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JWT: The Future of Payments & Currency (October 2014)

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The payments and currency systems are on the verge of disruption. Payments are getting digitized and going mobile, wearable and biometric, while the rise of cryptocurrencies is prompting new ideas about what currency can be. Millennials, not wedded to the status quo when it comes to money, will drive this shift. This report takes a look at the myriad new ways to pay and how the concept of currency is evolving to encompass everything from bitcoin to social media shares. We also spotlight how disruption is opening the way for new players to act as middlemen between consumers and their money, along with results of a survey exploring U.S. and U.K. consumer attitudes toward payments and currency.

Note: This is an abridged version of the 62-page report. Go to JWTIntelligence.com/trendletters to download the full report at no cost.

Published in: Technology

JWT: The Future of Payments & Currency (October 2014)

  1. 1. THE FUTURE OF PAYMENTS & CURRENCY OCTOBER 2014 ABRIDGED VERSION
  2. 2. 2 WHAT WE’LL COVER Introduction Trend drivers New ways to pay New forms of value exchange New payment players Appendix: More about our experts and influencers The following is an abridged version of JWT's Future of Payments & Currency report. To download the full version, please visit JWTIntelligence.com.
  3. 3. 3 INTRODUCTION It seems that suddenly most aspects of the established payments system are on the verge of disruption. Apple Pay has just arrived, Facebook is reportedly mulling peer-to-peer payments, more merchants are accepting bitcoin, banks are testing payment-enabled wristbands or creating pay-by-tweet schemes, and the ranks of “fintech” innovators are growing. This report examines the rise of new ways to pay and new forms of value exchange, along with new players in the payments space, and what it all means for brands. Never in the history of the payments industry has there been a time of such disruption and opportunity across regions. Digital technologies will upset the competitive order and the role that payments play both in the operations of businesses and in the daily lives of consumers.” —BCG PERSPECTIVES, “Global Payments 2014,” Sept. 17, 2014
  4. 4. 4 METHODOLOGY Our trend reports are the result of quantitative, qualitative and desk research conducted by JWTIntelligence through out the year. For this report, we also interviewed several experts and influencers in payments and currency.* Deborah Baxley, consulting services principal, Capgemini Financial Services Rob Girling, co-founder and principal, Artefact EXPERTS AND INFLUENCER S Bill Maurer, dean of social sciences and professor of anthropology and law, UC Irvine Craig Erickson, creative director and designer, Artefact *See Appendix to learn more about these experts.
  5. 5. TREND DRIVERS While technology is opening up myriad possibilities in payments and forms of currency, the mobile wallet and other innovations have taken off in fits and starts. Skeptics say consumers have little incentive to adopt new systems. But Millennials are ushering in a new mindset: They’re much less attached to the status quo than their elders and far more open to alternative ideas.
  6. 6. TREND DRIVERS MILLENNIAL MINDSET DISTRUST IN FINANCIAL INSTITUTIONS TECHNOLOGY DATA BREACHES TRICKLE-UP INNOVATION HEDGE AGAINST ECONOMIC CHAOS
  7. 7. —NICK BILTON, The New York Times TREND DRIVERS MILLENNIAL MINDSET DISTRUST IN FINANCIAL INSTITUTIONS TECHNOLOGY DATA BREACHES TRICKLE-UP INNOVATION HEDGE AGAINST ECONOMIC CHAOS
  8. 8. TREND DRIVERS MILLENNIAL MINDSET DISTRUST IN FINANCIAL INSTITUTIONS TECHNOLOGY DATA BREACHES TRICKLE-UP INNOVATION HEDGE AGAINST ECONOMIC CHAOS
  9. 9. —NICK BILTON, The New York Times TREND DRIVERS Image credits: bitcoin; Apple MILLENNIAL MINDSET DISTRUST IN FINANCIAL INSTITUTIONS TECHNOLOGY DATA BREACHES TRICKLE-UP INNOVATION HEDGE AGAINST ECONOMIC CHAOS
  10. 10. —NICK BILTON, The New York Times TREND DRIVERS MILLENNIAL MINDSET DISTRUST IN FINANCIAL INSTITUTIONS TECHNOLOGY DATA BREACHES TRICKLE-UP INNOVATION HEDGE AGAINST ECONOMIC CHAOS Recent high-profile data breaches have severely impacted consumer confidence in the payments system and motivated retailers to seek more secure tools. In the U.S., Neiman Marcus, Home Depot, Supervalu and, most notably, Target are among the prominent businesses to have suffered data breaches. These have compromised millions of credit and debit cards, with Target’s breach affecting up to 110 million people. Fear of fraud will both drive adoption of new systems and inhibit some consumers from embracing relatively untested systems. Image credit: businessjournalism.org 10
