Institute For The Future

Reducing Friction in online payments

This month’s Wired magazine has a cover story on the future of Money titled Money wants to be free. When I got the magazine in my mailbox at home, I was really excited to see Wired reporting on the future of money as I have been thinking, researching and writing about the future of money and finance. But my excitement turned into disappointment very soon after I read the full story.

 

The writer Daniel Roth made online financial giant PayPal the focus of his story and mentioned in passing mobile payment services like Zong or Boku that can shake up the online mobile payment industry.

But perhaps nobody is as ambitious as PayPal. In November, it further opened up its code, giving anyone with rudimentary programming skills access to the kind of technology and payment-industry experience that Ivey used to build Twitpay. The move could unleash a wave of innovation unlike any we’ve seen since self-publishing came to the Web. Two months after PayPal opened its platform, 15,000 developers had used it to create new payment services, sending $15 million through the company’s pipes.

 

While PayPal has taken a step in the right direction by opening up its API enabling programmers to embed PayPal in websites for payment, but my biggest issue with PayPal is that even after almost 12 years it has not been successful in reducing friction in signing up for a new account. I experimented with signing for a PayPal account, and there are two options: 1. Input your bank information (including the checking information and routing number). 2. Enter the credit card information (credit card number, expiration date, security code, mailing address and so on).

 

I don’t know about anyone else, but the only 10 digit number I remember is my cell phone number. In a world where almost 4.6 billion people have a cell phone, we should be leveraging cell phones more for payments. If you ask what about security, with emails and text message alerts it is certainly possible to take care of some of the security concerns. Obviously emerging economies have taken a lead in mobile payments with services like m-Pesa in Africa that enable mobile phone users to transfer money via mobile phones.

 

This brings me back to Zong and Boku because they enable users to currently make micro-payments for primarily virtual goods through cell phones. They reduce the friction by taking out the need to input financial information like credit card number and bank routing numbers, instead the payment amount is added to the mobile phone bill. Right now we think of AT&T and Verizon as our mobile phone carriers, there is a possibility that they might emerge as the hub of financial payments.