blog

It’s about time

Gail S. Ball | Operations | 10/15/2015 4:19 PM

I thought I really “got smart” when I got this SWATCH watch at work in 2000. Turns out that the watch was pretty smart too.

Back then, I used the SWATCH to tell time but it could also be used as a vehicle for payment. Many times I used it to pay for lunch in the cafeteria at First USA (now Chase). I didn’t have the chance to ski when I was in Grenoble, France, but I could have used my SWATCH watch to buy a lift ticket.

Fifteen years later, smart watches like this are reasonably easy to come by, although not from SWATCH. But sensors similar to those in this SWATCH watch are poised to be THE enabling agent for the Third Industrial Revolution, an economic phenomenon precipitated by the phenomenon of near-zero marginal cost, itself brought on by the digitization of everything. 

Jeremy Rivken, author of two texts on zero marginal cost, writes

"...sensors are being attached to every device, appliance, machine and contrivance, connecting everything with every human being in a digital neural network that extends across the entire economy. Already, 14 billion sensors are attached to resource flows, warehouses, road systems, factory production lines, the electricity transmission grid, offices, homes, stores and vehicles. They continually monitor their status and performance and feed data back to the internet….where private enterprises can use big data and analytics to develop predictive algorithms that can speed efficiency, increase productivity, and dramatically lower the marginal cost of producing and distributing products, making businesses more competitive in the global marketplace. The marginal cost of producing some goods and services in the digital era will even approach zero, allowing millions of prosumers connected to the Internet of Things to share what they have made with others, for nearly free, in the growing sharing economy."

This era of “transformation” hasn’t exactly corresponded to its legacy definition of “replacing the old with something new,” but has come to mean “breaking apart the old to give access to pieces of it to trusted others, generating increased value of that old asset by making it more accessible.” Here’s an example: you used to own a car for your own use, and its value was created because it gave you access to people, places and things that required transportation to secure. Today your car still creates that value, but if you are an Uber driver, it also generates incremental value when you give access to someone needing a ride; if you are a passenger, it gives you a seat without the fixed expense of an additional car. Today, economic activity is being digitized, data is being generated and analyzed in new ways, and previously discrete objects, people, and activities are being connected.

This connectedness is what we in payments have been observing as the driving force behind change. The fastest growing segment of electronic payments - P2P - exists because of connections (i.e., splitting the cost of dinner with friends) or to create multi-layered connections (move the money and make or invite commentary from your personal network.) Globally, P2P payments are estimated to exceed $1 trillion annually, but in the US today, it’s estimated that only about $5BB are conducted with the mobile apps that create these connections and eliminate the friction/overhead of these low dollar payments – carrying cash, calculating shares, time delay from mailed check payments.

But the use of mobile apps to create “frictionless payments” is gaining traction. As more retailers and consumers realize the benefits of frictionless payments, the way people buy and sell on their mobile devices is changing. PayPal One Touch is a great example of frictionless payment. Macy’s recently became the first major retailer to embrace the One Touch method of payment across all of its channels – mobile, online and in-store. And when a retail giant such as Macy’s makes the move to frictionless payments, it’s bound to have more than just a ripple affect on the retail world. There’s bound to be a wave of movement as One Touch is now available to more than 50% of the Internet Retailer 500 in addition to hundreds of thousands of merchants within the PayPal and Braintree networks.

I'll make the case that frictionless equates to zero marginal cost, and suggest that payments has, in fact, just caught up to the Third Industrial Revolution.

I don’t have to look at my SWATCH to know that it’s about time.

The opinions, findings, or perspectives expressed in this content are those of the author and do not reflect the official policy or position of The Bancorp, Inc., its affiliates, or its or their employees.