I think 2014 will be a pivotal year for the online payments services industry. We’ve seen an explosion of new online payments-related products introduced over the last several years. However in 2014, I think we’ll see a major thinning of the herd with the weaker digital payments players simply going out of business. A few of the more talented teams will get acqui-hired by big industry players and the scrappiest (and best funded) of them will continue to burn capital while searching for the “holy grail” of product/market/revenue fit. Some will find it. Most won’t.
One segment of the industry that I see being especially impacted by this trend are consumer digital wallet startups. I don’t think any of the current well-known digital wallet providers will go on to become the perceived market “winner.” We’re still in the earliest innings of this game with a lot of support infrastructure still to be built on the merchant-acceptance side. What’s more, mainstream consumers aren’t yet ready to leave their physical wallets at home. In my opinion we’re at least 2-3 years away from a major shift towards greater consumer adoption of digital wallets, and many of today’s startups won’t have the financial runway to wait that out.
There are 2 very unlikely events, which if they occurred could cause the adoption of digital wallets to quickly accelerate.
- The government unexpectedly moves toward acceptance of digital IDs and driver’s licenses. Will I be able to store my driver’s license on my phone in the future? Possibly, but until that day comes I’ll always need to keep it in my wallet and that means keeping my wallet on my person. And if I’ve already got my wallet on me, then taking it out of my pocket to pay for something isn’t that big of a deal – certainly not a big enough deal for me to replace a deeply ingrained habit with a digital wallet smart phone app.
- A true breakthrough consumer digital wallet app emerges that works “out of the box” with the millions of existing POS terminals sitting on counters around the world. Clinkle was rumored to be working on this, but they’ve yet to launch (or even demonstrate anything publicly) and appear to be going through a rough patch of their own. Nonetheless, the opportunity is real and the rumored method for their accomplishing it, is compelling to say the least.
Ok, so enough of the bearish talk. What trends am I super excited about? There are 2 broad areas that I think are poised to make a huge impact on the digital payments landscape in 2014.
The jury is still out on whether or not Bitcoin will become a viable digital currency, but that’s not what most excites me about its potential. (Well, that’s not entirely true; I do own a few Bitcoins and would love to see its value reach those lofty projections).
Disregarding Bitcoin’s potential as a digital currency, I’m very excited about its potential to become a new economic protocol for the Internet. In the same way that the “http” protocol specifies how text, data, and code should be transmitted across the Internet, the Bitcoin protocol can specify how money should be transmitted online around the globe.
Similar to http, Bitcoin is built on open source technology that 3rd-party developers can develop applications on top of. The opportunities for different types of apps seem limitless and we’re just getting started. In 2014 I think we’ll see the introduction of a new cohort of Bitcoin-related apps and much in the same way as the web browser was an accelerator for mainstream Internet adoption, one or two of these services will become a game changer for Bitcoin.
Bitcoin (both as a currency and/or as a protocol) has the potential to be incredibly disruptive (and from some viewpoints, destructive) to many companies in the financial services industry. Whether or not it survives as a currency may end up being determined by world governments, but I don’t believe it can be defeated as a protocol, although we will most likely see many people and companies try. We saw the impact the Internet had on many of the companies that were slow to adapt to its existence. I believe the same rules will apply to Bitcoin.
Bluetooth Low-Energy Beacons
Where should I begin? I believe that by the end of 2014, we’ll look back and it will already be hard to remember a time before beacons were ubiquitous. We are truly entering the era of the “Internet of things”.
Beacons are small low-power Bluetooth devices that can be placed almost anywhere and that continually broadcast signals in search of other Bluetooth devices. Important facts to know:
- A beacon’s battery life can last for years.
- 200 million existing iPhones and iPads are already configured to operate as beacons and interact with them.
- Beacons can work together to accurately triangulate your position indoors without needing a cell signal or Wi-Fi connection.
- Beacons are highly programmable and a single one can selectively transmit data to and from a variety of different devices.
- A beacon’s range can be extended to 10s and possibly 100s of feet or be limited to a matter of inches.
If you don’t already, it’s likely that you’ll soon have an app on your phone configured to work with beacons. Once enabled, your phone will interact with the world around you as you encounter beacons in your daily life – even if you never visibly see them. Do you find that creepy or awesome?
Imagine the possibilities. Loyalty coupons in retail stores. Home automation. Automobiles. Workplaces. Payments. We’re talking about Minority Report-style technology, and it’s going to be part of our daily lives very soon. Clearly there are privacy issues that will arise which will need to be dealt with, but overall this is some very, very futuristic stuff. Exciting times!
Bitcoin and beacons are not the only trends I see impacting digital payments and the broader technology sector in 2014, but they are definitely two of the biggest. What trends are you betting on next year? Are you bullish on the online payment services sector or do you feel it’s all a bit overheated?
Let me know your thoughts in the comments or find me on Twitter to continue the discussion.