  11. 11. —NICK BILTON, The New York Times TREND DRIVERS With less competition and fewer regulatory restrictions, emerging markets serve as fertile testing grounds for new payment methods and new players. And with many consumers in these markets unbanked—outside the commercial banking system—alternative systems like mobile money are flourishing. Telecoms have led the way when it comes to sending and receiving payments via basic cellphones. Safaricom, in partnership with Vodafone, launched the most successful of these services in Kenya in 2007. Nearly two-thirds of Kenyans now use M-Pesa, and 43% of the nation’s GDP moves through it. The success of M-Pesa and similar services is prompting new ideas in developed markets. In the U.S., mobile carriers T-Mobile and Sprint have both entered into the mobile money space. Image credits: M-Pesa; T-Mobile MILLENNIAL MINDSET DISTRUST IN FINANCIAL INSTITUTIONS TECHNOLOGY DATA BREACHES TRICKLE-UP INNOVATION HEDGE AGAINST ECONOMIC CHAOS
  12. 12. NEW WAYS TO PAY Digital technology is opening up new ways to pay, many of them more seamless and secure than traditional methods. Foremost among these is the “mobile wallet”—using smartphones to make purchases or peer-to-peer payments—but various other ideas are coming to fruition, including wearables (tapping a watch, scanning a ring, etc.) and biometric technology like pay-by-fingerprint.
  13. 13. 61 MILLION+ Active mobile money accounts worldwide as of June 2013* —NICK BILTON, MOBILE WALLETS The New York Times NEW WAYS TO PAY Broadly speaking, mobile wallet users swipe, tap, wave or otherwise prompt a smartphone to pay after initial setup (providing credit card or bank account information and potentially linking to various loyalty programs). Technologies vary but include near field communication (NFC), Bluetooth and bar code systems. For people with little to no access to commercial banks, the advent of mobile money—texting to send or receive payments using basic phones—has been a godsend. *Source: GSMA Image credit: Alipay
  14. 14. —NICK BILTON, MOBILE WALLETS (cont’d.) The New York Times NEW WAYS TO PAY 61 MILLION+ Active mobile money accounts worldwide as of June 2013* Image credits: Apple; Amazon; Google
  15. 15. —NICK BILTON, MOBILE WALLETS (cont’d.) The New York Times NEW WAYS TO PAY 61 MILLION+ Active mobile money accounts worldwide as of June 2013* Image credits: PayPal; Kuapay; Softcard
  16. 16. Various startups are looking to digitize peer-to-peer transactions, mostly by way of mobile apps. Business Insider estimates the global volume of P2P payments at more than $1 trillion annually, with only “a sliver” made through mobile today. —NICK BILTON, MOBILE WALLETS: PEER-TO-PEER PAYMENTS The New York Times NEW WAYS TO PAY Active mobile money accounts worldwide as of June 2013* Image credits: Dwolla; Venmo; Ribbon; Paym
  17. 17. —NICK BILTON, The New York Times BRANDED APPS NEW WAYS TO PAY Active mobile money accounts worldwide as of June 2013* As banks, tech giants and new entrants vie to dominate in the mobile wallet space, Starbucks and other brands are creating their own apps, enabling frequent customers to pay seamlessly. In some cases—notably with taxi services like Uber and fast food brands—the apps let users both order and pay, reducing wait times or hassle. In other cases, as with Starbucks, the apps draw users by folding in loyalty rewards or coupons. Brands benefit by collecting extensive customer data and drawing in impatient, cash-averse Millennials. Image credit: Starbucks
  18. 18. —NICK BILTON, The New York Times NEW WAYS TO PAY Active mobile money accounts worldwide as of June 2013* Image credit: MyCheck DINE AND GO Some see a role for payment apps beyond the fast food sphere, with patrons at bars and restaurants harnessing mobile to more quickly and easily settle their checks. Customers can tap, pay and leave without flagging down an employee; from the merchant’s point of view, this frees up staff and potentially opens up tables more quickly. MyCheck, which has a partnership with PayPal, launched its app in Israel in 2012 and has moved into a few cities in the U.S., the U.K. and Brazil.
