The Illusion of Payment Disruption

By Mehul Desai for LTP

There has been growing discussion over the past few years on the new transaction rails, and how the Internet has disrupted payments just like other industries. Unfortunately or fortunately, the payments industry is not that easy to disrupt. Every serious attempt that has managed to garner some scale has ended up either enabling the legacy infrastructure or leveraging the existing infrastructure, merely becoming another delivery channel for the last mile.

The challenge legacy networks have is not one of efficacy or even adaptability but is rather similar to the world’s busiest and aging airports. They cannot afford to shut down for a day, let alone months. The only solution is to keep bolting on new capabilities to the existing infrastructure, which while ensuring continuity also comes with its own set of disadvantages. This is where the new rails have an advantage in terms of being able to leapfrog to new technologies. But getting payments right is not only difficult but also a long drawn out iterative process. Hence, the notion that some of the new rails will blaze the way forward is also misguided.

First came the Internet, then mobile devices and by extension the mobile Internet, and now the social media age is upon us in full fury. With every twist in this technology-ridden tale, weary-eyed entrepreneurs have dreamt of disrupting the world of payments and charting a brand new course to the holy grail of inexpensive, secure and ubiquitous payments. While clearly, there has been tremendous innovation with tangible benefits across the ecosystem, broadly stated there has not been any meaningful disruption but rather an enablement of the legacy establishment.

Social networks have garnered an enviable user base, supported by an unprecedented rate of adoption. Facebook is truly a global force, serving over a billion of humanity all around the world. Twitter is well on its way to becoming a verb in the lexicon of generations X and Y, and most likely Z. Then there are the regional networks, in full bloom in China and waiting in the wings to soar across other large markets like India, Southeast Asia, Africa and Latam.

While its societal benefits can be debated, these networks clearly are providing some value to its users to have garnered such significant adoption and scale in such a short period of time. With adoption comes usage, and with usage comes user behavior. Irrespective of their primary utility or killer application, these networks are a very timely innovation for advertisers and marketers. The clickstream, which Google monetizes like no other provider, can only say so much. The profiling ability of these social networks has truly provided a second wind under the analytics wings.

Practically every large social network – global and regional – now is steadily marching towards the payments arena, where most large networks offer some form of person-to-person payment capability. It is interesting to see how payments is such a strong force, where either a social network has become successful because of its person-to-person payment capability, or, where the network has started offering person-to-person payment services after scaling successfully.

First appeared at LTP