Sunday, November 23, 2014

Will Data be the next payment method?

I was talking at the FST Conference in Sydney last year on Next Generation Customer Experience. Majority of the questions I was asked were around the ROI on big data analytics, which set me thinking on how do you identify the part of the value chain to focus for highest benefit realization. A lot has been written around the use of unstructured data in driving targeted one-to-one offers helping generate higher revenues at better conversion rates. But, the ROI is increasingly skewed with very few organizations able to harness the true potential. So, where in the value chain do you focus?

The answer lies in focusing efforts around forming stronger relationships with a wider consumer base through a greater insight around transaction data. The entity which controls this aspect of the value chain stands to gain the most in terms of monetizing the transaction data for greater revenue share and retention. The battleground will be checkouts (physical and online) in a bid to control access to consumer spending patterns. Thereby, Unlocking insights around Payment transactions will be the epi-center of the next analytics boom. This could lead to a new payment method – consumer data. Both organizations and individuals in the future will be able to pay through this new method trading off insights on spending patterns.  

According to a Wall Street Journal story, consumer data and similar intangible assets could be worth more than $8 trillion. MasterCard is packaging insights on consumer spending patterns and trends gained through analysis of payments transactions selling them to banks, governments and retailers. What stops super market chains from working with individual brands within their store to on-sell anonymous information of spending patterns on associated complementary or even competitor products? Imagine Walmart through data analytics discovers that 70% of the consumers of diapers in a locality of nappies buy baby food in the same transaction. How valuable will this information be to Heinz who can then use this information to co-market their baby foods with Huggies? What’s more, even bigger value if Walmart can trade off that insight to the account payable to Heinz.

We are not far from the day when online retailers will choose a subset of ‘one-off’ buyers to fill out their personal details and preferences (outside of the normal) and trade that off as a discount against their product.  They can get these customers to waive off the privacy restrictions and trade their personal data to other channel partners and retailers.

Banks, traditionally being away from the consumer, lack a good understanding of their customers shopping habits and sometimes location data to target & customize their offers. This presents an opportunity for telcos and retailers, who are touch-point advantaged to trade off that data as a payment method with bank fees. This provides many benefits. First, they can reduce their liquidity requirements for a greater rate of return by offsetting with the customer’s other services in return. Second, it serves as an alternate currency and investment vehicle, which can be independently traded and valued, bringing in extra revenue at greater convenience.

As an illustration, Rite Aid and CVS who are part of the MCX consortium recently blocked mobile NFC payments specifically targeted around ApplePay as Apple masks customer data thereby robbing them of consumer insights to analyze spend correlations and patterns. Their own mobile wallet technology, PaymentC, aimed at reducing credit card usage and pushing for lower transaction fee structures is not out until mid-2015.


What do you think? Feel free to leave comments and feedback

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