By Brandes Elitch
In November 2018, I attended the Payments Innovation Summit in San Francisco. I've been thinking about the subject of innovation a lot recently. An October article in Time magazine titled "50 Genius Companies" stated, "At the heart of every great business is a creative solution to a problem, and these solutions sometimes change the world." Time evaluated candidates on "originality, influence, success and ambition." Inspired by them, I asked myself, "Why can't we do something like this?"
Then I wondered if you can teach people to be innovative, and whether innovators share a common denominator or just a lucky path. No generally accepted principles or standards exist for innovation. After all, most people are not getting paid for innovative work; they are doing necessary work. In most companies, an entrenched bureaucracy has a vested interest in the status quo. Most people are uncomfortable with change. Hardly anyone is engaged in regular, repeated innovation behavior; they have jobs to do with associated expectations to meet.
As writer Jeffrey Phillips put it, "You don't educate someone in 'innovation'; you educate them in a set of tools, expectations, perceptions, and beliefs. The combination of these factors enables innovation to occur." He added that these tools include "trend identification and analysis, scenario planning, customer insight generation, idea generation, prototyping, and more." This sounds daunting.
Can you train someone to be innovative? Can you teach people to think differently than the rest of their group? And if so, will management allow them to implement their solutions? Will management allow innovators enough license and time to work their ideas through to a pilot project that has a chance of success? In most cases, probably not. After all, there is work to do – now. But in some cases, with forward thinking management, bright people with different skill sets, who work well together as a group and have an intuitive sense of what customers, will want in five years, it can happen.
Retail Systems Research identified five types of innovation: customer-driven, technology-driven, insight-driven, process-driven, and influencer-driven. RSR found that large retailers are expected to deliver top and bottom lines, which leaves little funding for innovation. Continuous promotional activity has cut into the discretionary budget for innovation. Customer expectations continue to rise, but retailers need operational efficiencies to fund customer initiatives and innovation. Most mature companies have this problem.
November's symposium, chaired by Michelle Vautier, took on this subject with vigor. Topics included realizing the full potential of cloud-based mobile payments and Internet of Things (IoT); agile development methodologies and APIs; AI and machine learning; how fintech will impact the future of commerce and payment options; delivering a personal and seamless payments process to consumers; global business payment trends; innovations in global operating capital liquidity; and risk and mitigation solutions to payments security. Funding for fintech projects centers on five areas: lending, insurtech, payments, blockchain, and B2B fintech. Note that eight of the largest tech companies are in payments (Apple, Google, Microsoft, Apple, Tencent, Facebook, Alibaba, and Samsung). Clearly, the focus has been on payments.
Ashwin Raj, a vice president at Lyft, talked about his company's challenges in optimizing payment processing in the overall consumer service proposition. Apparently, Lyft handles 1 million rides a day. In addition to requesting and paying for rides via smartphone, Lyft riders can change reservations and even change destinations after they get in the cars. They can rate rides and tip drivers immediately or after their rides. Raj was clear that the payment rails Lyft uses, the ACH network and Visa Direct, are inadequate for the gig economy. He wants to pay his drivers instantly, but has found the ACH takes three to five days. In processing credit card transactions, Lyft is treated as a card-not-present merchant, so the authorization process looks for a shipping address. Lyft loses chargebacks because of this. He wants to truly pay his drivers in real time.
Both the Federal Reserve and The Clearing House (a consortium of the largest U.S. banks) are working on a real time payments (RTP) solution, and NACHA has promulgated a three-step plan for same-day ACH. With ACH payments, the originating bank can choose whether to route the transaction via the Federal Reserve or via TCH, each of which has pros and cons. TCH said its RTP solution can reach about half of all demand deposit accounts in the country. The Fed is developing an RTP solution, but that raises issues of interoperability. Furthermore, community banks are skeptical that TCH will keep small bank customer data private. We will not be able to reach all 11,000 U.S. financial institutions in the immediate future, however, and Lyft remains stymied on how to make immediate payment to its drivers.
Nick Brown spoke about his company, Clear Purchase. His goal is to provide mobile money accounts to the 3 billion poorest people in the world – a basic bank account for people making $2 a day. All of these people have cellphones. Disparate systems serve them. His goal is to provide interoperability, a switch that connects everybody.In these poor communities, the only trustworthy outsiders are the cellphone reps and the microloan reps. There are 100 million borrowers now borrowing $200 billion a year, but the expense of managing a $200 loan causes an APR of between 30 and 60 percent. Another 700 million people would borrow if they could. Brown believes that if we give another billion families purchasing power, this will create a 30-year economic boom.
There was also a discussion of bitcoin, but the bloom is off the rose for bitcoin now. For one thing, the speed of processing is inadequate. It also has unknown value, and there is no purchase guarantee, which will be difficult to figure out.
Nick Richardi gave a presentation about how to share value among the players using heavy construction equipment, much of which sits idle for some period. There are 1.3 million pieces of heavy construction equipment in the field, as well as ISO standards that provide data for fuel, idle time and utilization time. The construction industry is cash poor. Richardi's solution is to put the right equipment in the right place at the right time and monetize excess capacity to leverage the IoT.
Another discussion was on preventing fraud by providing better identity management. The Better Identity Coalition is working to address this huge need. The idea is to start with something you know, something you have, something you are, and a code generated elsewhere. For instance, Google authentication has a random six-digit code.
Eric Solis discussed his product, MovoCash, which uses blockchain technology to convert cryptocurrencies to cash in real time. He said protocols, not apps, matter to blockchain. He sees a new paradigm where everything is up for grabs, promoting innovation without undermining the regulatory framework. His presentation asked six questions, which look helpful for anyone considering a distributed ledger solution:
Presenter Olga Mack raised an idea worth repeating. She showed a chart depicting the Dunning-Kruger effect. It illustrated that in many cases, when the "best and brightest" get together to change the world, there is often a lot of self-delusion and overestimation of competence.Mack suggested that when you talk to such people, ask what they have done, what they have built, and what experience they have with project management. First, you need a successful pilot before you scale and expand. Ask what blockchain can do that a distributed database cannot and what application you cannot live without. This brought the audience back to reality.
Innovation is a tricky business, akin to catching lightning in a bottle. But there are numerous dedicated, energetic people working to do that. Some will be successful.
Brandes Elitch, director of partner acquisition for CrossCheck Inc., has been a cash management practitioner for several Fortune 500 companies, sold cash management services for major banks and served as a consultant to bankcard acquirers. A certified cash manager and accredited ACH professional, Brandes has a Master's in Business Administration from New York University and a Juris Doctor from Santa Clara University. He can be reached at email@example.com.
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