Karen Webster's Do's and Don'ts for Payments Innovation

Karen Webster's Do's and Don'ts for Payments Innovation
by Karen Webster
I had an awesome invitation to participate on a panel this year at BAI on Innovation in Financial Services and was not able to make it at the last minute. The format was a moderated Q&A and the laundry list of questions was focused on how FIs need to think about innovation and where to invest. Here is what I would have said had I been able to make it:
It’s a mindset not a business unit. Innovation isn’t the job of a person or a division, it’s what needs to drive the organization. Sure, it is okay to have a central group that is responsible for filtering ideas, even doing some incubating and then diffusing new ideas and products into the broader organization, but thinking that it is someone else’s job to innovate is a sure elevator ride down to the bottom floor. If you don’t believe me, look at the players who are kicking butt today in payments and financial services: PayPal, Intuit, Google, Green Dot (prepaid) and other companies who are defined by the innovation they produce, not by a couple of innovative products produced and launched every now and then.
Some things need to be broken before they can be innovated. This is the whole idea of creative destruction, but with a twist. Innovation is sometimes about improving a core product in new and different ways – such as online banking that becomes a mobile banking environment, for instance. Other times it’s about gutting and rebuilding from scratch. I would put loyalty in that category. Loyalty is one of those things that once made a difference to customers because they were really differentiated, but is now an undifferentiated morass, built primarily around points that are awarded for certain actions. Points, by and large that don’t mean as much as they used to. The new environment of offers and deals has shown the consumer not only that they can get better stuff that way but that rewards and points have become really meaningless and a currency that is not accepted at any of the places that people like to shop. There are exceptions of course, but thinking that loyalty can be innovated on the back of either an offers/deals or points-based scheme is thinking inside a box that first needs to be destroyed.
Just because a competitor is doing something doesn’t mean it’s innovative (or good enough for you to copy). Innovation isn’t necessarily copying what everyone else is doing (although in some cases imitation is not only the sincerest form of flattery but a great way to free ride on someone else’s great idea) . My favorite example of this is NFC and mobile payments. Raise your hands if you remember a time a few years ago (a year ago?) when you were virtually tossed out of an issuers office if you tried to talk to them about anything but NFC as a mobile payments strategy. Why, because FIs drank the analyst NFC Kool-Aid (e.g. that 50% of all transactions will be done via NFC-enabled mobile phones by 2010) and no one wanted to risk bucking the pack to try something that actually had a chance of working. Those who did, are players like PayPal and emerging entrepreneurs who are using bar codes and other creative POS enablements to make mobile payments happen – today. Don’t be afraid to copy great ideas, but beware of the perils of groupthink.
Sometimes it’s better to buy or partner it and not build it. FIs are judged by how well they manage risk and protect their customer’s assets. That is big and important stuff. It is also the stuff that turns the IT folks into the corporate version of Cerberus, guarding the gates of hell while their hands are full with other things like compliance. Getting into that queue is a bear. Rather than try, it is often easier to buy or partner with innovators who have built great technology but need distribution and who would love nothing more than to do a deal with a FI. It makes the pace of moving innovation from the drawing board to the marketplace in the FI world a heck of a lot faster not to mention cheaper.
Innovation has to solve a real problem. Technology makes a whole bunch of stuff possible today but that doesn’t mean that it’s worth doing or that consumers will jump on board. Remember Blippy – the platform that posted your transactions to your Facebook news feed? Yep, technology and the Facebook API made that possible and the company CEO was convinced that young people would adopt it because they live such transparent lives. Blippy no longer exists, because even young people thought it was too creepy and it didn’t solve any real problem for them. What problem exists that posting transaction activity to Facebook would solve? Same gig with P2P. Sure, P2P is possible, but the often-described use cases for splitting the lunch check never made any sense because it is not the sort of problem that people lie in bed at night wishing for a solution. Ditto with the dual stripe plastic cards that are credit and debit cards in one. Technology makes it possible but consumers find it confusing. Consumers have to pull a card out of their wallet anyway at the point of sale, is it really that much harder to pull out THE card that she wanted to use? FIs should resist the siren song of innovation for that which really helps consumers solve a problem and for which they would trust their FI to help them solve.
The financial crisis and the difficult regulatory environment that followed really put FIs on the ropes for the last couple of years. So much of their world was in flux, that the last thing anyone thought about (or was rewarded by Wall Street for thinking about) was being innovative. Survival was the name of the game. We’re through that now and the environment for FIs to innovate is now pretty awesome. They have had the chance to evaluate what others have done to see what has worked and what hasn’t. First mover advantage, all of the empirical studies show, isn’t all that it is cracked up to be. It’s often much better to watch what others have done and adapt those learnings to your own market and customer base. That is the opportunity that FIs now have. They still have an amazing customer base, and a sticky one – for better or worse, it is still not all that easy to switch FIs right now. That won’t always be the case as the economy gets stronger. So, now is the time to thoughtfully innovate so that customers are not only well served while they are a somewhat captive audience, but satisfied enough not to switch if and when the time comes when they aren’t.