appendix, Figures 3D and 3E.) Skeptics, however, point to the volatility of cryptocurrencies and the potential for unfavorable government regulation. They are vulnerable to theft, with little chance of recovering the stolen funds, and since the bitcoin software is still being developed, the currency is technically in beta. Plus, of course, acceptance of cryptocurrencies is not yet widespread. Some of this skepticism was echoed in our survey, with nearly 70% of adults expressing concern that digital currencies like bitcoin might be too volatile or risky to use and that they’re too new to know how secure they really are. More than half of respondents believe cryptocurrencies are just a fad. 38% of U.S. and U.K. Millennials are interested in using currencies such as bitcoin, vs. 17% of Gen Xers and 7% of Boomers
  31. 31. 31 NEW FORMS OF CURRENCY CRYPTO-CURRENCIES (cont’d.) Businesses accepting bitcoin: Experts place the number of businesses accepting bitcoin as hi gh as 80,000 worldwide, a wide majority of which are small merchan ts. But some bigger players across categories are earning buzz by welcoming the currency, in some instances experiencing an initial boost in sales. Most use Coinbase or another bitcoin middleman, shielding themselves from risk while paying much less in fees than with credit card transactions. Businesses that allow bitcoin payment now include U.S. satellite TV provider Dish Network, which says it’s the largest company worldwide to accept a cryptocurrency, and Dell, the largest retailer to accept bitcoin. The charity United Way recently started accepting bitcoin donations to its Innovation Fund. Others accepting bitcoin include: • Expedia: The travel-booking site accepts bitcoin for hotel reservations, with plans to eventually extend bitcoin payments across its system. Since the June launch, fewer than 1% of sales have been in bitcoin, but an Expedia executive said bitcoin sales have exceeded estimates. • Overstock.com: In January, this online retailer became the first company with at least $1 billion in annual sales to add bitcoin, using Coinbase as its payment processor. By August, bitcoin users had spent more than $2 million on the site, and Overstock’s CEO was forecasting that tally would reach $6 million to $8 million by year-end—a small percentage of total sales, but a sign that the currency is gaining ground. • Publications: Marketing and media magazine The Drum became one of the first U.K. magazines to allow subscribers to pay with bitcoin. In the U.S., the Chicago Sun- Times became the first major newspaper to accept bitcoin. In the first week of launch, 11% of new subscriptions used bitcoin. This crowdfunded documentary follows a newly married couple trying to get by on bitcoin alone. • Sports teams: The NBA’s Sacramento Kings was the first major professional sports franchise to accept bitcoin. Through a partnership with BitPay, the team now allows bitcoin users to buy tickets, jerseys, basketballs and so on. California soccer team San Jose Earthquakes lets fans make bitcoin purchases in the stadium. Image credits: Life on Bitcoin; Sacramento Kings
  32. 32. 32 NEW FORMS OF CURRENCY ALTERNATIVE BRAND CURRENCIES Brands creating alternative currencies is nothing new: For years consumers have exchanged loyalty points or miles for rewards, or collected cereal box tops and the like to garner discounts or freebies. But lately marketers have been more creative in bypassing the currency system, turning everything from social media shares to mobile minutes into forms of value exchange. Social media as currency: Brands commonly offer incentives in exchange for Facebook likes or Twitter follows. Now, with social media ingrained into the daily lives of many, some are evolving this idea by enabling consumers to acquire products or discounts with social media actions in lieu of cash. For instance, Danish beer company Carlsberg partnered with bars in Denmark to extend happy hour for drinkers who posted social media photos with the hashtag #HappyBeerTime. Not surprisingly, Millennials are the generation most open to paying with social media actions, as our survey found: They are the most likely to say that instead of buying a snack or beverage with cash, they would prefer to do things like share a photo of themselves enjoying a product or post on social media about the product. (See Figure 3C; for country breakdowns, see Appendix, Figures 3H and 3I.) Several companies are focused around facilitating these social media value exchanges, which can take various forms. (See box, page 35.) Image credit: Carlsberg Share a photo of yourself enjoying the product 34+22+8+5 34 22 8 5 Post on social media about the product 36+29+12+8 36 29 12 8 FIGURE 3C: SOCIAL MEDIA SHARING AS CURRENCY Percentage of American and British adults who, given the option, might prefer to pay for a beverage or snack with the following options instead of cash Gen Xers (35-49) Boomers (50-64) Silents (65+) Millennials (18-34) 19% 23%
  33. 33. 33 NEW FORMS OF CURRENCY Image credits: Birds Eye; Marc Jacobs; Weight Watchers ALTERNATIVE BRAND CURRENCIES (cont’d.) Pop-up shops: These temporary locations provide unique experiences that consumers are keen to capture and then share with their followers, increasing brand engagement and stimulating word-of-mouth. • Birds Eye: Earlier this year, to help promote its new Inspirations line, frozen food brand Birds Eye created a series of pop-up restaurants in the U.K. dubbed The Picture House. Diners settled their bills with Instagram meal-shot posts tagged #BirdsEyeInspirations. Birds Eye brought in a professional food and lifestyle photographer to help with the process. • Marc Jacobs: A Tweet Shop promoted Marc Jacobs’ new Daisy fragrance during New York Fashion Week in February and in London’s Covent Garden last August. Visitors received free perfume, necklaces or purses for posting to Twitter, Facebook or Instagram with the hashtag #MJDaisyChain. The social media posts were projected on a wall in the shop. • Weight Watchers: A pop-up Feel Good Café in London served Weight Watchers-branded foods to customers who paid with social media shares. Visitors were told how they could eat nutritiously and still enjoy satisfying meals, with the idea that they would knowledgeably promote the Weight Watchers message. • Yes Sir & Man Made London: Thanks to a recent partnership between online retailer Yes Sir and men’s grooming brand Man Made London, customers at a pop-up barbershop in London could pay for a wet shave or beard trim with a social media photo share that used the hashtag #ShaveMeSir.
