Wednesday 19 October 2011

The end of the line for payment cards?

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Payments cards are a legacy of the last century.

Their design was necessitated by a need to be able to communicate the identity of the holder and the provider/guarantor of the funds. This resulted in a physical card format, originally paper, more recently plastic which has since proliferated in our wallets as both payment choices and payment providers have ballooned.

Originally used in the 1920's, the first payment cards were issued by merchants with customers having a different card for each merchant. Seeing an opportunity to simplify payments for customers and possibly to create competitive advantage, several companies in the late 1930's started to accept each others cards. However it wasn't until the 1950's when Diners Club, Amex and Carte Blanche came about that the wider concept of a payment network was created.

Now customers could use a single card to pay for goods and services and since then the expansion of merchants accepting these has grown to cover almost every conceivable category and territory. Indeed, the latest contactless cards are finally opening up new sectors like transport or fast food which have been stubbornly cash based up until now.

Whilst this has made life simpler by removing the burden of physical cash, it is not however how people think about money.

The use of these plastic cards has forced us to channel our purchases through them as we attempt to manage our finances but ultimately our finances are more complicated and granular. This means we tend to carry more than one card - a debit card for every day small payments, a credit card for personal spend, a second credit card for business spend, an Amex...just in case.

Even with these different cards, they still don't align to our budgeting.

When we save for a holiday then the payment for that holiday comes from our savings (which may then have to be moved to our current account to then pay the credit card). When we incur business expenses, we have to pay for these through our personal account based on payments made by our company which are then paid to our credit card. We're constantly moving money around to make it work in a convenient way and we just accept it as normal. It's how things have always been done.

Then I saw BankSimple and saw what the future may actually hold.

There are a number of great ideas and innovations within the BankSimple interface, but in my opinion, one of the greatest is the ability to manage your money within goals.

Essentially these allow customers to decide what they actually want to use their money for (new car / holiday / home improvement / nest egg) and then can allocate funds automatically to this. BankSimple make decisions about how to invest this (long term/ short term) and the customer is always in control, able to change payments, end dates or simply pause the goal for a while.

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This works because they are not forcing a customer to take out a new payment card or setup a new savings account to keep their money separate. Instead, BankSimple lets the customer worry about what they want to do with their money and they will work out the best way to manage this behind the scenes.

This jam-jarring prinicple is how people think about money. They decide on different goals/expenses and make allowances for these on a regular basis to try and manage their finances and keep within their "safe-to-spend" balance as BankSimple term it.

Where I think this could get more interesting is when you look at this combined with some of the recent announcements about mobile payments - from Google Wallet to Visa Peer to Peer. At present, all of these solutions have tended to look at linking in a payment card or bank account to make the solution work. The mobile wallet concept simply moves the payment card from a physical plastic device to a virtual one.

Indeed, Google Wallet allows you to simply swipe the screen to pick the right payment card before a single tap then allows you to pay, redeem a coupon and earn points. Launching Google Wallet they said:-

The launch reflects Google's efforts to simplify and redefine the shopping process for both consumers and businesses. [..] Because Google Wallet is a mobile app, it will do more than a regular wallet ever could

Whilst their desire was to redefine the wallet, instead all they've really done at this stage is substitute it.

Osama Bedier, VP of Google Payments is quoted as saying:-

Our goal is to make it possible for you to add all of your payment cards to Google Wallet, so you can say goodbye to even the biggest traditional wallets.

To me though, the bigger question is whether there is a need for payment cards at all?

In the BankSimple world where money doesn't visually reside within accounts and instead has more meaning attached to it based on goals and budgets, then you can imagine that these virtual wallets may be able to access funds in this more natural way.

  • When I go shopping, I should be able to pay from my household budget
  • When I pay for a holiday, I should be able to pay from my holiday savings
  • When I pay for a car expense, I should be able to pay from the allocation for motoring expenses

Don't have enough money in my budget? Well then simply extend me a line of credit for that purchase in that budget.

This would immediately give me visibility that my car expenses are in the red, and I can choose to pay these down more quickly. Rather than an aggregated, monthly credit card statement with every expense stuffed into a single number, i'd have real visibility of my money as it relates to my life.

Technology like Google Wallet is fantastic and i'm genuinely excited about what it will offer in the short-term. However it's going to take some real visionary thinking like that shown by BankSimple to truly redefine our relationship with money.

