Over the last few years, it seems as if silicon valley spirit has invaded the payment processing industry which has been exciting but has also caused a lot of confusion. We hear about new start ups, technologies and forms of payment on a daily basis all of which claim they will take over the payment processing world and potentially change our business model. Bitcoin is one of those start ups that I have followed very closely because it is could have been so disruptive. For a period of time, I even thought about supporting Bitcoin for our merchants but Bitcoin made three big mistakes which have lead them into trouble and insignificance.
First of all, what is Bitcoin? Bitcoin is a decentralized, digital currency. When someone uses their credit card, that credit card represents a form of currency like the US dollar and the transaction passes through a bank to verify it’s legitimacy. The US Dollar is managed by the US Government, which means the government can print more or less money as well as manage interest rates and other financial metrics in order to stabilize the currency and prevent drastic up and down swings as much as possible.
Bitcoin decided to try something different. Bitcoin decided to create their own, international currency that is neither controlled by any government or checked by any third party institution. (Yes, Money laundering has been a big problem for them) There are no “middle men” only a network over which each transaction is checked and the funds are transferred directly from one buyer to another with no interchange fees, however the system is so complex that most Bitcoin users have to pay another service to manage their Bitcoin “wallet” and purchases for a fee.
Over the last year Bitcoin has pumped up media hype about how many businesses are accepting Bitcoin but, as this paymnts.com article points out, the total number of transactions have been flat over the last year. This is equivalent to the percentage of US transactions using a check card being flat in 1975. During that time, the number of transactions that were being processed using check cards was increasing exponentially and would continue a steady climb for decades because, when you launch a new form of payment, it either has a very quick growth trajectory or it dies. Bitcoin’s exchange rate has been up and down so much lately that you would have to be crazy to use this form of payment today and I personally don’t think they will ever recover.
So, what are the three mistakes they made and how can you identify technologies that are going to stick in the market place moving forward?
#1 – Leverage Existing Behaviors – I believe disruptive payments technologies will take off, if they take advantage of a behavior that is already in place. This is true of any invention. The iPhone was incredibly unique when it was rolled out. The reason it was so quickly adopted is that it leveraged so many existing behaviors. We already checked our email, made phone calls from a cell phone, listened to music, surfed the internet and the iPhone gave us a more convenient way to do all these things we already did. Bitcoin would be like Apple rolling out “Apple Pay” first. In other words, if they said back before the iPhone, “Here is a little electronic device where you can store all your credit cards and pay with them electronically instead of swiping them” if that is all the device did, no one would have bought one because it doesn’t leverage any existing behaviors.
#2 – Solve a Problem – At the Centennial Exposition in 1876, Alexander Graham Bell handed a listening device to a judge and then walked into another room and spoke into a receiver. The judge heard him and immediately ran into the other room to find Mr. Bell. He was extactic because he intuitively understood the magnitude of what was just created. People already loved to speak to each other, they already sent letters, and telegraph offices already existed all over the country. Alexander Graham Bell leveraged these behaviors while solving a huge problem for people everywhere which was the time delay it took in order to speak to one another. Truly great inventions with sticking power solve problems.
I love the quote from PayPal’s CEO about NFC, he said, “This is a technology that has been in search of a problem.” So true! You will find that even Apple Pay will take some time to gain traction because although it does leverage existing behavior to a point, it doesn’t really solve a problem other than maybe a little bit more convenience and security. However, until most businesses accept Apple Pay it will not be more convenient and so it will not really take off like a rocket ship. Bitcoin doesn’t solve any problems for anyone really. You could say it takes some of the hassle out of currency exchange but when your currency is fluctuating by 20% in a week, you can’t really say it solves currency exchange issues.
#3 – Crack the small business market first – In the payments industry, you have to get to 90%+ acceptance at some point in order to have a viable technology. In other words, consumers today do not want 50 different technologies for 50 different stores, they want one device and one form of payment to shop anywhere they like. So, you can get all the big corporate customers but until you have a plan to get to 90% acceptance including the small to medium sized merchant, your technology is just a place holder until someone else comes along and figures out how to really make it work. Bitcoin was a form of payment that 99% of small business owners had no idea even how to accept and if they did know how to accept it they had no interest in accepting it.
Consumers don’t choose Walmart over small business because of their prices. They choose Walmart over Target because of their prices. Consumers choose the big box retailers over small businesses because of the selection. We are a society addicted to convenience and simplicity. We recently rolled out phase 1 of our new solution for small businesses. For retail stores we now offer an integrated Point of Sale System and eCommerce solution. We are rolling out a similar solution for food service businesses in the near future that includes online ordering, so let me take a couple minutes and explain how our solutions fit these three criteria.
#1 – Small business owners already ring up orders, already process payments and already have a website. Their customers already order things online and pick them up in the store and they already use loyalty programs. Just like the iPhone, our solution simply takes these existing behaviors and makes them integrated with added benefits and simplicity. Most retail store owners want a better way to interact with their clients online that mirrors their values in store. We are providing a seamless solution that will do just that.
#2 – We are solving a variety of problems. First of all, many small businesses do want a point of sale system but two things stand in their way. First of all, the cost up front is too high. They don’t have $10,000 in cash to spare and because they are still small or have had some business set backs they can’t get approved for financing. Because of this, we are offering the hardware for free up front and accepting only a small up front fee and a small monthly fee for service and support. The second problem small business owner have with new technology is that they don’t have an IT guy.
Many new technologies and POS Systems give lip service to the idea of providing support. Small business owners don’t need support, they need partnership. They need to be able to tell someone what they want done and then have it magically appear in a way that makes complete sense to them. That is what we offer and that is the direction we are heading. We are developing our new support center starting in January where we will have “Small Business Experts” to help our clients. These individuals will go through an extensive training program and will understand our solutions and how to fully customize them for our client’s needs.
#3 – We have a team of hundreds of sales people in local markets who are already taking these solutions out to small business owners so that we can establish ourselves in the market. In the future, we will work through our network of independent sales partners to win larger contracts with franchises and other local businesses that are part of a larger network but we will always stay true to our roots of serving local businesses through independent sales partners.
If you would like more info on becoming a reseller of our latest Retail Solution or if you just have some additional thoughts about this post, please comment below.
I hope you enjoyed this article. I enjoyed writing it and sharing a little bit of my thoughts on the power of innovation and how to identify a winner in the fast moving payments industry.
Have a great day!
James Shepherd
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