  34. 34. 34 NEW FORMS OF CURRENCY Image credit: Walkers ALTERNATIVE BRAND CURRENCIES (cont’d.) Vending machines: Along with pop-up shops, Internet-connected vending machines are becoming a go-to source for accepting social media actions for payment. • Hot Wheels: At the Canadian International Auto Show, Hot Wheels partnered with Chevrolet on the Camaro-matic Trending Machine. To receive a special-edition die-cast Camaro, visitors followed Hot Wheels Canada on Twitter, enabled location services on their mobile device and tweeted the designated hashtag to the brand. During the 10-day show, some 1,500 attendees tweeted at the machine. • Old Navy: As part of its annual flip-flop sale campaign, Old Navy placed vending machines across three U.S. cities that dispensed flip-flops to people who tweeted their shoe size and a code found on the machine’s tablet to Old Navy’s Twitter handle. The machines dispensed 9,000-plus flip-flops and resulted in 12 million social media impressions and 170 million earned media impressions. • Telus: As part of its WWF-Canada Critter campaign, Canadian telecom Telus installed a vending machine in a Vancouver mall that contained stuffed pandas. Shoppers who wanted one could tweet a hashtag and a unique code on the machine, with Telus donating $1 for each such tweet. In six days, the machine dispensed 3,000 pandas. • Walkers: Potato chip brand Walkers installed Twitter-activated machines containing six finalist flavors from its “Do Us a Flavour” campaign in bus stops in central London. The machines featured short films starring Walkers brand ambassador Gary Lineker encouraging passersby to tweet in exchange for a snack. • Westin: In partnership with New Balance, a Westin hotel in New York City celebrated National Running Day with a tweet-enabled vending machine filled with running gear. The campaign generated 183,000 impressions and 15,000 engagements that mentioned either the brand or specific hashtags. Walkers vending machines at bus stops dispensed potato chips in exchange for tweets
  35. 35. 35 NEW FORMS OF CURRENCY Image credits: Sharewall; Nokia ALTERNATIVE BRAND CURRENCIES (cont’d.) Companies Facilitating Social Media Payments A number of companies are cropping up to help brands accept social media payments. Pay with a Tweet, which officially launched this year after four years in beta, won a Cannes Lions Cyber Grand Prix in 2011. Despite the name, it’s compatible with LinkedIn, Google+, Facebook, Xing and Russia’s VKontakte, in addition to Twitter. The provider embeds a button on its website; users who click it choose a network on which to post, then gain access to free content—typically digital goods, such as audio, document or video files. Since the 2010 beta launch, nearly 7 million people have paid with a social post. Publishers from 50-plus countries have used the service, as well as major record labels and clients including Microsoft. Other services in this space offer slight variations. For example, BitWall provides marketers the option to let consumers tweet, pay in bitcoin or watch an ad to gain access, and FanWise rewards consumers only if they post verbatim brand-crafted messages. The U.K.’s Sharewall, founded earlier this year, provides a social media paywall for publishers: Readers interested in a story must share an article (not necessarily the one they want to see) via social media in order to gain access. Paying with social media clout: Not all tweets are created equal. A social media post from someone with many engaged followers is particularly valuable to brands. Popular Pays, launched last year, is one service that leverages and rewards social media clout, pairing influential Instagrammers with businesses in several U.S. cities. Instagrammers with at least 500 followers are eligible to pay at participating businesses simply by posting photos of the purchase, with the number of products available for this type of exchange increasing in proportion with the number of followers. On the brand side, Nokia’s #100aires pop-up shop in London let guests bid auction-style on pieces of art using their Klout scores (a metric for an individual’s social media influence) as currency. To promote the Lumia 630, these potential buyers were asked to take photos of items they wanted, then share them using the hashtag #100aires. The more a bidder’s network interacted with the post, the higher the chances of winning the auction.
