The growing panoply of payment platforms has led to a dizzying array of choices. Consumers face a nearly endless barrage of mobile apps that compete with the array of plastic cards already vying for top-of-wallet status. Meanwhile, everyone with a vested interest in a particular technology — from Near Field Communication to Bitcoin — is trying to claim technical superiority and seize market dominance.
Common sense suggests that the variety of ways to pay for products and services can't keep expanding forever. If some of these technologies are short-lived, which ones will stand the test of time? The answers to that question may lie in a pile of ancient clay pots.
As archaeological studies of the remains of long-dead civilizations have proved, innovation follows predictable historical cycles. For example, an archaeological dig might reveal that the variety of pot designs increases over time with each new layer of rubble.As a society began to favor two or three of the most useful pot designs, however, that diversity might start to diminish. Eventually, people may have tired of these basic designs and begun to experiment with new options. And so it goes, with each successive layer of ruins showing periods of convergence and divergence in the solutions that people choose. Archaeologists call this phenomenon battleship seriation, because the variety of fragments in a given series goes up and down like the profile of a superstructure on a battleship.
This rhythm of convergence and divergence isn't just relegated to products of the ancient world. In the early 1980s, noted British design researcher Robin Roy demonstrated how modern products continue to conform to battleship seriation. In mapping out all of the bicycle varieties that had been developed since its invention in 1842, he noticed the same rhythm of convergence and divergence. Roy realized that the bicycle was in a period of convergence: at that time, there were two primary types of bikes, the road bike and the BMX.
Then Roy made a prediction. Based on the pattern he observed, it seemed clear that the bicycle was poised to undergo a period of divergence and that the 1990s would experience a proliferation of different bike designs. Moreover, when bike designs converged again, Roy said that either the BMX or the road bike would be unlikely survive. A decade later, a proliferation of mountain bikes, hybrid bikes, cruising bikes and commuter bikes proved Roy's theory right. BMX bikes now make up only a small part of the industry.
The same dynamic may be at play in payments. Based on the patterns that have characterized human innovation for centuries, we can reasonably conclude payment technologies' current period of divergence will soon be followed by a period of convergence. And, as with pots and bicycles, some of today's most prominent payments platforms may not survive the next cycle.
For merchants, issuers, networks, and others urgently seeking to make investment decision in payments technologies, this knowledge may of little comfort. Yet this pattern also suggests a course of action. Rather than trying to pick a winner from the growing pool of options, executives can make investments in a way that accommodates payments' place in the cycle of divergence and convergence. Three key principles may help companies succeed through this phase of the cycle.
Assess the Ecosystem, Not Just the Technology
It's tempting to assess new payment platforms by their technical prowess. But as BetaMax can attest, the best technology doesn't always win out. Rather, businesses live and die by the ecosystem they rely upon. The strength of a platform's connections with suppliers, consumers, issuers, merchants, and others offers clues as to whether it will survive to become a dominant market force. In a time of technological divergence, the ecosystem surrounding a payment platform becomes all the more crucial.
Invest in Technology-Agnostic Interfaces
The allure of technologies like tap-to-pay has been strong enough to encourage device manufacturers and issuers to promote their payment mechanism as a point of differentiation. But that's likely a short-sighted strategy. Instead, organizations should develop payment interfaces that are technology-agnostic — or at least compatible with multiple enabling technologies — so that their product is still relevant to customers even as today's hot technologies fall out of fashion and new ones take their place. Cloud services have enabled just such a strategy for workplace computing, giving companies the ability to keep software up to date and avoid legacy IT problems.
Place Multiple Bets on a Variety of Competing Technologies
Successful venture capitalists know that any individual investment has a low hit rate. Instead of betting the farm every time, good investors increase their odds of success by taking positions in many companies. That way, even when an individual investment goes south, the portfolio still has a good shot at success. Like VCs, payments firms can increase the odds of success by reallocating dollars from a single big investment in one technology to a portfolio of smaller investments in a variety of options.
Navigating the massive disruption caused by the explosion of new payments firms, platforms, and technologies is an incredibly challenging proposition for an industry accustomed to stability. But it's an imperative for any organization seeking to retain its market share and price premium — and avoid becoming just a footnote in the archeological record.
Lauren Pollak is the financial services practice lead at Jump Associates, a strategy and innovation consulting firm.