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All Together Now: In Pursuit of the Perfect Payment


I’ve been accused of being obsessed with the payments business for longer than I’d care to admit. And I’d have to say that, in light of the non-stop global innovation happening in our industry, what consumers want has never been clearer. They want payment systems that are: a) frictionless and b) secure. Let’s look at some of the ways they’re telling us.

Bitcoin: A few days before the Mt. Gox Bitcoin exchange abruptly shut down, after hackers stole the $363 million in Bitcoins that it virtually housed, I received an invitation to an industry conference in Asia that read, in part:

Subject: Can Bitcoin eliminate credit card fraud?
. . . . . .

[I]t is time to safeguard the security of online banking and payment card transactions by deploying a comprehensive set of security measures for payment cards in addition to EMV chips. The technology behind Bitcoin protocol could help to reduce systemic risk by creating safeguards shielding the payment systems. Bitcoin’s clever use of public-key encryption and peer-to-peer networking solves the double-spending problem that had previously made decentralized digital currencies impossible. The properties combine to create a payment system that is safe and secured.

Well, now that Mt. Gox has filed for bankruptcy protection in the US, Bitcoin’s fate as a mainstream currency is more uncertain than ever. But the fact that more than a million consumers created Bitcoin wallets shows that people do believe in the potential of this alternative currency – and that these people are looking for alternative, frictionless ways to conduct commerce. (This is despite reports that over a half billion dollars’ worth of Bitcoin currency has been stolen since 2010. In other words, one out of every 16-17 Bitcoins now belongs to someone who stole it.)

PayPal: The story at PayPal is decidedly happier. A couple weeks ago, PayPal subsidiary Braintree announced a new “account updater” feature that, according to VentureBeat, will “automatically update consumers’ credit card information for merchants when they receive a new card from their bank.”

VentureBeat says that “As part of the PayPal team… Braintree’s goal is to remove as much friction as possible from the payments process for consumers, merchants, and developers.” Great idea! Account updater works like this:

Companies are used to losing some customers when they’re issued new credit cards because people are less likely to pay for a service if they have to reenter their credit card data. That’s no longer a problem for merchants using Braintree. If you’ve previously given card information to a company and you’re forced to cancel it — say, because Target got hacked — your replacement card will automatically work with that vendor.

Overall, this is a positive development for the payments industry because it continues to remove “friction” from the ecosystem for both merchants and issuers.

EMV adoption: Following the Target data breach and others that occurred over the holidays, MasterCard and Visa have teamed up to launch “a cross-industry group to improve security for card transactions and press US retailers and banks to meet a 2015 deadline to adopt technology that would make it safer to pay with plastic.”

I opined recently in another blog post that EMV adoption is a good thing. As I said then, and I’ll say now, I continue to believe that a strategic, controlled rollout, much like the path the US credit card industry is already on, will work.

The message is clear

Consumers want payment systems that are frictionless and secure. They’re voting with their wallets, choosing alternatives to the magnetic stripe payment cards that many of us pull out when we buy things. Some of these alternatives, like PayPal, are backed with credit card payment mechanisms, and others, like Bitcoin, are not. But for all of us in the payments industry, the message is clear: we need to work, all together now, to give customers the perfect payment.

Thanks for reading my blog post. Opinions, comments and shares are welcome below. 

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Comments

Chris ule

While I agree with your use of Paypal as an example of consumers wishing to reduce friction, i don't personally believe it is a major reason people choose to use bitcoin. There are miriads of reasons people use bitcoin, but I would argue most revolve around greed and a desire to avoid government oversight, not payment friction.

TJ Horan

Chris: Thanks for the comments. While I agree with your point about some of the drivers of bitcoin, my point in the post is that an alternative to the current payment process is growing. It’s not really about what bitcoin is today, but about what it could become tomorrow (as Marc Andreessen says in this WSJ article: "widespread adoption of the currency will fuel the growth of new businesses and technologies": http://online.wsj.com/news/articles/SB10001424052702304026304579453501821936252?mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052702304026304579453501821936252.html). I’d never suggest that payment mechanisms should hide illicit activity, but in my post, I chose to explore the bigger picture of asset transfer in the future -- that is where I think the potential of bitcoin might be. Thanks again for the comments.

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