  19. 19. Wearables—Internet-connected devices worn on the body—promise an even more seamless method of payment than mobile phones. The vision is that consumers will simply hold up a watch, tap a wristband or perhaps issue a verbal instruction to Google Glass. —NICK BILTON, The New York Times WEARABLES NEW WAYS TO PAY Active mobile money accounts worldwide as of June 2013* Glasses: Some mobile-payment players are betting on consumers paying with a gesture, tap or voice command using Glass or other high-tech specs. Eaze, a startup pushing the idea of “Nod to Pay,” links to two bitcoin payment systems and plans to add fiat currencies. Image credit: Eaze
  20. 20. —NICK BILTON, The New York Times WEARABLES (cont’d.) NEW WAYS TO PAY Active mobile money accounts worldwide as of June 2013* Watches: Several payment apps work in tandem with early entrants on the smartwatch market. These include PayPal’s app for Samsung’s Gear 2 and WearBucks for owners of Android Wear watches. Wristbands: For people willing to link up credit or debit card information, smart wristbands may have a long-term role to play as a way to make fast purchases at events like music festivals or destinations like theme parks. Image credits: Apple; Artefact
  21. 21. —NICK BILTON, The New York Times WEARABLES (cont’d.) NEW WAYS TO PAY Active mobile money accounts worldwide as of June 2013* Image credit: Barclaycard
  22. 22. To improve security, businesses are starting to adopt systems that identify and authenticate people based on physical or behavioral characteristics: iris scans, digital fingerprints, voice prints, vein or facial maps and so on. The method is also more convenient for users than typing passwords, although privacy will be a concern for some. Fingerprint recognition, the most widely used biometric system thus far, will become increasingly common now that Apple is embracing mobile payments. —NICK BILTON, The New York Times BIOMETRIC PAYMENTS NEW WAYS TO PAY Image credits: PayPal; Biyo The Samsung Galaxy S5 enables fingerprint payment via PayPal’s app
  23. 23. Today more and more companies—from startups to financial institutions and tech giants like Google—are enabling person-to-person payments, bill payments and product purchases via a simple message. For instance, French bank Groupe BPCE will enable people to tweet money to one another via its S-money mobile-wallet subsidiary, thanks to a partnership with Twitter. —NICK BILTON, The New York Times EMAILS, TEXTS AND TWEETS NEW WAYS TO PAY Image credit: Popmoney
  24. 24. —NICK BILTON, The New York Times WHAT IT MEANS FOR BRANDS NEW WAYS TO PAY • Prepare for a “cash-limited” future • Cater to Millennials • Compel consumers to opt in • Open a personalized marketing channel • Security and privacy above all
  25. 25. NEW FORMS OF CURRENCY A growing array of alternative currencies—ranging from cryptocurrencies to local currencies, branded currency and social media currency—is supplementing or even replacing conventional money. Money is always only a human creation, kind of a collective illusion … It’s something we invent as societies and states and communities, and we can reinvent it if we want to.” —BILL MAURER, dean of social sciences and professor of anthropology and law, UC Irvine
  26. 26. NEW FORMS OF CURRENCY —NICK BILTON, The New York Times NON-FIAT CURRENCIES Dollars, pounds, euros, pesos, yen—these are all fiat currencies, or legal tender. But even with the backing of a government, their value exists only by popular consent. So increasingly people are thinking more creatively about what money can be, from local currencies to cryptocurrencies like bitcoin, which can function just as well—if not better, in some instances— as a medium of value exchange. Local currencies are undergoing a resurgence thanks to the economic crisis and rising income inequality. A local currency can help to mitigate the impact of a troubled economy, stimulating growth by increasing demand for local goods while keeping money from flowing out of the area. Image credit: Tilt Local currencies in circulation include the Brixton Pound and Bristol Pound in the U.K., the Capivari in Brazil and COjacks in Colorado.