  36. 36. 36 NEW FORMS OF CURRENCY ALTERNATIVE BRAND CURRENCIES (cont’d.) Incentivizing good behavior: Some brands have turned positive actions on the part of consumers into a form of currency. Two years ago, for instance, chocolate brand Anthon Berg set up the pop-up Generous Store in Copenhagen, where customers could earn boxes of chocolate by pledging on Facebook to do specific good deeds (e.g., “Serve breakfast in bed to your loved one”). Nike’s “Bid Your Sweat,” an award-winning effort from JWT Mexico, let Nike+ account holders bid on the brand’s products using the kilometers they had tracked. And this summer in New York, Nike set up a vending machine stocked with items such as socks, shirts and hats that only accepted points from a user’s activity-tracking Nike FuelBand. Image credits: Nike; McDonald’s Several efforts have also attempted to incentivize recycling. This summer in Sweden, McDonald’s let customers pay for products with recycled cans—a way to promote a good cause while also getting more young people in the door. Outdoor ads near parks and summer festival areas in Stockholm explained the promotion (e.g., a hamburger or cheeseburger was worth 10 cans) and included plastic bags for collecting the cans. And in Bangladesh, Coca-Cola aimed to raise awareness around recycling with an arcade-style game that required plastic bottles rather than coins to operate; it traveled to areas around Dhaka. Nike’s FuelBox machine A McDonald’s promotion in Stockholm
  37. 37. 37 NEW FORMS OF CURRENCY ALTERNATIVE BRAND CURRENCIES (cont’d.) Branded currency: For years, loyalty has translated into a currency of sorts, with merchants offering “Buy 10, get 1 free,” airlines awarding seats to frequent flyers and so on. These loyalty schemes, including gift cards and coupons, account for more than $165 billion in purchasing power in the U.S. alone. With that much value in circulation, some brands are reframing these offers, shifting brand loyalty into a currency in a more traditional sense. And thanks to smartphones, disparate programs are becoming more manageable for consumers, who can readily cash in. • Amazon Coins: Launched in 2013, Amazon’s digital currency lets consumers easily buy apps, games and in-app items from a Kindle Fire or Android device, or on Amazon.com. Each coin is worth a penny, and users receive up to a 10% discount when buying in bulk. The Coins are now available in eight countries, and customers have purchased hundreds of millions of them. • eBay: In 2012, eBay filed a patent application for what it calls “gift tokens”— a virtual currency that can be gifted and redeemed at any retailer that agrees to accept it. The application allows for restrictions such as prohibiting the purchase of certain items or use outside certain regions. • Kik: Earlier this year, this Canadian messaging startup launched a beta version of Kik Points, a virtual currency that operates within the mobile app. Users obtain Points by doing various things within Kik, such as scoring points in a game, using the in-app browser or inviting friends to use the beta version. As yet, Points can buy only one variety of digital stickers, but there’s speculation that Kik could use Points for cross-promotional efforts. • McDonald’s Coins: In 2011, McDonald’s Denmark introduced Coins, a virtual currency with which diners could buy items from the Coinoffers value menu. Customers first had to download a mobile app to store and transmit the coins. Users then accumulated the currency by finding Coinoffer QR or sound codes across various media and capturing them with the app. Each code bought one coin—worth one Danish krone—and users had to collect at least 10 before they could be redeemed. After launch, the Coinoffers app became the fastest downloaded commercial app in Denmark. Image credits: Amazon; McDonald’s McDonald’s created a virtual currency
  38. 38. 38 NEW FORMS OF CURRENCY *Source: U.S. Department of Commerce Image credits: Nestlé; JWT ALTERNATIVE BRAND CURRENCIES (cont’d.) Products as currency: Brands have been getting creative with the age-old practice of barter, turning their goods into currency as part of social responsibility initiatives or novel marketing ploys. For telecom brands, mobile minutes or data can serve as currency for consumers hungry for more phone access. Vodafone created mobile-top-up cards in small denominations, designing them to fit in a cash register. 25% of the world’s total business involves barter* • Social responsibility: To help boost tourism in a region of Japan that was devastated by the 2011 earthquake and tsunami, Nestlé is enabling travelers to use special-edition KitKat packs as travel passes on the Sanriku Railway, at a price lower than that of standard tickets. KitKat, which also donated during the railway’s rebuilding phase, is sponsoring the initiative for one year. Meanwhile, last year Brazil’s Antarctica beer promoted the use of public transportation for tipsy Carnival attendees by enabling festivalgoers to use an empty Antarctica can as a subway ticket home, thanks to a specially enabled turnstile. (A nonprofit subsequently recycled all the cans.) • Mobile airtime/data: In emerging markets, paying for mobile airtime or data can account for a significant amount of a consumer’s daily income, which makes airtime and data valuable commodities. In Egypt, Vodafone worked with JWT to introduce airtime as a form of currency. Small shops or kiosks in the country often substitute low-value items like gum and candy for small change; in a twist on this practice, Vodafone created mobile-top-up cards in small denominations, designing them to fit in a cash register. These Fakka (“small change”) cards drove an average 7% rise in revenue per customer. Singapore-based telecom StarHub recently allowed customers to donate unused mobile data, SMS and minutes to several charities as part of its #4Good Movement to make technology available to more people. Sanriku Railway passengers can pay with KitKat