When that happens I think the need for payment cards, as shaped by the last centuries requirements may actually become a thing of the past and mobile technology will redefine not only what we pay with, but how we manage that payment.

Saturday 8 October 2011

Millennials - More open, but no less private

Well if you have any association with loyalty marketing, you can't fail to have noticed the new brand on the block, Aimia.

Whilst exciting news (full disclosure - I work for Aimia), it was also great to see some new research released at the same time which we've just carried out on the loyalty market. Part of an ongoing strategy for loyalty thought-leadership, the new research entitled "Born this way - the US Millennial Loyalty Survey" focused on the growing importance of the Millennial generation. Numbering over 1.7bn globally, this generation is bigger than the Baby Boomers and three times the size of Generation X - they are also coming of age and so will be increasingly important to brands who want to connect with them.

Whilst the research focussed on many different areas, a really interesting aspect was the Millennials opinion of data privacy.

Interesting because for many, including Facebook chief, Mark Zuckerberg there is a feeling that younger people don't care about privacy and will share anything and everything. Zuckerberg was quoted as saying:-

People have really gotten comfortable not only sharing more information and different kinds, but more openly and with more people

For a generation growing up in a connected world with internet access, mobile phones and social networks it's probably no surprise that they have a different take on privacy, openness and the sharing of data - but does this mean they are any less concerned about their privacy?

The Aimia research does indicate that they have higher levels of openness than non-Millennials being more likely to share personal information with websites (36% vs 22%) and more likely to share information with a reward programme (50% vs 37%).

Aimia privacy

However what doesn't seem to change with age and is consistent across the generations is the desire around data to be both informed and to inform. Consumers overwhelmingly want to know why data is being collected (84% Milllennials / 86% None) and want to be able to opt in to sharing it with with over 77% preferring to opt-in when sharing location information or online behaviour.

There is however a higher level of trust with reward programmes, with Millennials trusting these even more. It seems when the value exchange is explicit and the consumer knows why their data is being collected they are much more comfortable with sharing it. Highlighting this within the report, it says:-

Millennials expect the Value Exchange to be transparent and permission-based. [they] are willing to grant you a measure of trust—but will quickly end the relationship if you violate that trust.

Social network privacy is also important to all consumers with Millennials valuing this even more (40% vs 38%), indicating both the value they put on social networks and the value they put on their data. This is backed up by new research from Forrester in a report entitled "Personal Identity Management". The report discussed findings from Gigya which highlighted how consumers tend to use different social network identities to log into different types of web content, stating:-

Users are most likely to log on to entertainment sites via Facebook Connect, for example, but prefer to log in to news sites via their Twitter handles. Each option shares a different set of data with the authorized site, so the fact that consumers are making an active choice highlights how they differentiate among the various sites with which they engage.

The Forrester report goes on to highlight a growing trend for consumers taking more control of their personal information, something they term PIDM (Personal Identity Management) but which is also similar to the growing movement around VRM (Vendor Relationship Management). This is something which is backed up in the Aimia research where the consumers desire for more control of their data is expressed with a strong preference (76%+) for being able to create a portable "privacy profile".

Forrester go on to discuss the implications of this for marketers, highlighting five main areas that need to be addressed in order to "unlock" consumer information and which echo the Aimia research around the consumers desire for privacy, security, value exchange, transparency and portability.

Forrester privacy

In conclusion, Forrester articulates what they feel a value exchange looks like for consumer personal information saying:-

[..] Two factors will come into play when it comes to the notion of value. First, consumers will need to receive highly targeted and relevant content, offers, discounts, and rewards for sharing their data. Second, we envision a rewards-based system wherein individuals will accumulate points across a closed ecosystem of marketers, services, and vendors that wish to retain maximum access to consumer data

This sounds a lot like a loyalty programme to me and given the increased likilihood for consumers to provide this information to reward programmes as highlighted within the Aimia research, it would suggest that the future of loyalty is very bright indeed. Wrapping this up the Aimia research concludes by saying:-

[..] The tools of loyalty management can make the difference. By facilitating the value exchange through targeted applications of reward and recognition, you’ll gain customer data that provides insight into Millennials as individuals. You’ll learn to deliver offers that focus their attention. They’ll respond to your efforts with increased loyalty, profitable behavior and word-of-mouth advocacy.