A universe of ways to pay

The payments industry may be fragmented and in a state of seemingly continual flux, but innovation and enterprise promises to pay, writes Dan Matthews


Creating new ways for people to pay each other is not an easy process. Just look at the euro experiment, still experiencing varying levels of controversy across the eurozone despite the fact that freshly minted coins and notes were first introduced more than 11 years ago.

The US dollar was arguably less successful than the euro, at least initially. Although the first dollar coins were issued by the United States Mint in 1792, the currency vied for dominance with others for more than 100 years and rogue denominations were still being traded well into the 20th century.

Today it’s no easier to introduce a new payment platform and competition is even stiffer. When the dotcom bubble burst more than a decade ago, the digital sector nebulised and thousands of new businesses emerged with clever propositions to help people buy and sell.

Many of these new firms have received funding, grabbed themselves a healthy customer base and achieved individual success as entrepreneurial entities, but almost none have developed the muscle required to push rival operators out of the game.

Such is the fragmentation of the payments industry that few major brand names exist and the range of options for businesses to accept payments is truly bewildering; not only that, but the industry is continuing to expand rapidly and shows no sign of consolidating.

The chaotic growth of the payments industry has left retailers, in particular, but all businesses that buy and sell, in an uncertain position. There exists a perpetuity of options and no clear hint as to which platforms, systems and services will win the day.

Investing in smarter payments infrastructure could lead to more sales, greater efficiency and bigger profits

What we’re seeing is the classic VHS versus Betamax battle, but instead of a simple head-to-head event, it’s a royal rumble. In this sector, when one business throws up its hands and admits defeat, another three jump into the ring.

It is the sheer number of participants in this field that drives innovation and collectively creates the factory production line of new products hitting the market daily. By the time you read about an example of a “new” innovation in payments, there are probably five copycats getting ready to launch.

Consider the example of digital currency Bitcoin: introduced to the market in 2009, it has been valued at close to $2 billion by Bloomberg, yet there have been dozens of attempts to replicate its success with less famous names such as Litecoin, Namecoin and PPCoin.

Of course, digital currencies shouldn’t be confused with virtual economies, which are best known as the way businesses monetise web-based role-play games. Many of these allow gamers to act out virtual lives in enormous money-driven digital environments, such as Second Life and World of Warcraft.

In the former example, “Linden dollars”, the indigenous currency named after the game’s creator, can be traded or used to buy and sell virtual products and property within the game. The money has a real cash value, yet people will happily spend it to buy what are essentially the pixelated representations of things.

This willingness to part with cash through online channels is very new. Just a few short years ago, consumers were beset with concerns about the security of the internet and feared that cyber-thieves lurked everywhere.

Now, online is fast becoming the preferred channel for shoppers and in 2012 the UK market was valued by IMRG, the industry association for online retail, at £78 billion. In the same 12-month period, the UK mobile retail or m-commerce industry is estimated to have grown by 300 per cent.

Primark now stocks its products on online-only ASOS.com, Morrisons customers can shop online and have their weekly essentials shipped by Ocado and that bastion of the high street, John Lewis, recently announced that annual online sales had tipped the £1-billion mark.

We are comfortable with digital technologies when it comes to transactions. So much so that consumers have allowed them to cross the divide between virtual and real-world shopping experiences, with cloud technologies and near-field communications forming an evermore common part of the buying experience.

The speed at which digital platforms are infiltrating the high street is being driven by the development of increasingly powerful smartphones, to name one factor, which with a few simple tweaks can be used as direct channels between your bank account and a beneficiary’s.

Looking to the future, as people become more accustomed to the revolution taking place in the payments industry, there will be yet more opportunities for business to buy, sell and capture useful data about the markets they operate in.

For businesses, investing in smarter payments infrastructure could lead to more sales, greater efficiency and bigger profits. There are boundless opportunities for firms to take advantage of and, although the market is confusing and changeable, one thing’s for sure: the process of taking and receiving payments will never be the same again.