  39. 39. 39 NEW FORMS OF CURRENCY Image credits: Burger King; Montana’s Cookhouse ALTERNATIVE BRAND CURRENCIES (cont’d.) • Ad campaigns: Some brands have turned their products into currencies in ad campaigns, framing the emotional value of their goods in a new light. To show that “Heineken opens your world,” the beer-maker tasked a man with getting from Inner Mongolia back home to Thailand using “nothing but Heineken and a little bit of wit.” Australia’s Tooheys beer has also leveraged the idea of its brew as a form of currency. Oscar Mayer parlayed a similar idea into the Great American Bacon Barter, following actor Josh Sankey as he trekked from New York to L.A. using bacon to pay his way. Similarly, Canadian restaurant chain Montana’s Cookhouse had an actor in Toronto pay for everything from yoga lessons to flowers with platters of smoked meats (the ad agency and production company behind the ad were also paid in meat). Several Burger King ads have featured a man using a bacon cheeseburger to buy a dollar lottery ticket at a convenience store. Using a burger to buy a lottery ticket Paying with meat in a campaign for Montana’s Cookhouse
  40. 40. 40 NEW FORMS OF CURRENCY Image credit: Westin & New Balance In tandem with the emergence of multiple new ways to pay, the concept of what a currency can be is evolving. Value can be stored in anything from cryptocurrencies to loyalty points. In the “fast-emerging future,” theorize professors Edward Castronova and Joshua A.T. Fairfield in The New York Times, “virtual assets of all sorts—traditional currencies, but also bitcoin, airline miles, cellphone minutes—are interchangeable.” At the same time, brands are becoming more creative in assigning value to consumer actions, from social media sharing to positive behaviors like recycling, and in turning products into forms of value exchange. This is opening the door to new ways to creatively engage with customers. Barter reinforces value: When a brand uses its product as currency, it reinforces the value of that product and helps consumers see it in a new light. In Egypt, Vodafone’s Fakka initiative—which turned mobile airtime into a low-denomination currency—made a powerful statement by demonstrating how valuable mobile airtime is and increased exposure to the brand. The campaign, from JWT Cairo, topped this year’s Warc 100, a ranking of the world’s best marketing campaigns, based on performance in effectiveness and strategy competitions. Drive engagement with social currencies: Brands can amplify word of mouth by exchanging goods or services for favorable social media shares, especially if the experience spurs genuinely enthusiastic social buzz rather than obligatory shares that audiences will ignore. Using this tactic too often could devalue the perception of a brand’s social media activity, essentially creating inflation of sorts. For brands unsure how to manage these transactions, several startups help facilitate turning social media actions into payment. WHAT IT MEANS FOR BRANDS Digital wallet technology facilitates the parallel emergence of virtual purchasing power, like loyalty points. … The idea is that you can buy anything, with anything. The [digital] wallet will find the best deal and execute it. In so doing, it will ignore the historical and cultural differences between dollars, points, coins and virtual property. It’s all bits anyway.” —EDWARD CASTRONOVA and JOSHUA A.T. FAIRFIELD, “The Digital Wallet Revolution,” The New York Times, Sept. 10, 2014 For National Running Day, Westin Hotels partnered with New Balance on a tweet-enabled running gear machine
  41. 41. 41 NEW FORMS OF CURRENCY Image credit: McDonald’s Turn loyalty into instant currency: Technology has greatly improved loyalty programs over the years, making it easier for brands to issue rewards points and for customers to manage and use them. The next step is to truly turn loyalty into currency by making it just as easy to pay with points as with traditional currency, thus increasing the incentive to earn these points. Digital wallets will let brands easily integrate points with payments, allowing consumers to carry loyalty points and easily spend them as desired. For instance, this year American Express in the U.S. integrated with Uber, enabling cardholders to pay using reward points within the taxi service’s app. A mobile wallet isn’t essential. For instance, when booking online, members of Virgin America’s Elevate frequent flyer program can see the cost of flights in dollars or Elevate points with a quick click. And soon, American Express cardholders will be able to pay with points at McDonald’s restaurants throughout the U.S. The process is simple and fast, forgoing codes or prior registration: The payment screen displays the points option for diners who use an AmEx card, along with number of points required, and the cardholder presses a “yes” button to proceed. WHAT IT MEANS FOR BRANDS (cont’d.) From the point of view of a brand, saying you accept bitcoin instantly gets you a media hit, instantly gives you a sheen of being tech-savvy, cutting-edge and maybe just a little dangerous, but in a hip way. … But you want to use a third-party service to help you do it.” —BILL MAURER, dean of social sciences and professor of anthropology and law, UC Irvine Embrace alternative currencies: Accepting a new currency as a source of payment can extend a brand’s potential consumer base (not only to fans of the currency but to those without traditional bank cards), drawing early adopters of the currency, painting the brand as innovative and tech-savvy, and drawing media attention. In the case of bitcoin, brands don’t have to handle the cryptocurrency directly, as bitcoin payment processors can provide protection from the downsides of a new currency. Generally any fees are much lower than those charged by bank and credit card companies for payment processing. McDonald’s is allowing American Express cardholders to pay with points
