The Risks and Rewards of Payments Innovation

by Karen Gordon 0

Partnerships are the name of the game in payments today; Discover and PayPal, American Express and Wal-Mart, Square and Starbucks. These strategic relationships are extremely powerful because they utilize each other’s strengths to make their companies more successful and profitable.

Discover and PayPal have brought the ability for Paypal’s 55+ million active domestic account holders to use their accounts to make payments at 250,000 physical locations in the U.S., including retail stores, restaurants and gas stations. Their target is 2 million locations by the end of 2013. American Express and Wal-Mart launched the Bluebird card with the intent to serve the tens of millions of Americans considered unbanked, underbanked and unhappily banked. The Starbucks/Square partnership promised to be a big boon for Square by bringing the mobile payment mainstream to the more than 7,000 Starbucks stores and infusing it with $25 million in capital from Howard Schultz.

The Rollouts

After much publicity hype, the Starbucks and Square rollout came with several hiccups. The largest being a lack of employee training and awareness (many baristas didn’t know they could take payments via Square or how to process them) and scanner calibration issues (the technology simply didn’t work). Another glitch–only company owned Starbucks can accept Square payments, licensed locations do not. There isn’t a way to distinguish between the two creating an inconsistent customer experience between stores.

When American Express and Wal-Mart launched the Bluebird card, there were also mixed reviews. The majority of complaints focused on customer service and lag time getting deposits credited, especially when using remote deposit capture. Bluebird is designed to help make consumers’ financial lives easier, more convenient and less expensive. They have to deliver on that. The companies have announced they are using customer feedback to improve their products and services. One of the most significant enhancements came in March when the Bluebird card became eligible for deposit insurance provided by the Federal Deposit Insurance Corp (FDIC).

This change eliminates delays for customers who previously had to wait for government checks (Social Security, military pay, etc.) to clear since federal agencies are prohibited from wiring money to accounts that aren’t protected by the FDIC.

What all of these partnerships have in common is that they practice innovation, share a common goal, leverage one another’s unique assets and are focused on providing their customers options and a better overall experience. What they also have in common is that things weren’t perfect when they launched.

Weathering the Storm

Starbucks could be criticized for not testing their technology or providing enough training. However, in some stores the process worked seamlessly. PayPal started testing its mobile wallet payment technology in most of The Home Depot Inc. stores last year. Reports were that few customers were taking advantage of it and those who did gave up because they had to key in too many numbers to make it work. This didn’t hinder their plans with Discover. Instead, PayPal responded by saying it would update its smartphone application to make it easier to enroll in the program, as well as issue physical PayPal cards to consumers who prefer the convenience of simply swiping their card.

Innovation comes with a certain amount of risk. Waiting for perfection may mean you never launch or worse yet someone else capitalizes on your idea. Discover and PayPal aren’t the only ones bringing the digital wallet to the traditional store front but by combining their expertise, size and scale they are poised for greater success. Discover is accepted at more than seven million merchants in the U.S. and is the third largest global payment network in the world. There is a huge growth opportunity beyond the 250,000 merchants they are currently serving.

A recent industry conference revealed a variety of opportunities in prepaid outside of the underserved market the Bluebird card was designed for. These included prepaid cards for frequent travelers, insurance payouts, payroll, employee business expenses, students and migrant workers. As these emerging trends become mainstream who will be ready to profit from them? Bluebird will, because they have an established product and have had time to work out the kinks.

Looking Ahead

This quote from Discover about the move to partner with PayPal truly sums up the mindset needed for the most successful strategic relationships.

“They needed us to get into the physical world, we loved the things that they were doing in the online space and we both have a mindset that we don’t have to do it all ourselves,” says Diane Offereins, Discover’s president of payment services. “That’s the philosophy that we are going to build on.”
Technology is changing the way everyone conducts business. It’s no longer big and slow companies versus the small and nimble. It will be innovative partnerships that will move the market forward in a constantly changing payments world.

Karen Gordon has worked in the marketing group at Zoot Enterprises for the past 7 years and has nearly 20 years of experience in management and public relations. While earning her master’s degree she learned the importance of promoting an organization’s image and creating a positive buzz about its offerings. In her role at Zoot, Karen leads the company’s public relations program. You can follow Karen on Twitter @karenrgordon. Visit Zoot’s Credit Strategy Session here.