Thursday, June 12, 2014

Payment Disruption - It's Getting Interesting

 The following is an excerpt originally published in Credit Union Magazine

Investment in retail financial services innovation has exploded since the financial crisis. The evidence is compelling:
  • Global investment in financial technology has tripled from $930 million in 2008 to nearly $3 billion in 2013, according to Accenture;
  • Of the 1,096 “payments” startups listed in early May on AngelList [], 216 joined this online investment platform for start-up companies in 2014.
  • Large players outside financial services have joined venture capital firms in making significant investments in the field. Google, for instance, recently invested in three lending startups.
These investments could potentially disrupt the traditional business models banks and credit unions have relied on for years.

Andrew Sorkin recently wrote in The New York Times’ DealBook column, “If the last three decades revolutionized the information and telecommunications industries, the next three may upend the basic tenets of finance: currencies, credit and banks, as well as payment and transmission systems.”
Let’s take a closer look at some of these disruptive innovators:

  • PayPal has a redesigned mobile app and introduced Beacon, a Bluetooth Low Energy device that connects to a customer’s smartphone when they enter a store to enable hands-free payment at the point of sale.PayPal offers, “Bill Me Later,” which allows customers to defer payments for items purchased via PayPal.
  • Lending Club, the largest U.S. peer-to-peer lender, facilitated nearly $800 million in personal, unsecured loans in first quarter 2014. Last year, Google led a $125 million investment round in Lending Club.
  • T-Mobile recently partnered with The Bancorp to offer a prepaid debit card and mobile app, which it markets as a checking account alternative.

The future promises even more potential for disruption as the true impact of new and yet-to-be conceived innovation is felt. For example, Bitcoin’s true impact may have nothing to do with virtual currencies—Bitcoin’s lasting innovation may be its platform, which enables peer-to-peer transactions without relying on a trusted third party or clearinghouse.

A myriad of industries have been disrupted in recent years by new technologies and business models (e.g., e-commerce, digital music, digital photography, e-books, etc.). Retail financial services may be nearing its own moment of disruption.

Original article written by John Lass, senior vice president, strategy & business development, and Steve Heusuk, senior manager, strategy & business development, for CUNA Mutual Group.