  42. 42. Disruption in the payments and currency sphere is opening the way for new players to act as intermediaries between consumers and their money. We’ll see consumer interaction with banks and other traditional financial institutions wane as newcomers offer innovative or compelling solutions. Consider that 73% of Millennials would be “more excited about a new offering in financial services from Google, Amazon, Apple, PayPal or Square than from their own nationwide bank,” according to Viacom’s Millennial Disruption Index. Image credits (clockwise from left): Google; Coles; Circle; WeChat; GoBank; WorldRemit; Stripe 42 NEW PAYMENT PLAYERS
  43. 43. 43 NEW PAYMENT PLAYERS *Source: Accenture’s 2014 North America Consumer Digital Banking Survey Image credits: Millicom; T-Mobile BRANDS AS FINANCIAL INTERMEDIARIES Mobile operators, tech giants and others are making forays into the financial space, taking on roles traditionally filled by banks and other financial services companies. By doing so, these companies can track spending patterns and behavior, as well as reduce interchange and processing fees. The mobile wallet is a key driver. Mobile payment transactions facilitated by “non-banks” will increase from 1.1 billion in 2012 to 7 billion in 2015, according to a forecast by Capgemini and The Royal Bank of Scotland. Telecoms: Telecommunication companies are well suited to serve as financial conduits for mobile phone users—after all, transferring money is simply transferring data, in many cases. Telecoms are creating their own payment solutions or teaming up in ventures like Softcard in the U.S., comprising AT&T Mobility, T-Mobile USA and Verizon Wireless. (Weve, a similar joint project involving British telecoms EE, Telefonica and Vodafone, was recently disbanded, with the participants now set to individually launch payment apps.) Un- and underbanked regions are particularly prone to disruption in the financial space, due to service gaps in the system and lax regulation. As outlined on page 11, services like Vodafone’s M-Pesa let people send and receive money, top-up mobile airtime and make bill payments through basic handsets. With 80% of sub-Saharan Africa’s population unbanked, other telecoms have created their own systems, including Econet Wireless in Zimbabwe and Millicom with Tigo Pesa. Watch for similar services to make inroads among the underbanked in developed markets, from telecoms and others (see Walmart’s GoBank on page 37). In the U.S., these include T-Mobile’s Mobile Money, launched in early 2014. The service—not limited to T-Mobile customers—combines a money management app, prepaid T-Mobile Visa card and an ATM network. Users can pay bills, set up direct deposit, make purchases, withdraw cash from ATMs and deposit checks by smartphone. T-Mobile customers pay no fees. 72% of North American Millennials would be likely to bank with at least one nonfinancial services company if it offered banking services* Millicom’s mobile money service T-Mobile is targeting the underbanked
  44. 44. 44 NEW PAYMENT PLAYERS Image credits: Google; WeChat BRANDS AS FINANCIAL INTERMEDIARIES (cont’d.) Tech giants: As with telecoms, tech companies are well placed when it comes to creating platforms and services for financial transactions. And social media brands already have a robust network of connected consumers. Facebook is believed to be planning a P2P payments feature for its Messenger app. It has also sought regulatory approval in Ireland to become an e-money service—which would allow European users to transfer and store money via the social network—and already has business licenses for money services in 48 American states. Google has entered the financial realm with the Google Wallet mobile app, along with a corresponding magnetic stripe card (for places that don’t accept NFC payments and for withdrawing cash from ATMs). Google can view every purchase a user makes, giving the tech giant even greater insight into consumer behavior. Both Google Wallet and Gmail also enable free peer-to-peer payments. Messaging services: A slew of messaging apps around the world have been valued in the billions of dollars but are still exploring ways of generating revenue. Given their primary function and technical capabilities, money transfer is an alluring proposition. Snapchat, for instance, filed two trademarks in July that indicate a potential move into peer-to-peer payments. South Korea’s KakaoTalk announced Kakao Pay in September, a service akin to PayPal—users set up an account by linking a credit card, then enter a password to make mobile purchases. In addition, a service called Bank Wallet Kakao is reported to be imminent. Line is planning a mobile service, Line Pay, that will let users make on- and offline purchases through their Line accounts after linking payment information. Line users will also be able to send funds to each other and split costs using a “Dutch Pay” feature. Line Pay will launch in Japan, but parent company Naver plans to expand it globally. WeChat’s New Year Red Envelope app For this year’s Chinese New Year, WeChat launched an app that let users send money to friends and family— putting a digital spin on the tradition of giving cash in red envelopes as gifts for the holiday. The messenger service, operated by China’s Tencent, reportedly plans to tweak the app to fit other occasions.
