Not so long ago, the options were simple: cash or credit. Yet technology has forever transformed payments. In what seems like the blink of an eye, we have entered a world where an ever-growing number of transactions are facilitated by something else in our pockets – our smartphones. This has led to an explosion of payment options, many of which were impossible just a couple of years ago.
Is cash still king?
An even more exciting development is the coming tsunami of IoT (Internet of Things) devices. Many of these will help focus on payments. This will take the payments revolution beyond apps, such as Barclay’s Pingit or the third-party payment app Zapp, and into the realm of machine-to-machine (M2M) and micropayment solutions.
Even with the recent revolution in payments, most transactions remain either human-to-human (H2H) or human-to-machine (H2M). From this perspective, the fundamental nature of payments has yet to be altered. However, this construct, a cornerstone of global commerce for centuries, is about to be torn asunder. In an IoT-enabled world, payment no longer relies on human contact.
Imagine your refrigerator being able to order – and pay for – your beer. While this may sound far-fetched, Samsung and MasterCard are actually working on a solution that will enable such transactions to happen. Granted, initial versions will require human interface, but it is only a matter of time before your refrigerator is enabled by Artificial Intelligence, Big Data and IoT to know exactly what you want before you want it.
Let your refrigerator do the shopping
Another aspect of these transactions will be their size. According to a report from Hendrik Kleinsmiede, co-founder and innovation partner of Visa Europe Collab, “the vast majority of [M2M] transactions will be of far smaller amounts. Tiny denominations. Micro-payments. Even nano-payments.”
These sorts of payments will put a tremendous strain on the global payments ecosystem. Whilst the total number of transactions will explode, the average amount of each transaction will go in the opposite direction. As such, opportunities to create an entirely new global payments infrastructure will appear.
If successful, payments will become something we never even have to think about and this will redefine how monetary systems work. According to Ernst & Young, a micropayments ecosystem will require tools which can seamlessly facilitate trillions of transactions safely and securely in real time.
This brings up a key point: security. As we’ve seen, securing an increasingly digitized world has become more and more difficult. Not to be outdone, a number of startups are also looking into micropayments. These include Blendle, whose technology is being backed by a number of newspapers in Europe and the U.S. To date, the company has raised nearly $4 million to build a platform which will help to facilitate payments as small as 20 cents.
Another startup in the micropayments space is Yippster. This Delhi-based startup was founded by Anant Kochhar and Tashina Singh. It all started when Kochhar realized the security solution he was working on would also help to protect micropayments. Such measures have massive implications and Yippster was selected for the fourth batch at TLabs in 2014.
Breaking down barriers
The payments revolution is not only happening in developed markets. In fact, some of the most innovative technologies in payments today are being developed in markets which lack the robust banking networks we often take for granted in the west. According to Harvard Business School’s Sunil Gupta, there are “6 billion mobile phones but only 2 billion bank accounts.”
One company that recognized the opportunity is Fusion Payments. The Sydney-based payments technology company has leveraged their experience with Telstra in Australia to partner with mobile carriers throughout Southeast Asia to service the hundreds of millions of those without banks who have cell phones.
No matter where you look, how we pay for goods and services is undergoing a dramatic change. A number of startups are jumping into the space and the coming onslaught of IoT devices will create even more opportunities for innovation. The days where cash is king may not be dead, but let’s just say they’re on life support.