After 18 years in the processing and acquiring industry, I finally made the move to a technology company based in Silicon Valley and entered a totally new world. My new world is filled with not only amazing weather but also obnoxiously high taxes and living costs. And the buzz in San Francisco and San Jose seems reminiscent of the late 1990’s, but now smartphone-enabled payments are blazing the way.
Consumers and small businesses have eagerly latched onto the smartphone for its ability to keep them connected when on the go and take advantage of mobile access to crucial apps from email to business management. It didn’t take long for savvy folks to realize this device has powerful potential for changing the nature of the payments business.
Interestingly enough my new employer, VeriFone, helped stoke this fire two years ago with the commercial introduction of PAYware Mobile, providing a secure app and an encrypting card acceptance sled for the iPhone. The company’s offering was designed to provide channel partners, including ISOs and banks, with a go-to-market mobile payment solution.
About the same time, startups with no affinity for the reseller channel realized they could take advantage of the mobile micro-merchant market with a new model; a completely vertical aggregator model already made famous by PayPal in the online world. As the card brands bent their rules to accommodate this new market, companies such as Square Inc. quickly developed a following. Intuit and North American Bancard soon entered the fray, and a new international player named iZettle opened up shop in Europe. All of a sudden, just about anybody with a reader and an app developer can bring a smartphone-based mobile acceptance offering to market. Folks, the new Dongle Era has arrived!
Startups fueled by a new investment bubble, and more established companies such as Google Inc. and Apple Inc. that can’t afford to ignore a potentially huge new market, are focused intently on mobile payment acceptance as a core building block to delivering new layers of products and services. And if you believe some of these folks are settling for only the babysitter and dog walker market, you may be missing the point--Intuit just announced it’s integrating its GoPayment mobile option with its QuickBooks point-of-sale offering, and Square is scrabbling to suck retailers and consumers into a “walled garden” that can justify its venture capital goals. SAIL, the new VeriFone offering is taking a friendly open approach to the developer and reseller community, but no matter how you shake it the Dongle has fundamentally changing the payments world.
First, the traditional merchant application and boarding process most of us grew up with was designed to protect the enterprise from undue risk. But that process has proven too slow and inflexible, especially when customers can pick up a smartphone, tablet or computer today and get instant access to hundreds of apps that can help their businesses
The new era merchant requires boarding processes that are cool, sleek and lightning fast, and that can manage risk exposure through automation and post-boarding processes. Boarding is as simple as clicking a few buttons, and the apps are simple and easy, too, making for a cool consumer-like experience on a business product.
Add a few social networking, digital media and analytics features, and you have now turned a basic payments transaction into a cool experience. There’s a new phenomenon afoot that even the biggest of the Fortune 500 companies are dealing with these days that’s been called the consumerization of IT. In essence, it's recognition that innovation is moving faster in the consumer world than the business world, but that it rapidly percolates. Employees, customers and partners become frustrated if they perceive that innovation is passing them by.
Second, let’s talk about this connectivity thing. Legacy payments players kind of understand this concept but expecting a 20-year-old Tandem and mainframe system to process more than a byte or two of payments data is a big stretch. Widespread reports that Groupon is readying its own approach indicate it sees an opportunity to enhance the offer redemption experience for customers. PayPal wants to gain acceptance in the retail world delivering their basket of technology without battling ISOs and processors for terminal access. Square has actually created a virtual network or mall of customers who can discover each other through their affiliation and transact within the network. Others offer the ability to create customized promotions and manage loyalty. By owning this point of interaction experience these companies can deliver other high-value offerings that drive agendas greater than merely authorization and settlement of payment transactions.
So I have learned a few things since being in California. First, the Silicon Valley is leading a payments revolution; and second, the new Dongle Era isn’t really about a dongle at all. The dongle is not the end game but merely a means to an end. It is about an experience and gaining connectivity to a merchant. The micro-merchant segment isn’t for everyone but what I have learned is that the industry has been fundamentally changed. The market has said, “I want simple and cool.” Simple and cool transcends the micro merchant; the influences that shaped the smaller merchant are shaping the larger enterprise, too.
The user experience (UX) is paramount. If the market has glorified the UX, the business model has glorified “value-added services.” Without additional means to generate revenue from valuable products offered to merchants outside of payments, the model fails. Some of the new dongle players are looking at the payments stream alone, and that may work for some small markets. But the real players, the ones that will stand the test of time, will find ways to acquire merchants in a cost-effective way and monetize them through additional mediums on a common platform.
I am not suggesting that everyone jump in and go compete in the micro-merchant space. What I am suggesting is that if you want to remain a meaningful participant in the Dongle Era, you’d better learn from what the market is telling us and plan your strategies appropriately.
Greg Cohen is a senior vice president at VeriFone Systems Inc. and general manager of the SMB Commerce business unit. He also serves on the Electronic Transactions Association board. Reach him at email@example.com.