  45. 45. 45 NEW PAYMENT PLAYERS Image credits: Coles; GoBank BRANDS AS FINANCIAL INTERMEDIARIES (cont’d.) Retailers: Retailers have long provided financial services, but some are expanding more assertively into the space. Australian supermarket group Coles announced a mobile wallet earlier this year, as well as plans to offer personal loans and credit cards through a joint venture with GE Capital Australia. Both Marks & Spencer (via its M&S Bank wing) and Tesco (via Tesco Bank) recently started offering personal current (or checking) accounts in the U.K. Walmart has been targeting the underbanked. This year, the retailer launched a money transfer service—enabling customers to send funds to or from any Walmart in the U.S. and Puerto Rico—and partnered with Green Dot Corp. on GoBank, a mobile checking account with a linked debit card. GoBank waives monthly and minimum-balance fees with qualifying direct deposits and doesn’t charge overdraft fees.
  46. 46. 46 NEW PAYMENT PLAYERS Fintech Innovators The payments space is moving at incredible speed, with new technologies and startups quickly making headway while most traditional institutions lag in updating clunky legacy systems. Major challengers to entrenched financial brands include China’s Alipay and PayPal (soon to spin off from eBay in a bid to be more agile), which Bill Maurer terms one of “yesterday’s disruptive players.” Recognizing the threat posed by nimble newcomers, PayPal acquired payments gateway Braintree in 2013, which itself had acquired social payments platform Venmo in 2012: Relatively new companies are turning to even newer ones to keep up. Here, a few of the financial-tech firms looking to shake up the status quo: Circle: In September, this startup launched a web app that effectively functions as a bitcoin bank. Using a debit card or bank account, users transfer funds to Circle, which converts the money to bitcoin at no fee. Circle also insures this money at no cost. The company, founded by Jeremy Allaire and Sean Neville, focuses on making bitcoin more accessible with consumer-friendly design. It’s planning to issue Android and iOS apps, aiming to take on traditional banks and companies like PayPal. Plastc: This fintech firm recently announced plans for a credit card-shaped device with an e-ink touch screen that would consolidate a user’s credit, debit, gift, loyalty, membership and key cards. Software-upgradeable, the Plastc Card will support magnetic stripe, chip-and-PIN, contactless and barcode technologies, and function just like any of those cards at retail terminals. It’s expected to launch in mid-2015—shortly after a similar device from Coin that was initially supposed to debut this year. Ripple: Ripple Labs’ open-source, distributed-payment protocol lets users make free and instant payments with any currency, including cryptocurrencies and loyalty points. The protocol has its own native currency, XRP, that functions as a bridge between currencies. As of early October, XRP was the No. 2 largest cryptocurrency by market cap, though still far behind bitcoin. In September, Ripple signed two U.S. banks to use the protocol for real-time, cross-border payments. Square: Started in 2009 by Jim McKelvey and Twitter co-founder Jack Dorsey, Square launched with a credit card reader that plugs into the headset jack of compatible mobile devices. The company has expanded to offer other merchant-oriented services, including a point-of-sale system and online marketplaces. For consumers, Square has introduced the apps Square Order—enabling users to order ahead and pay via their mobile phones—and Square Cash, for free peer-to-peer payments via the app, text or email. Stripe: This PayPal rival launched publicly in 2011 and now processes billions of dollars in online payments per year for a wide range of businesses. Peter Thiel, Sequoia Capital and Andreessen Horowitz were early investors. Stripe’s success can be attributed in part to its focus on serving as a “developer-friendly way to accept payments online and in mobile apps.” WorldRemit: This London-based startup, founded in 2009, is an online money-transfer service that lets users send funds from PCs or mobile devices to about 100 countries (WorldRemit has plans to extend this list to more than 200). Customers pay by debit/credit card or directly from a bank account, and recipients have the option to be paid out in the form of mobile airtime.
