I detect a sense of realism emerging in the payments and financial technology ecosystem. Yes, much of the hype remains but, with macroeconomic and regulatory pressures besieging the sector, more moderate, balanced and informed viewpoints are beginning to prevail in learning how to pay. TFT columnist Paul Rodgers gives us his latest view on the payments landscape
Central to learning how to pay is the realisation that the adoption of innovation across all sectors is broadly generational. In saying this, I don’t mean generation X, Y, or ‘millennial’; rather, that it takes broadly a generation for any innovative technology to reach its peak level of adoption. Added to this, is the peculiar dynamic that pertains to the adoption of payment methods, namely that we learn how to pay at around the time we leave home, head off to university, or start our first job.
Before that stage, our understanding of how payments are made is entirely conditioned by our experience at home and in the family. Essentially our parents control how we pay! Like many things, when we head out into the brave new world we begin to explore and establish new ways of doing things that are more relevant to how we wish to live our own lives. We are probably at our most open to evaluate new ideas and approaches than at any other stage in our lives and it is from around the age of 17, that we see new payment methods being taken up.
The Seven-year Sweet-spot
At this very formative period of life many things are changing – our exposure to new technology, encountering new people, having to stand on our own two feet. We’re putting the basic building blocks of life in place – home, work, relationships, etc, and it’s no coincidence that we are prepared to adopt what seems to be the most novel, innovative and future focused approaches.
For most people, however, this focus on innovation does not last forever. By the time we reach the age of around 25, the familiarity of what we have centred our lives on, is what provides convenience. Later in life, for some new emerging technology to purport to have the ‘benefit’ of convenience is rather incongruous because it necessitates change! For this reason, innovative technology businesses need to target an adoption sweet-spot of around 7 to 8 years if they are to be successful.
we learn how to pay at around the time we leave home, head off to university, or start our first job
For most populations, a seven-year slice will represent around 10 to 12%. Talk of innovative technologies being adopted by 40, 50 or even 60% of the population are, quite simply, unrealistic. Businesses, and whole sectors should evaluate whether their business model allows them to be profitable on such a market share. Perhaps this goes some way to explain why so many of the over-claiming neo-fintech businesses of the 20teens are now struggling to get follow-on rounds of funding.
Regulation as a Catalyst
Whilst I broadly identify the seven-year sweet-spot as a target for innovative businesses, I am aware that, in a few situations, there may be exceptions where innovation can reach a much broader demographic. Such situations are, however, generally well outside the control of individual businesses.
One major area where the seven-year sweet-spot rule might be subverted is where major demographic or regulatory change happens. One example of this in the payment area is the adoption of chip & PIN where, with strong government motivation, the international card schemes rolled out what remains the most widespread technological, cultural and structural change in consumer payments since the early 18th century. Whilst business might decry legislative and regulatory change, without it there is rarely the opportunity to change whole demographics and therefore the overall addressable size of the market is curtailed.
I see few other exceptions to the seven-year sweet-spot but hope we will see some discussion and debate on how we can create more exceptional catalysts for market-wide adoption or delivering a more coherent message to those in the sweet-spot.