Money2020 recap, Part 2: Top 10 commerce trends

In the first of our two-part series on the recent Money2020 conference, we identified the major announcements at the show and their implications for stakeholders. We will now explore the 10 most important trends, identifying those that will play an increasingly pervasive role moving into 2017.

The 451 Take

The steady cadence of digital transformation occurring across the payments value chain was once again apparent at this year's Money2020. New commerce interfaces, channels, platforms and stakeholders are all playing an increasingly central role as the next chapter of payments begins to unfold. However, the impact of digital on commerce to date has been less one of disruption and disintermediation. Contrary to the story so often painted in the media, payments incumbents are generally still firmly positioned, a major technology has not yet rendered a market segment irrelevant and not one startup has fully supplanted a legacy provider. Instead, there is an incredible amount of collaboration between the new and the old, leading to a fairly profound level of advancement in a very short period of time. As always, Money2020 provided the affirmation that, while payment innovation remains in early innings, it only continues to accelerate.

Major commerce trends

Throughout our nearly two-dozen briefings at Money2020, countless laps around the show floor and exposure to over 300 announcements, a few recurring themes began to surface. In the list below, in no particular order, we have identified the top 10 commerce trends from the show, which we believe will continue to influence the payments value chain moving into 2017.

1. The increasing importance of developers to payment providers. This is a trend that has been visibly apparent in the growth of the Money2020 hackathon over the past few years. The future of payments is all about API accessibility. Developers have emerged as a high-growth distribution channel for payments companies, creating an impetus for incumbents to build strategies to embrace them. Visa, Mastercard and American Express have launched developer initiatives this year, as have processors such as Vantiv and point-of-sale (POS) vendors like Verifone. Creating an environment for developers of all types – retailers, technology companies and banks – to test and implement APIs will be critical to ensuring long-term growth and relevance for the operators of critical payments infrastructure. Vendors that launch outreach initiatives (e.g., hackathons), offer a broad range of easy-to-integrate APIs and (most importantly) develop new products with API accessibility in mind will be the first to win developer mindshare.

2. Ambient commerce. The growing opportunity at the intersection of IoT and payments was on full display at 2016's Money2020. New interfaces (e.g., augmented reality, virtual reality) and channels (e.g., appliances and automobiles) are rapidly emerging as platforms for commerce, with a wide range of vendors focused on injecting payment capabilities into environments that were traditionally deemed too cumbersome in the past. The winners will be those that double down on simplicity, immediacy and context to drive the user experience to the foreground and the payment process into the background. The real opportunity IoT presents is a pathway to bring commerce to an ideal state, where friction is removed across the shopping journey.

3. POS as a platform. The POS model has changed significantly over the past five years, with large providers like Verifone and Ingenico increasing their emphasis on software and services to drive growth. POS terminals are evolving from hardware devices to intelligent, cloud-connected business management platforms. As offerings such as Verifone Carbon and First Data's Clover have demonstrated, the POS is becoming a platform on which other applications are built and delivered, opening up new revenue streams for their providers and enhanced capabilities for merchant end users. This is an evolution that is first occurring in the SMB market, but we believe it will inevitably extend to the enterprise as part of a broader industry shift to the cloud in coming years.

4. Moving beyond the abstraction layer. Much of the innovation in payments for nearly a decade has centered on the concept of an abstraction layer atop the existing payments stack. This abstraction layer is intended to solve for usability and accessibility, essentially making the incumbent payment infrastructure easier to interface with. Square Inc and Stripe are great examples of this – they haven't redefined the stack; they've build on top of it and made payment services incredibly easy to access and use. At this year's Money2020, we started to see the innovation conversation begin to shift to a complete rebuild of the stack – things like blockchain, real-time payments and unified commerce that will change the infrastructure at the core. This is where the true potential for disruption that is so often talked about in payments will stem from. That's not to say that collaboration won't be an important part of this infrastructure rebuild, however, as evidenced by a partnership between Visa and Chain that launched at the show.