  47. 47. 47 NEW PAYMENT PLAYERS The financial space is ripe for disruption. Consumers are growing open to the idea of nonfinancial brands acting as money middlemen, trust in financial institutions is low and many established players are lagging when it comes to forward-thinking ideas. They’re also saddled with legacy systems that may no longer make sense but are difficult to update. “You would not today, starting from scratch, invent any of these financial businesses in the same way,” Marc Andreessen observed recently, noting also that banks are hampered by regulatory restrictions. Boost your primary business with financial services: Often, a company’s objective in providing financial services is to boost its primary business, not to create a new revenue stream. Google sees its Wallet—which is reportedly losing the company money—as a means of collecting consumer data and targeting ads based on that data. Bill Maurer terms this “banking as a portal into consumer behavior and preference that then gives you more data for marketing or product placement or even product development,” as opposed to “banking as banking in itself.” Apple, by contrast, isn’t collecting consumer data but is motivated by the opportunity to create a leading ecosystem, much as it did with iTunes. The value in these services is to bring customers closer to your primary offering. Whether motivated by the promise of new revenue streams, new marketing opportunities or the potential for data-gathering, nimble brands that can innovate readily and strategically have a unique chance to garner a piece of the payments market. They won’t replace banks per se—which would require a great deal of specialized expertise and a willingness to navigate legal and regulatory requirements—but will find and improve upon key areas underserved by traditional financial institutions. That said, the financial sector is full of pitfalls: Among other things, it’s a crowded space, entry costs can be high, and security systems will need to be capable of fending off perhaps hundreds of attempted hacks per day. With traditional financial institutions likely to remain dominant for the foreseeable future, brands will benefit from partnering with them in collaborations that are mutually beneficial. WHAT IT MEANS FOR BRANDS Payment, which used to be about [getting money from A to B] in some quarters, is increasingly more and more about advertising, more and more about marketing. And I’ve had people say, ‘If you’re in the payment industry and you’re not yet in marketing, you should get ready, because that’s where your business is going.’” —BILL MAURER, dean of social sciences and professor of anthropology and law, UC Irvine
  48. 48. 48 NEW PAYMENT PLAYERS Pursue the underbanked opportunity: In some emerging markets, mobile providers are offering financial services to the many un- and underbanked consumers, using mobile to fill gaps left by traditional institutions. Brands in developed markets, including Walmart and T-Mobile, are slowly realizing they also have this opportunity. Nearly 10 million American households don’t have a bank account, for instance. Utilize and build your network: When entering a field such as peer-to-peer payments, having a large preinstalled base of customers is a huge advantage—it solves half the equation. A lack of fellow users is clearly a barrier for consumer adoption, and reducing friction of any kind is one of the most important things a payments company can do. Few can boast a network as big as Facebook’s—which is said to be venturing into P2P payments—but it will be incredibly important for brands entering this space to utilize their existing networks or partner with entities that offer big networks. WHAT IT MEANS FOR BRANDS (cont’d.)
  49. 49. October 2014 APPENDIX
  50. 50. 50 APPENDIX MORE ABOUT OUR EXPERTS AND INFLUENCERS Deborah Baxley, consulting services principal, Capgemini Financial Services Baxley, who joined Capgemini in 2010, is an international payments co nsultant with 20 years of consulting experience. She has performed strategy work in 14 countries for eight top global issuers and payment brands, two top payment processors and three top bank card acquirers, and has advised c ompanies on product direction and competitive positioning. She was the IBM partner responsible for strategy and change consulting for financial services in North America and led IBM’s credit card strategy in China. She is current secretary and f ormer chair of the Smart Card Alliance Payments Council. Craig Erickson, creative director and designer, Artefact Erickson’s experience spans large corporate environments and small start ups, including data visualization, product UX, typography, games, advertising and identity. Prior to joining Artefact, a technology product design and development company, he was co-founder and creative director of design and development studio SectionSeven. At Artefact, he’s been instrumental in the design of award-winning product concepts, from the connected ho me of the future to patient-centered decision tools for physicians. Rob Girling, co-founder and principal, Artefact Girling’s career started at Apple after he won the 1991 and 1992 Apple Student Interface Design Competition for concepts around mobile and personal computing. He then spent 10 years at Microsoft, obtaining several patents and making innovative contributions to Microsoft Office and Microsoft Games, eventually becoming design manager for the user interface, brand and user experience of Windows XP. After leaving Microsoft in 2002, Girling worked as a senior int eraction designer for IDEO and as the lead game designer for Sony’s MAG action game. He co-founded Artefact, a technology product design and development company, in 2006. Bill Maurer, dean of social sciences and professor of anthropology and law, UC Irvine A cultural anthropologist, Bill Maurer serves as director of the Institute for Money, Technology and Financial Inclusion and was founding co-director of the Intel Science and Technology Center for Social Computing. He conducts research on law, property, money and finance, focusing on the technological infrastructures and social relations of exchange and payment. Maurer has particular expertise in emerging, alternative and experimental forms of money, payment and finance, their legal implications, and how they have the potential to challenge the definition and nature of money itself. He received his B.A. from Vassar College and his M.A. and Ph.D. from Stanford University.
