Viewpoint: All Payments Expo Leaves Us with Positive View of Industry Evolution
By Larry Berlin, First Analysis
Following the All Payments Expo in Las Vegas, we continue to believe the payments industry is in the process of moving from the center of its own ecosystem to becoming a major component in another ecosystem—the consumer shopping experience. This evolution, in our view, could hurt companies in our universe that don’t keep up with change but should propel those that do to solid profit growth and better-than-market stock performance.
Newer Technologies Force Players to Evolve
In looking at the universe at the show and in regular conversations, we hear many new ideas, but most rely on an established credit card or debit card network to facilitate a payment. This means they rely on merchant acquirers and third-party processors to process the transaction. While these players remain at the center of the payments ecosystem, newer technologies—even when they ride existing payments rails—seem to be forcing more established players to evolve. These technologies include PayPal’s systems, mobile payment (Apple Pay), mobile acceptance (Square), peer-to-peer payment (Popmoney from Fiserv, Dwolla, eBay’s Venmo and others), and a global payments platform (eBay’s Braintree). Enhanced use of data and demands to collect and analyze it, regulation, threats to interchange, competition, security flaws and acquisitions also force companies to evolve.
|“In our view, alternative payments are more evolutionary than revolutionary.”|
Much of the discussion at the All Payments Expo centered on alternative payments and their potential. Alternative payments include PayPal, mobile payments, ACH payments, national networks outside the U.S. and myriad other payment systems. (Credit, debit, check and cash are the only payment vehicles we can think of that do not count as alternative payments. Prepaid straddles the fence between the established payment vehicles and the alternatives. It’s similar to debit but is newer and solves some problems debit can’t—like access for any consumer.)
In our view, alternative payments are more evolutionary than revolutionary. By themselves, alternative payments can facilitate an easier checkout and payment experience. More important at this time, alternative payments can allow for additional collection of first-party data that can be used to enhance the shopping experience.
Omnichannel or a Convergence of Technology: SeaWorld and MGM
A major topic at the show was omnichannel, or the use of multiple methods to convince the consumer to buy or buy more. We view payments as an integral part of this effort. The use of data from transactions as well as from social media and, of course, geographic data is key to the movement to omnichannel services.
We were particularly interested in the discussion from a SeaWorld representative. We view SeaWorld as a great place to test the combination of mobility and payment to improve the customer experience. For example, a visitor at SeaWorld, can use its app to plan the visit, check lines and find sites. She might decide to buy a T-shirt of Shamu on the phone, avoiding the wait at the store, and then order a snowglobe and maybe a stuffed animal. She and her family can order from a menu on the app and have their food ready for pick-up at a restaurant. The park could provide her with special offers, using iBeacon technology that also can provide information on what she’s seeing. At the end of the day, she could pick up her merchandise purchases—paid for with a card on file—as she leaves the park.
We had a similar positive omnichannel experience during the All Payments Expo. We stayed at the MGM Mirage as a gold member of its mLife program. We booked through mLife and received a 25 percent discount on our room. We checked in and showed an ID but not a card. Our gold membership meant a shorter line at reception and earlier check-in than other guests. Before we even reached the room, mLife emailed special offers to see Cirque du Soleil at a 40 percent discount. This added to our enjoyment and generated extra revenue for MGM. We also ate three dinners at MGM resorts charging all to our room (not a new thing). As we walked out, we received another surprise—a $130 meal voucher had been attached to our account and the discounts given to us automatically. All of this added to our experience and made us more likely to stay at an MGM hotel during our next conference in Las Vegas. Payment was easy since we never pulled out our mLife card. In short, SeaWorld and MGM use the convergence of technologies and not just one technology, often with payment as a central component, to improve an experience.
These experiences exemplify the many ways to generate data, use the data and improve a consumer’s experience in a store, hotel, restaurant, or maybe even a doctor’s office. So while Apple Pay, which is just a payment mechanism right now, may generate the most news, we view it as one piece of a pie, a view shared by many others at the numerous panels we attended. Integrating services around or with the payment vehicle is a key component of the evolution we see in the industry.
Larry Berlin is a vice president at private equity and investment banking firm First Analysis in Chicago, where he specializes in research and investment in payments technology. This article is an excerpt from his longer report published March 1. Larry can be reached at [email protected].
Disclaimer: The compensation of the research analyst principally responsible for this discussion is indirectly based on (among other factors) the general investment banking revenue of FASC. FASC considers all the companies covered in its research reports to be potential clients.
In Blogs & Viewpoints, prepaid and emerging payments professionals share their perspectives on the industry. Paybefore endeavors to present many points of view to offer readers new insights and information. The opinions expressed are not necessarily those of Paybefore.