It seems like few payment-related products being released these days from technology companies—along with Facebook and Square, think Apple, Google, etc.—don’t earn the “disruptive” moniker, often before the products themselves have even been officially introduced. This isn’t to say that the products themselves are good or bad. As mentioned, what companies like Facebook and Square are doing are certainly interesting. How they fare in providing P2P or low-cost alternatives to merchants could be very important.
But peel back the layers of social media and mobile technology and it turns out at the heart of all of these interesting efforts is the payment infrastructure that has served consumers for decades. For instance, both Facebook Messenger and Square Cash use debit cards as the foundation for their services. Apple, the most talked-about of the tech companies entering payments, partnered with the major credit card issuers and networks from the beginning.
And that’s to be expected for one very important reason: scale. Making payments happen reliably and securely is difficult enough, but doing it at the scale required by merchants and consumers in the U.S. is decidedly more difficult. There are few companies that can do it beyond the financial technology providers, networks and banks already making payments happen today.
Consider that last year Americans made around 90 billion credit and debit transactions worth around $4.5 trillion. They carried around 750 million cards, or something like 2.5 cards for every man, woman and child in the country. And yet how often does a payment not work? How common is it to try and make a purchase at a store, restaurant or gas pump and not have it processed promptly and reliably? Infrequently enough that the experience is quite remarkable.
As an analyst, I am often asked about what is happening in payments now that it has become such an interesting space. I am asked to predict what technologies are going to “win” or “lose,” or what startups will succeed or fail. And within these questions is the possibility of disruption of payments.
And if you think about it, disruption is an easy story to understand. Everyone likes to root for scrappy underdogs. But that brings up an interesting question: when you’re handing over your hard-earned money to buy something, do you want to rely on a scrappy underdog? Or do you want reliability? And scale? I suspect I know the answer.
This is not to say that disruption of the payment space is not possible. As it turns out, the payment space is ripe for a little shaking up. But if you look below the surface of what is often called disruptive these days and you will find many of the same companies that are currently providing the reliability and security consumers have come to depend upon, sitting in the background where they have been all along.