Friday, January 9, 2015

Looking Forward to 2015: Part One

Last year saw some major disruptions begin to take hold in finance and payments. While the jury is still out on some of these disruptive technologies like Bitcoin, others are going to continue to reshape entire industries including mPOS and a host of mobile payments options from Apple Pay to Coin.

Bitcoin or Bust in 2015?

As did many people, I got very excited about Bitcoin in 2014. I watched some documentaries, read some books, downloaded some apps…. As I dove deeper into this incredible technology the more I wondered if it could really turn the corner, become mainstream. Bitcoin certainly made steps forward toward becoming mainstream, including integrations with Paypal and recently Microsoft (sort-of).  Coindesk, and important source of information about the crypto-currency, publishes and maintains a list of ways you can use bitcoins to make purchases. However, while at first glance it is impressive, considering the currency is only a few years old. there are some important retailers (most?) absent from the list.

Bitcoin’s biggest problem has been price volatility (aside from highly publicized thefts). Key to solving this will be an increase in real transactions. More retailers accepting bitcoin means more transaction volume, and the general reasoning goes that the price of a bitcoin will then reflect that transaction volume rather than speculative trading causing spikes in the crypto-currency’s price.

Yet despite the philosophical reasons why many people choose to use bitcoin, many people are attracted to bitcoin and other crypto-currencies by stories of massive fortunes being made out of seemingly thin air. As the price stabilizes (it hasn’t, it’s been going down most of 2014 and is now at around $280) we may see less people attracted to the currency as its attractiveness to speculators wanes. PYMNTS recently published a nice overview of Bitcoin’s interesting 2014, and the conflicting views for its future in 2015.

Challenges aside, the technology behind bitcoin… um, Bitcoin(?)... is truly revolutionary and lot’s of investment is pouring in. There are thousands of startups (more than 500 on Angel List alone) working with bitcoin. We’re probably passing over the hype-hump, and coming down to reality where real innovation is going to get traction, companies like Ripple or Blockstream.  

In 2015 new innovations using the Blockchain to create “sidechains” like Blockstream, or bitcoin inspired technologies like Ripple’s protocol, may become the true legacy of Nakamoto. Some of the most notable entrepreneurs and investors in the Valley seem to think so.

The Unstoppable mPOS

While mPOS growth was steady it’s unlikely anyone in the mainstream had it pegged as one of the most disruptive technologies of the next couple years. That is, until millions of credit card and other personal information was hacked from major retailers in 2014. Right?

Wrong. 2014 seemed like one of the worst years for privacy in history, but it wasn’t. Starting the year off with Target (which really happened in 2013, but anyway), we saw Staples and Home Depot have severe security breaches, not to mention Sony. It was bad, but it may have been exaggerated. In fact, since Target was hacked in 2013 and can be excluded from any lists of 2014 data breaches… other than Home Depot (maybe) the 2014 hacks don’t make the top 5 according to CNN. 2013 probably cost more, an estimate $7.1 billion; and according to credit card fraud fraud in the U.S. accounted for 47% of all credit card fraud worldwide in 2012.  

The real story in 2014 was the U.S. payments industry is finally making changes to address problems which have seen data breaches as severe or worse than 2014’s since the 80’s. Mastercard and Visa both announced that as of October next year they will be penalizing merchants for fraud that occurs because the retailer does not have an EMV payment system. This has prompted retailers, payments processors and acquirers, retail software companies, around the world to take action, fast. The migration to EMV alone is going to cost billions of dollars in spending, and has many retailers looking at mPOS as their next upgrade. The resulting displacement of entrenched incumbents could mean untold fortunes for challengers.

mPOS is at the center of a dramatically changing payments landscape. Startups like Square, ShopKeep, Revel Systems, or Poynt arguably have a headstart on entrenched giants like Verifone, NCR. In addition to the accepting EMV, the advantages of mPOS are cost (they’re cheaper), integrated software for inventory or marketing, they arguable reduce wait-time (at least at restaurants), and may even increase sales due to reduced abandonment. Some major players like First Data and Heartland Payments are beginning to acquire mPOS startups to gain an advantage. PYMNTS recently published an excellent overview of the advantages of mPOS, what the incumbent POS providers are doing about it as well as some of their challengers.

Bottom line is more than half of retailers surveyed by RIS (Retail Info Systems) plan to buy one or more mPOS for the next upgrade, and 25% say they are going to decrease spending on fixed POS. The number is higher when you look specifically at restaurants. Business Insider estimates the share of U.S. retailers who implement mPOS is going to grow up to 50% by the end of 2015, and reach almost 80% by 2019.

Expect to see lot’s of new mPOS systems in 2015… not to mention most of your favorite stores accepting one or more type of mobile payment method [to be continued].