  51. 51. 51 APPENDIX APPENDIX CHARTS FIGURE 1F MILLENNIALS COOL ON CASH AND CREDIT (U.K.) Percentage of British adults who used the following in the past year Age 18–34 Age 35–65+ 8795CASH++ 95% 87% 5681CREDIT ++ CARD 81% 56% FIGURE 1E MILLENNIALS COOL ON CASH AND CREDIT (U.S.) Percentage of American adults who used the following in the past year Age 18–34 Age 35–65+ 8496CASH++ 96% 84% 6982CREDIT ++ CARD 82% 69%
  52. 52. 52 APPENDIX Percentage of British adults who agree “With today’s technology, it doesn’t make sense that we mostly still rely on cash, debit and credit cards to pay for things” 51% AGE 18-34 32% AGE 35-49 15% AGE 50-65+ APPENDIX CHARTS (cont’d.) FIGURE 1G: Percentage of American adults who agree “With today’s technology, it doesn’t make sense that we mostly still rely on cash, debit and credit cards to pay for things” 51% AGE 18-34 34% AGE 35-49 18% AGE 50-65+ FIGURE 1H:
  53. 53. 53 APPENDIX FIGURE 1I: MILLENNIALS WARMER ON NEW WAYS TO PAY (U.S.) Percentage of American adults who used the following in the past year FIGURE 1J: MILLENNIALS WARMER ON NEW WAYS TO PAY (U.K.) Percentage of American adults who used the following in the past year Age 35–65+ Age 35–65+ Age 18–34 Age 18–34 9+ 10+ 27+ 24+ 8+ 6+ 27% 24% 10% 2+ 5+ 10+ 5+ 2% 5% 9% 10% 1+ 2+ 1% 2% 8% 6% TAPPING TO PAY WITH A PHONE MOBILE APP (E.G., STARBUCKS, UBER, VENMO) VIRTUAL CURRENCY (E.G., BITCOIN) 5% TAPPING TO PAY WITH A PHONE MOBILE APP (E.G., STARBUCKS, UBER, VENMO) VIRTUAL CURRENCY (E.G., BITCOIN) APPENDIX CHARTS (cont’d.)
  54. 54. 54 APPENDIX Percentage of American adults who agree “The sooner we move away from cash, debit and credit cards and adopt more advanced and sophisticated payment systems, the better” 44% AGE 18-34 24% AGE 35-49 14% AGE 50-65+ Percentage of British adults who agree “The sooner we move away from cash, debit and credit cards and adopt more advanced and sophisticated payment systems, the better” 47% AGE 18-34 25% AGE 35-49 9% AGE 50-65+ FIGURE 1K: FIGURE 1L: APPENDIX CHARTS (cont’d.)
  55. 55. 55 APPENDIX APPENDIX CHARTS (cont’d.) FIGURE 2C: INTEREST IN MOBILE PAYMENTS (U.S.) Percentage of American adults who have not used a mobile app, tapping to pay with a mobile phone or virtual currency in the last year who agree Gen Xers (35-49) Boomers (50-64) Silents (65+) Millennials (18-34) I would like to use my mobile phone to pay if it makes transactions faster 51+36+32+27 37% 51 36 32 27 I would like to use my mobile phone to pay for small transactions that usually require cash 40+36+27+21 33% 40 36 27 29 I would like to use my mobile phone to pay when splitting bills or other expenses with friends 44+36+16+30 31% 44 36 16 30 Keeping track of my purchases sounds much easier with a mobile wallet 46+28+24+17 30% 46 28 24 17
  56. 56. 56 APPENDIX APPENDIX CHARTS (cont’d.) FIGURE 2D: INTEREST IN MOBILE PAYMENTS (U.K.) Percentage of British adults who have not used a mobile app, tapping to pay with a mobile phone or virtual currency in the last year who agree Gen Xers (35-49) Boomers (50-64) Silents (65+) Millennials (18-34) I would like to use my mobile phone to pay if it makes transactions faster 49+28+18+12 26% 49 28 18 12 I would like to use my mobile phone to pay for small transactions that usually require cash 48+34+19+16 29% 48 34 19 16 I would like to use my mobile phone to pay when splitting bills or other expenses with friends 46+28+8+4 21% 46 28 8 4 Keeping track of my purchases sounds much easier with a mobile wallet 58+26+14+9 26% 58 26 14 9
  57. 57. 57 APPENDIX APPENDIX CHARTS (cont’d.) 48383722PayPal A mobile app (e.g., Starbucks, Uber, Venmo, etc.) FIGURE 2E: FRAUD CONCERNS BY PAYMENT TYPE (U.S.) Percentage of American adults who are very concerned about potential fraud with each of the following forms of payment Tapping to pay with a mobile phone (e.g., Google Wallet) Virtual currency (e.g., bitcoin) 48 38 37 22 50424121 PayPal A mobile app (e.g., Starbucks, Uber, Venmo, etc.) FIGURE 2F: FRAUD CONCERNS BY PAYMENT TYPE (U.K.) Percentage of British adults who are very concerned about potential fraud with each of the following forms of payment Tapping to pay with a mobile phone (e.g., Google Wallet) Virtual currency (e.g., bitcoin) 50 42 41 21

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