The way We PAY

The future is now when it comes to the world of payments, with all manner of innovative methods of consummating transactions vying for adoption even as cash and checks remain the preferred form of payment for many Americans.

Payment enabled IOT devices that autonomously order merchandise, smart refrigerators with integrated payment technology and all manner of wearable devices offer the ability to complete a transaction. One company, Ringly, a maker of smart jewelry is looking at integrating payments into its Bluetooth enabled jewelry. Clearly, some of these emerging concepts are for the earliest of the early adopters, but serve to underscore the tremendous amount of experimentation underway.

As McKinsey & Company noted in its Panorama database used to track financial technology (FinTech) start-up companies worldwide, there were 350 companies focused on payments when it launched in 2011 and today there are more than 900, accounting for more than 40 percent of the 2,000 companies in the database.

Much of the innovation is transparent to consumers and focused on eliminating friction from the payment process. That was the case with CVS Health when it piloted its CVS Pay app in New York City last August. After adoption and customer feedback exceeded the company's expectations, CVS Pay rolled out nationwide in late October. The app gives users a simplified experience by allowing them to store a preferred credit card and then refill, manage multiple prescriptions, pick-up and pay all within the app, which also links to the ExtraCare loyalty program so there is a single scan at checkout.

Belinda Wong, Starbuck China CEO, unveiled mobile payment innovations in China that could serve as a model for the U.S.

Sam's Club is employing a similar friction-elimination approach with a payment innovation called Scan & Go as part of its app. Scan & Go offers members a cashier-less experience because they use the app to scan items as they are deposited in their cart, complete payment within the app and then show a digital receipt as they exit the club.

Some of the most interesting payment innovations with mass appeal are happening at Starbucks. Eight million customers already pay with the brand's mobile app and in 2017 it plans to pilot a conversational ordering system branded as My Starbucks Barista that will speed up ordering and payment process because a customer could speak into their phone enroute to a store, collect their beverage and pay with the app. That's pretty cool, but where thing really get interesting is in China where chat commerce is a huge deal.

Starbucks and Chinese Internet service provider Tencent Holdings created a social gifting feature on WeChat, the nation's leading mobile social communications service, that will launch in early 2017. It makes Starbucks the first retail brand to combine a social gifting and digital payment experience on the WeChat platform. Starbucks also plans to accept WeChat Pay at its more than 2,500 Chinese locations, which is a smart move considering the cash-free WeChat digital payment method is among the most popular in China, with more than 300 million users.

The adoption of a broad range of alternative payments methods is expect to cause the value of non-cash payments in the U.S. to increase to $46 trillion by 2026, accounting for 76 percent of all transactions, a 36 percent increase from $33 trillion in 2016 when non-cash transaction accounted for 63 percent, according to new research from the global law firm Paul Hastings. Within a decade the firm's forecast suggests there will be 221 million contactless mobile payment users in the U.S. The research also identified that nearly half of the more than 1,000 people surveyed for the research said a reduced risk of fraud is the feature they would most like to see in alternative payment methods. Indeed, widespread innovation taking place in the payments world is happening against a backdrop of an escalating threat environment thanks to a proliferation of payment enabled IOT devices, lax security and enterprising bad guys.

"Technology companies are under significant market pressure to innovate and move to market quickly, often at the expense of cybersecurity," according to the recently released report "Securing and Growing the Digital Economy," from the Commission on Enhancing National Cybersecurity. One of the most distressing findings is that the Commission has resigned itself to a future filled with persistent threats that will be challenging and costly to thwart and remediate.

"Some threats against organizations today are from teams composed of highly skilled attackers that can spend months, if not years, planning and carrying out an intrusion," according to the report. "These teams may be sponsored by nation-states or criminal organizations, hacktivist groups, and others. Less skilled malicious actors can easily purchase attack toolkits, often with technical support, enabling them to readily participate in criminal activities. A security team has to protect thousands of devices while a malicious actor needs to gain access to only one. The cost to attack a system is only a fraction of the cost to defend it."

Sam's Club beat Amazon to the punch by integrating scanning and payment functionality into its mobile app to offer a "cashier-less" experience at all its warehouse clubs.

To address the challenge, the Commission, which was created by an executive order of President Obama, is recommending that the 16 recommendations and 53 action items contained in its report merit action by the Trump administration within the first 100 days of his presidency.

However, even before the Commission was created, similar work was underway at the Federal Reserve which had launched the 160-member Secure Payments Task Force in April 2015. This past November the task force completed a series of three surveys seeking input from market participants regarding payment identity management, the sharing of information to mitigate risk and fraud and data protection. Each of those areas is led by industry leaders including Nancy O'Malley, Executive Vice President, Mastercard, who heads the Payment Identity Management group, Reed Luhtanes, Senior Director of Payments Strategy at Walmart, leads the Data Protection group and Glen Ulrich, Operation Executive at US Bank, heads the Information Sharing group.

The survey feedback is expected to help the Task Force identify and promote actions to maintain payment system security, promote public confidence and ensure protection measures and incident response keeps pace with an evolving and expanding threat environment.

That's a tall order considering the cybersecurity Commission noted that, "malicious actors continue to benefit from organizations' and individuals' reluctance to prioritize basic cybersecurity activities and their indifference to cybersecurity practices. These failures to mitigate risk can and do allow malicious actors of any skill level to exploit some systems at will."

Meanwhile, as the proliferation of payment methods creates a host of security concerns there are also larger societal issues in play. The quest for a friction free payment world promises to create an even greater disconnect between American's sense of the intrinsic value of money and the effort required to earn it. Financial responsibility is already a challenge for many consumers, some of whom may actually benefit from appropriately placed friction.

Supporting this view is recent research that shows the nation's school systems are churning out a generation of financially illiterate consumers. The Center for Financial Literacy at Champlain College based in Burlington, Vt. produces an annual report card that attempts to measure how well high schools are providing personal finance education and the most recent version shows that 26 states received a grade of C or less. The Center was created to promoted financial literacy, but even its home state of Vermont received a D grade. 20 states received a B, but that's hardly cause to cheer, according to the Center, because half of those states require fewer than 14 hours of finance instruction in all of high school.