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Speed Bumps On The Path To Payments Disruption

A Snarketing post by Ron Shevlin, Director of Research at Cornerstone Advisors

A common trait among emerging generations is a desire to break from the past, and overcome the sins of their fathers (not mothers, because women are perfect, and if they’re not, I, sure as hell, am not going to be the guy who tells them so).

What’s funny about the newest young generation is their interest in disruption within the payments industry. Who would’ve thought anybody would care about payments?

Well, maybe it’s not too far-fetched. I suspect part of the interest is driven by their perceptions that the financial services industry was responsible for the so-called “great recession” (so-called because the Carter recession of the late 70s was a helluva lot worse than this past one). Hence their interest in seeing the titans of the financial industry toppled.

The younger generation is very technology-focused, of course, and potential disruptors in the payments space are often seen as technology companies than as financial services companies.


For better or worse, eventually the younger generation will learn what every generation before them learned at some point: Life’s a bitch and then you die.

OK, maybe it’s not that bad. But some (oh hell, make it most) of the payments disruptors are going to learn that lesson. Because there are some significant speed bumps on the path to payments disruption.


Here are some of the speed bumps:

1. Scalability. Scalability isn’t just an issue on the merchant/retailer side; it’s an issue for consumers as well, who are being asked to use key fobs, new devices, consolidate their cards on a single card, etc. It the long-run, this might not the biggest speed bump out there, but anything that slows down the adoption of a new technology (or system) means the disruptors are burning cash.

2. Privacy/security concerns. There are a number of studies conducted recently that point to consumers’ renewed interest in using cash, in response to the spate of breaches. I honestly can’t see this as anything more than a blip, but the privacy issues regarding the use of consumer data will rear its ugly heads. For every payment disruptor geek out there, there are two privacy fanatics who will make sure we all know that every step we take in a store is being tracked and monitored. The press loves these kind of stories more than stories about new methods of payment.

3. Data management/utilization. Remember when the financial services industry thought that account aggregation technology would give us insight into what customer had, and was doing, and would give us the ability to analyze that data, and make relevant offers, and deepen relationships, and drive up profitability, and enable us to all retire at 40? You think merchants, retailers, and the new technology startups trying to disrupt the payments industry are all that better at managing and using data? I’ve said it before, will say it again: Apple’s Achille’s heel is its inability to manage and analyze data.

4. Offer fatigue. But let’s say a few firms emerge that are really good at data management and utilization (Google it–I think you’ll find one). What are they going to do with that data? They’re going to inundate us with more marketing offers. They have to–that’s their business model. The whole push to payments disruption is about eliminating interchange and lowering transaction costs. How will the disruptors make money if not by pushing offers at us, and showing merchants/retailers they’re driving business to them? This is a shaky business model.

5. Customer service. Think back to the last time you had a problem with an online or mobile search you did, and had to contact Google’s customer service department. How did that go? It didn’t. They don’t have a customer service department. Retailers and merchants who call Square for customer support hear a recorded message telling them to go online. That don’t cut it, folks. Here’s Shevlin’s Law Of Customer Service: The company that makes the money on a transaction has to provide the customer support. If I’m taking 10 cents on a transaction, and you’re getting a dollar, and the customer has a problem–YOU provide the support, buddy. The inability for some disruptors to build and scale customer support services will bring ’em down. It’s not as easy as just outsourcing it to India.

6. Funding source. With all this talk of payments disruption, there’s something I just don’t understand. Seriously, I just don’t get it. If, when a consumer uses an alternative, or let’s call it a disruptive, payment method, if the money has to come out of a traditional bank, is the traditional bank really being disrupted? True payments disruption isn’t going to happen–as far as I’m concerned–until we change how and where we deposit our paychecks.

7. Declining margins. Every other industry in modern history has seen a decline in transaction processing costs as volume increases and technology improves. Except payments. The oligopolies and regulatory environment has propped up those costs for a long time. On one hand, pulling away those props is a boon for disruption. On the other hand, declining margins in payment processing means fewer potential disruptors will reach the scale necessary to profit from slim margins.

8. Consumer demand. Some of you disruptive payments geeks are deluded. You think everyone–let alone everyone your age–wants to use new, alternative, and disruptive payment methods. Far from it. Most people couldn’t care less. Even a lot of Gen Yers. Not saying that demand won’t be there in 10, or even five, years. But it’s not here today–and that’s yet another speed bump on the path to disruption.

9. Regulatory direction. I study consumer behavior. I think I’ve become fairly good at predicting what consumers will do. I have absolutely no clue, however, what the loonies in Washington, DC will do. The regulatory direction is a total wildcard impacting the path to payments disruption.


You might know of other speed bumps that I didn’t include. Great. Only helps me make my case.

Bottom line: I’m not saying we won’t see major changes in the payments industry. I’m saying the major changes are further on down the line than some pundits would have us believe.

If you think I’m wrong, then please–PLEASE–lay out your case somewhere and tell me how all these speed bumps magically (or not magically) go away in the near future.

p.s. If you were looking for a picture with cash coming out of a smartphone to represent “mobile payments,” sorry to disappoint you.

Ron ShevlinRon Shevlin is Director of Research at Cornerstone Advisors. Get a copy of his best-selling book, Smarter Bank: Why Money Management is More Important Than Money Movement. And don't forget to follow him on Twitter at @rshevlin.

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  1. Great post and validated by the extremely small impact that any of these ‘disruptors’ have had on P2P payment volumes. Despite the relatively small impact any individual solution has had on the payments landscape, however, the potential for real disruption may occur in the category of insight ‘ownership.’

    Many of the disruptors may end up having a much greater impact on who retains the payments behavior insight than on payments themselves. Of biggest concern should be the potential of Apple as a ‘payments intermediary,’ where they won’t own the payments process, but will capture the data that differentiates today’s financial institutions.