  27. 27. NEW FORMS OF CURRENCY In the last year or so, a number of major businesses have started accepting bitcoin, most via bitcoin middlemen, lending the novel currency greater credibility. And there are now more than 250 bitcoin ATMs worldwide. Still, most consumers remain fairly skeptical about bitcoin. —NICK BILTON, CRYPTOCURRENCIES The New York Times
  28. 28. NEW FORMS OF CURRENCY Bitcoin pros and cons: While they have serious downsides, cryptocurrencies appeal to users for a number of reasons. They allow people to send and receive money around the world instantly, without the need for banks as intermediaries. This means little to no fees for processing transactions, as well as greater privacy, although cryptocurrencies are not anonymous, as is widely believed. For people with little trust in government and the banking system, cryptocurrency provides a way to transact without relying on either. —NICK BILTON, CRYPTOCURRENCIES (cont’d.) The New York Times 38% of U.S. and U.K. Millennials are interested in using currencies such as bitcoin, vs. 17% of Gen Xers and 7% of Boomers
  29. 29. NEW FORMS OF CURRENCY Experts place the number of businesses accepting bitcoin as high as 80,000 worldwide, a wide majority of which are small merchants. But some bigger players across categories are earning buzz by welcoming the currency, in some instances experiencing an initial boost in sales. Most use Coinbase or another bitcoin middleman, shielding themselves from risk while paying much less in fees than with credit card transactions. —NICK BILTON, CRYPTOCURRENCIES (cont’d.) The New York Times Image credit: Life on Bitcoin This crowdfunded documentary follows a newly married couple trying to get by on bitcoin alone. Prominent businesses accepting bitcoin: • Dish Network • Dell • United Way • Expedia • Overstock.com • The Sacramento Kings
  30. 30. NEW FORMS OF CURRENCY Social media as currency: Brands commonly offer incentives in exchange for Facebook likes or Twitter follows. Now, with social media ingrained into the daily lives of many, some are evolving this idea by enabling consumers to acquire products or discounts with social media actions in lieu of cash. —NICK BILTON, ALTERNATIVE BRAND CURRENCIES The New York Times Image credit: Carlsberg Danish beer company Carlsberg partnered with bars in Denmark to extend happy hour for drinkers who posted social media photos with the hashtag #HappyBeerTime
  31. 31. NEW FORMS OF CURRENCY Tweet-to-pay pop-up shops: These temporary locations provide unique experiences that consumers are keen to capture and then share with their followers, increasing brand engagement and stimulating word-of-mouth. In London, Weight Watchers created the Feel Good Café, where visitors paid with social media shares. And Marc Jacobs launched a Tweet Shop where guests received free gifts based on their social posts. —NICK BILTON, ALTERNATIVE BRAND CURRENCIES (cont’d.) The New York Times Image credit: Weight Watchers
  32. 32. NEW FORMS OF CURRENCY Vending machines: Along with pop-up shops, Internet-connected vending machines are becoming a go-to source for accepting social media actions for payment. —NICK BILTON, ALTERNATIVE BRAND CURRENCIES (cont’d.) The New York Times Image credits: Walkers; Old Navy
  33. 33. NEW FORMS OF CURRENCY Incentivizing good behavior: Some brands have turned positive actions on the part of consumers into a form of currency. —NICK BILTON, ALTERNATIVE BRAND CURRENCIES (cont’d.) The New York Times Image credits: Anthon Berg; McDonald’s Chocolate brand Anthon Berg set up the pop-up Generous Store, where customers could earn boxes of chocolate by pledging to do good deeds, and McDonald’s let customers pay with recycled cans.