5. Intelligent identity, authentication and fraud detection. Startups using data points derived from our digital behaviors to improve authentication and mitigate fraud were on the Money2020 show floor en masse. As the mesh of connected devices and objects that we interface with on a daily basis grows, the opportunity to build a more complete and multi-dimensional digital profile for each connected user is becoming latent. Several vendors we spoke with, such as Simility and Feedzai, are taking this concept one step further by incorporating machine learning to continuously improve fraud-detection and -prevention models.

6. Peak Pay. 'Pay fever' is spreading rapidly: Android Pay, Apple Pay, Samsung Pay, LG Pay, Mi Pay (Xiaomi), Huawei Pay, Walmart Pay, Target Pay, CVS Pay and Kohl's Pay are just a sampling of commercially live or planned Pay-branded wallets. And then there are the Wallet-branded wallets, such as the Wells Fargo Wallet, Capital One Wallet and Microsoft Wallet. Aside from the obvious lack of branding ingenuity, the fundamental point is that it's become fashionable over the past year to launch a mobile wallet. While many of these wallets will go on to evolve and thrive, there's little doubt that another thinning of the herd is looming on a scale an order of magnitude larger than the wave that took out Softcard and Square Wallet.

7. Conversational commerce. 451 Research defines conversational commerce as 'a digital experience that nurtures relationships across the customer journey, typically using machine learning to trigger contextual responses to a connected device throughout the customer lifecycle.' The addition of payments to the arsenal of bot-development tools effectively enables developers to introduce end-to-end capabilities across the customer lifecycle, spanning from impression to conversion to service. These advancements are shifting bots from what were previously simple marketing and branding mechanisms to tools that convert shoppers into buyers. Conversational commerce has re-emerged in the spotlight over the past six months, with launches from Bank of America, PayPal and Mastercard at Money2020 illustrating the growing focus on this opportunity.

8. Payments as the basis of a customer experience. For years, retailers' thoughts about payments could be summed up as 'the cost of doing business.' Most have viewed the cost of payment acceptance as a necessary evil to facilitate a sale, and by that virtue, the idea of payments being simply a means to an end has been a traditional retailer viewpoint. As digital becomes more pervasive, however, this mindset is beginning to evolve. Nowhere is this more apparent than with the influx of merchant-branded wallets, such as Kohl's Pay and Walmart Pay. With mobile in play, when retailers think about the future of payments, increasingly they're thinking about the data, and specifically how transactional data can be leveraged to build more contextually relevant and personalized experiences for their customers. Several announcements at the show, such as the launch of IBM Pay, were positioned around this concept.

9. Network diversification. It's been interesting to watch the growing expansion of payment network digital services over the past few Money2020 shows, beginning with the unveiling of tokenization in 2013. Payment networks continue to expand their positions on the value chain through the launch of new initiatives, such as the Visa Commerce Network and Mastercard Developer Program, helping to evolve them far beyond simple transactional intermediaries. Visa and Mastercard, in particular, have invested heavily to position themselves as the critical enablers of all things digital commerce, moving them into largely new arenas, such as application development (e.g., Visa Digital Commerce Application) and advertising (e.g., Visa Advertising Solutions). It remains to be seen how fully the enhanced suites will be embraced by issuers and retailers, which remain wary of Visa's and Mastercard's underlying intentions, and in some instances are already constructing competitive products.

10. EMV hangover. The disillusionment associated with the EMV liability shift was evident throughout conversations at Money2020, with key stakeholders, including POS vendors and merchant acquirers, surprisingly candid and transparent about lower-than-anticipated installed bases and remaining challenges. Among the largest obstacles is converting the SMB market, which has been dealt a further blow by rule changes introduced in July by Visa and Mastercard that effectively block any counterfeit fraud chargeback under $25. Rumors were circulating at this year's show that the fuel-dispenser EMV liability shift, set for October 2017, may get pushed back, further complicating the US migration. On the upside, the industry-wide focus on the POS continues to create an excellent opportunity for newer retail technologies, such as cloud-based POS software (e.g., Clover), to enter the market.

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