    The future could end up as one where a bank simply knows there was an iTunes purchase as opposed to a purchase of groceries, gas, apparel, etc.

    Beware the Trojan Horse.

  2. Rick Mueller says:

    Hey Ron,

    Genuine Disruption never comes from within the industry it’s destined to Disrupt – and by that same token the regulations that currently govern payment systems (in this case) won’t amount to a hill of beans when those systems become Disrupted.

    Finally, you’ve actually nailed the reason that it hasn’t happened yet; or if it has, hasn’t been recognized as yet; it’s precisely because everyone (including yourself) is thinking that it has to be at scale to compete with the status quo.

    Fact is, Disruption never comes in at scale – it always starts with the unserved and underserved and works into (or gets adopted by) the mainstream from there. Thereafter of course, it redefines scale, making the prior incumbent industry look small.

    I understand that this doesn’t help point directly to how the Disruption of payments is going to or has already start(ed), but it can help you to stop looking in all the places where it won’t be coming from.

    Rick Mueller
    Manager – Disruptive Innovation Group at LinkedIn

  3. Michael Carter says:


    Having spent 25+ years in the payments industry, especially around FIs here and abroad, I could not agree more with your assessment of the speed bumps. Rick is right in one sense – i.e., disruption never comes at scale but that begs a question or two: 1) If it doesn’t scale in payments, forgettaboutit. DOA. 2) If it does scale, someone in the payments biz already will buy it. Scalability cannot be an afterthought in architectures built to support trillions in money movement annually.

    Also, least we forget, all this disruption is about creating value for stakeholders – many VCs, a special breed in their focus. FIs and other traditional payments players can afford to let the froth settle and then institutionalize the outcome through acquisition. (Can anyone think of a recent one….wait for it, Simple.) No matter how “idealistic” the founder, the money behind him ain’t that particular about where it gets its returns.

    After all, isn’t that how all we hippie idealists of the 60/70s came to be investment bankers, tech execs, and other reputable (?) types with mortgages, two cars and 2.5 progeny? We sold out they say. I say, it is the natural order of things for humans and human organizations. Of course, that would be a cynical view.


  4. Rick — By referencing “genuine” disruption, are you implying there is something going on that could be called “non-genuine” disruption? I agree that disruption that disruption doesn’t come in at scale (I can’t even imagine how it could), but I wouldn’t say it “always” starts with the un- or under-served. The examples Christensen gives of disruption in his book were hardly about the un- or under-served.

    Pundits are always trying to find the COMPANY that is disruptive, but Christensen talked about disruption in terms of technology, not individual firms. As I said in a previous blog post, I don’t think any of the companies that like to label themselves “disruptors” are anything close to it. Bitcoin is still the closest thing to disruptive I’ve seen.

  5. Michael: Yours might be the “cynical” view, but I think you’re spot on. As I see it, that last comment of yours really wasn’t as much about payments disruption as it was about the reality that young consumers (today and in the past) aren’t really as different as they like to make themselves out to be. The Boomers of today were protesting the Vietnam War in the 60s, and were “counter-culture” back then. Today, they ARE the culture. Today’s Gen Yers are becoming their parents. Slowly, maybe, but still getting there. And I’ve got the data to prove it — will be publishing an Aite Group report in the near future titled How Millennials Manage Their Money. In it, I subsegment Gen Yers into Young Gen Yers and Old Gen Yers. Big differences within the generation.

  6. Hi Ron and thanks for your reply,

    I think your assessment that companies unduly claim to be “disruptive” goes (well) to the question of whether there are disingenuous ‘versions’ of disruption (some with malice aforethought and others not) – and while I would agree that companies are not disruptive in and of themselves, I would argue that neither are technologies, but rather industries (some of which can be acceptably represented by a dominant member) which create unique means to achieve ends previously only available to markets having greater wealth and/or education (e.g. the previously unserved and underserved). Bitcoin then might represent a potentially disruptive “technology” in the widest sense of the term, but not a Disruptive Innovation.

    Re Christensen, a critical part of his teaching was the idea that a Disruptive Innovation begins as being “good enough” to serve the purposes of the market segment being invaded (or created), but not (yet) ‘good enough’ for the mainstream. And the degree to which authentic Disruptive innovation can be good enough without meeting mainstream market expectations, can apply to each of the characteristics you mention, e.g. a Disruptive payment system might not be as ‘private/secure’, or come with the same level of ‘customer service’ as we might expect from incumbents, but by definition will grow to usurp the incumbent regime from its dominant position nonetheless. Sometimes that’s because they get better – and sometimes it’s because the now-expanded market learns to live with the downsides (usually some of each).

    Thanks again for sharing your thoughts,

  7. So I think we’re seeing a lot of market segmentation, but no actual disruption. Segmentation is finding a market that isn’t well served and serving it. PayPal did it for online, Square did it for physical retail. P2P players are doing it for cheque displacement.

    Disruption will come when the well served markets are hit. The genius of iTunes wasn’t the technology it was the business model. I’m yet to see a combination of business model and technology that’s truly disruptive. It’s the supply chain we need to look at.

    I think Stripe’s play for smaller developers is absolutely the direction of travel, but you’re right Ron the gatekeepers, the margins and other factors mean it will take a significant amount of scale or partnerships with traditional players IMO to really make the thing fly. Unless Bitcoin becomes the payments Napster and B2D solutions like Stripe are the iTunes

  8. Sy–Totally agree. In fact, in a previous post titled Disruption Delusions, I said that most new entrants in the financial services space “aren’t disruptive in the least. Instead, they’re niche fillers. They’re filling gaps, or niches, in the current market by serving unmet needs.”

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