  34. 34. NEW FORMS OF CURRENCY Branded currency: For years, loyalty has translated into a currency of sorts, with merchants offering “Buy 10, get 1 free,” airlines awarding seats to frequent flyers and so on. These loyalty schemes, including gift cards and coupons, account for more than $165 billion in purchasing power in the U.S. alone. With that much value in circulation, some brands are reframing these offers, shifting brand loyalty into a currency in a more traditional sense. And thanks to smartphones, disparate programs are becoming more manageable for consumers, who can readily cash in. —NICK BILTON, ALTERNATIVE BRAND CURRENCIES (cont’d.) The New York Times Image credits: Amazon; Kik; McDonald’s
  35. 35. NEW FORMS OF CURRENCY Products as currency: Brands have been getting creative with the age-old practice of barter, turning their goods into currency as part of social responsibility initiatives or novel marketing ploys. For telecom brands, mobile minutes or data can serve as currency for consumers hungry for more phone access. —NICK BILTON, ALTERNATIVE BRAND CURRENCIES (cont’d.) The New York Times Social responsibility: To help boost tourism in a region of Japan that was devastated by the 2011 earthquake and tsunami, Nestlé is enabling travelers to use special-edition KitKat packs as travel passes on the Sanriku Railway. Image credits: KitKat; Vodafone Mobile airtime/data: In Egypt, Vodafone worked with JWT to introduce airtime as a form of currency. Small shops or kiosks in the country often substitute low-value items like gum and candy for small change; in a twist on this practice, Vodafone created mobile-top-up cards in small denominations, designing them to fit in a cash register. These Fakka (“small change”) cards drove an average 7% rise in revenue per customer.
  36. 36. NEW FORMS OF CURRENCY Ad campaigns: Some brands have turned their products into currencies in ad campaigns, framing the emotional value of their goods in a new light. To show that “Heineken opens your world,” the beer-maker tasked a man with getting from Inner Mongolia back home to Thailand using “nothing but Heineken and a little bit of wit.” —NICK BILTON, ALTERNATIVE BRAND CURRENCIES (cont’d.) The New York Times Image credit: Heineken
  37. 37. NEW FORMS OF CURRENCY —NICK BILTON, The New York Times WHAT IT MEANS FOR BRANDS • Barter reinforces value • Drive engagement with social currencies • Turn loyalty into instant currency • Embrace alternative currencies
  38. 38. NEW PAYMENT PLAYERS Disruption in the payments and currency sphere is opening the way for new players to act as intermediaries between consumers and their money. We’ll see consumer interaction with banks and other traditional financial institutions wane as newcomers offer innovative or compelling solutions. Consider that 73% of Millennials would be “more excited about a new offering in financial services from Google, Amazon, Apple, PayPal or Square than from their own nationwide bank,” according to Viacom’s Millennial Disruption Index.
  39. 39. NEW PAYMENT PLAYERS —NICK BILTON, The New York Times BRANDS AS FINANCIAL INTERMEDIARIES Mobile operators, tech giants and others are making forays into the financial space, taking on roles traditionally filled by banks and other financial services companies. By doing so, these companies can track spending patterns and behavior, as well as reduce interchange and processing fees. The mobile wallet is a key driver. Mobile payment transactions facilitated by “non-banks” will increase from 1.1 billion in 2012 to 7 billion in 2015, according to a forecast by Capgemini and The Royal Bank of Scotland. 72% of North American Millennials would be likely to bank with at least one nonfinancial services company if it offered banking services* *Source: Accenture’s 2014 North America Consumer Digital Banking Survey Image credits: Millicom; T-Mobile
  40. 40. NEW PAYMENT PLAYERS —NICK BILTON, The New York Times BRANDS AS FINANCIAL INTERMEDIARIES (cont’d.) Image credits: Google; Tech for Korea Tech companies and messaging services are well positioned to integrate payments systems. Google now offers free P2P payments through Gmail or its Wallet app, and South Korea’s KakaoTalk recently launched the PayPal-like KakaoPay.
