Moving Towards a Frictionless Payment Experience
As a society, our payment habits are once again changing as individuals become more comfortable with new technologies that no longer require taking their credit card out to buy goods and services.
We have come a long way since science fiction writer Edward Bellamy first wrote about the credit card concept in his 1887 novel, “Looking Backward.” While Bellamy only wrote about the idea in his forward-thinking novel, Frank McNamara, co-founder of Diners Club, was actually the first to use a “small cardboard card” to pay for dinner in 1950.
That night would turn out to change financial services forever, ushering in the beginning of the modern credit card era. Eight years later, American Express CEO Ralph Reed launched a charge card that the company was able to successfully build and scale, thanks in part to the success of its pre-existing financial services businesses. Around the same time, Joseph Williams was developing the first all-purpose credit card for Bank of America — BankAmericard — which would later evolve into Visa.
Just as forward-looking entrepreneurs and executives such as McNamara, Reed and Williams helped created the modern-day credit card system, we are now going through a new cycle of innovation. While the names of the individuals who are changing the payments industry today are different, what they have in common is a desire to create a better way to pay for goods and services.
Could the next 10 years usher in the next revolution in payments, similar to the way the 50s and 60s gave us American Express and Visa? Yes. The introduction of technologies such as PayPal, Square, Amazon Payments, Google Wallet, Facebook, Apple, Stripe and Alibaba are just the tip of the iceberg.
Square changed the way we pay for goods at small and medium-sized businesses by making it cheaper and easier to accept payments. Square’s ability to design a beautiful product and user experience is helping society move towards a frictionless payment experience.
Google is also trying to move us towards a frictionless experience with Google Wallet’s near-field communication (NFC) payment technology. While paying for goods in a store with a smartphone is innovative, it is not a truly frictionless experience. Consumers still have to reach for the smartphone in their pocket or purse, similarly to the way they would reach for their plastic credit card.
The current CEO of American Express, Ken Chenault, recently summed up his thoughts on digital wallets by saying “I’m going to tap to pay? What’s the friction that it’s really solving? What are the benefits that I’m getting? How is that helping me in my shopping journey? At the end of the day, the failure of wallets was not being focused enough on customer needs.”
Chenault has changed the perception of the brand by partnering with the best young startups to create exceptional value for card members. He predicts there will only be five platforms that matter to the future of payments — Apple, Amazon, Facebook, Google and Alibaba — and that American Express will be embedded in all of them.
In Spain, CaixaBank has out-innovated Google for the time being by partnering with Visa to introduce the first Visa contactless wristband. The wristband eliminates the friction of paying for goods while increasing the customer’s experience. Barcelona-based CaixaBank has a long history of innovation, as the first European bank to launch a large-scale contactless card payment system in 2011.
While this move by CaixaBank and Visa was extremely smart, it is only the first step towards a truly frictionless payment experience. As Visa’s contactless wristband technology evolves and matures, I expect to see Visa follow its historic growth path by partnering with existing businesses.
MasterCard isn’t sitting still, as CEO Ajay Banga has transformed the company from a global payments company into a technology company with remarkable track record of growth. While still COO, Banga launched MasterCard Labs in 2010 with the goal of developing innovative new technologies. MasterCard’s PayPass, a contactless technology currently used by more than 2 million merchants in 63 countries.
As Visa and MasterCard move into the contactless payments technology, there is a sleeping giant that will soon be awakened — Apple. While there has been much speculation about the iWatch, there has been little if any talk of the device’s potential to change the payment industry by introducing a frictionless contactless payment system to the masses.
Apple has north of 800 million credit cards on file through iTunes, which could instantly make the iWatch a game changer if Apple offers payment capabilities. An iWatch could very well eliminate the need to carry a plastic credit card by simplifying the process of paying for goods and services.
Tap and go, without having to remove your smartphone from your pocket or purse. This is the future of a frictionless payment experience. A customer-first approach to payments that is simple, secure and easy to use is coming.
While this is the future of paying for goods and services without friction, this major change in consumer habit will not occur overnight. Instead, it will take years to fully mature until society as a whole is comfortable with a contactless payment system that is embedded into existing devices such as a watch or bracelet.
This new payment system will eliminate the friction of having to think twice about paying for goods or services.