  41. 41. NEW PAYMENT PLAYERS BRANDS AS FINANCIAL INTERMEDIARIES (cont’d.) Retailers: Retailers have long provided financial services, but some are expanding more assertively into the space. Both Marks & Spencer and Tesco recently started offering personal checking accounts in the U.K. Walmart has been targeting the underbanked. This year, the retailer launched a money transfer service— enabling customers to send funds to or from any Walmart in the U.S. and Puerto Rico—and partnered with Green Dot Corp. on GoBank, a mobile checking account with a linked debit card. Image credits: Tesco; Walmart
  42. 42. NEW PAYMENT PLAYERS FINTECH INNOVATORS The payments space is moving at incredible speed, with new technologies and startups quickly making headway while most traditional institutions lag in updating clunky legacy systems. Innovative fintech startups include the bitcoin bank Circle; Plastc, which is creating a credit card-shaped digital device; and Ripple, whose open-source, distributed-payment protocol lets users make instant payments with any currency. Image credits: Circle; Plastc; Ripple; Square; Stripe; WorldRemit
  43. 43. NEW PAYMENT PLAYERS WHAT IT MEANS FOR BRANDS • Boost your primary business with financial services • Pursue the underbanked opportunity • Utilize and build your network
  44. 44. MORE ABOUT OUR EXPERTS AND INFLUENCERS Deborah Baxley, consulting services principal, Capgemini Financial Services Baxley, who joined Capgemini in 2010, is an international payments consultant with 20 years of consulting experience. She has performed strategy work in 14 countries for eight top global issuers and payment brands, two top payment processors and three top bank card acquirers, and has advised companies on product direction and competitive positioning. She was the IBM partner responsible for strategy and change consulting for financial services in North America and led IBM’s credit card strategy in China. She is current secretary and former chair of the Smart Card Alliance Payments Council. Craig Erickson, creative director and designer, Artefact Erickson’s experience spans large corporate environments and small startups, including data visualization, product UX, typography, games, advertising and identity. Prior to joining Artefact, a technology product design and development company, he was co-founder and creative director of design and development studio SectionSeven. At Artefact, he’s been instrumental in the design of award-winning product concepts, from the connected home of the future to patient-centered decision tools for physicians. Rob Girling, co-founder and principal, Artefact Girling’s career started at Apple after he won the 1991 and 1992 Apple Student Interface Design Competition for concepts around mobile and personal computing. He then spent 10 years at Microsoft, obtaining several patents and making innovative contributions to Microsoft Office and Microsoft Games, eventually becoming design manager for the user interface, brand and user experience of Windows XP. After leaving Microsoft in 2002, Girling worked as a senior interaction designer for IDEO and as the lead game designer for Sony’s MAG action game. He co-founded Artefact, a technology product design and development company, in 2006. Bill Maurer, dean of social sciences and professor of anthropology and law, UC Irvine A cultural anthropologist, Bill Maurer serves as director of the Institute for Money, Technology and Financial Inclusion and was founding co-director of the Intel Science and Technology Center for Social Computing. He conducts research on law, property, money and finance, focusing on the technological infrastructures and social relations of exchange and payment. Maurer has particular expertise in emerging, alternative and experimental forms of money, payment and finance, their legal implications, and how they have the potential to challenge the definition and nature of money itself. He received his B.A. from Vassar College and his M.A. and Ph.D. from Stanford University.
  45. 45. THANK YOU 466 Lexington Avenue New York, NY 10017 www.jwt.com | @JWT_Worldwide www.jwtintelligence.com | @JWTIntelligence www.anxietyindex.com | @AnxietyIndex THE FUTURE OF PAYMENTS & CURRENCY CONTACT: Written by Editor Proofreader and fact checker Interns SONAR™ Design Nick Ayala Marian Berelowitz Hallie Steiner Allison Kruk Gregorio Londono Mark Truss Laura Lawler Peter Mullaney Lucie Greene Worldwide Director, JWTIntelligence lucie.greene@jwt.com Nick Ayala Trends Strategist nicholas.ayala@jwt.com J. Walter Thompson: J. Walter Thompson, the world’s best-known marketing communications brand, has been inventing pioneering ideas for the past 150 years. Headquartered in New York, JWT is a true global network with more than 200 offices in over 90 countries, employing nearly 10,000 marketing professionals. JWT consistently ranks among the top agency networks in the world and continues a dominant presence in the industry by staying on the leading edge—from hiring the industry’s first female copywriter to developing award-winning branded content today. For more information, please visit www.jwt.com and follow us @JWT_Worldwide. JWTIntelligence: JWTIntelligence is a center for provocative thinking that focuses on identifying shifts in the global zeitgeist. Its aim is to bring the outside in—to help inspire ideas beyond brand, category and consumer conventions—and to identify emerging opportunities so they can be leveraged for business gain. As a part of JWT, the world’s best-known marketing communications brand, JWTIntelligence has conducted trends research and analysis across categories and geographies for nearly a decade. For more information, please visit www.jwtintelligence.com and follow us @JWTIntelligence.

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