Fiserv’s Answers to Payments Disruption: Popmoney and SpotPay

The buzzword at Finovate Fall 2012, which took place last week in New York (see our takes on the conference here and here) was “disruption.” The term comes from a now-classic book, ”The Innovator’s Dilemma” by Clayton Christensen. Christensen ‘s  general theme is that large companies focused on the bottom line fail to innovate and lose market share to companies they may not have even heard of. Part of the challenge, according to Chistensen, is that innovations are not necessarily profitable at first. It’s difficult for a large corporation with many stakeholders to justify spending money on something that seems like a failure. And yet, in time, some of these innovations evolve and improve and upset the balance (and balance sheet) of large corporations.

Are the new mobile products coming on to the market truly disruptive to the payments space? The day after Finovate, Bank Innovation spoke to two separate product divisions at Fiserv about two of their new payments products, Popmoney and SpotPay. What does it feel like to be Fiserv, one of the giants of the fintech sector, looking at this landscape of innovation?

In February 2012, Fiserv launched Popmoney, a person-to-person payment platform, and this summer it was rolled out to 2,000 financial institutions. Scott Hess and Steve Shaw from Fiserv’s Digital Channels and Electronic Payment Department spoke to Bank Innovation about Popmoney. According to financial industry analyst firm Aite Group, U.S. consumers make 11 billion person-to-person (P2P) payments every year. With Popmoney, Fiserv aims to make those transactions simpler and safer.

In a press release, Fiserv characterizes P2P as “one of the last frontiers for transitioning paper-based payments to electronic ones.” What Fiserv hopes to achieve is a “universal movement of money,” Hess said. “You want to electronify as many payments as you can.”

The convergence of channels and “device hopping” from computer to tablet to smartphone points to a customer need for more freedom and flexibility in accessing and using their money. Fiserv is working to close the gap between core systems and mobile platforms in order to facilitate realtime transactions and encourage mobile account origination. (A recent study shows that 80% of accounts still originate in the branch environment.)

Hess also described Fiserv as pessimistic about NFC (near field communication) technology, which allows for contactless payments. He pointed to its lack of inclusion in the recently announced iPhone 5 as a sign that NFC has, to put it kindly, a long road ahead of it.

Analyst David True agrees: “NFC can do a lot, and works very well for specific verticals. But NFC for payments, it will be a long haul.” However, he sees NFC working well in underserved areas where there is not such a ubiquity of credit cards. “If you’ve already got a credit card, who cares? You just use it.”

Asked about the difference between Fiserv and its many competitors in the P2P space, Hess became thoughtful. “We have to see them as a threat,” he said. But Fiserv’s offerings have the advantage of being “FI-centric.” Like its competitors, use of Popmoney is fee-based, and Fiserv has seen that users are willing to pay for convenience as well as expedited transactions.

Fiserv doesn’t just work with the megabanks.

“Our more innovative clients tend to be smaller,” Hess said. Smaller banks are competing for the same customers as the bigger banks, and need to provide similar services in order to attract customers. Hess said that in order to innovate, experimentation and risk-taking are key. “You need to have a willingness to fail. In our group, we have a culture that failure is good.”

David True sees the real power of P2P in underbanked markets and even in less economically developed nations, such as Kenya, which has been in the financial news recently with M-Pesa.  This fits with Christensen’s theory, which tells us that innovation often starts at the low end of the spectrum: low profit margins, small transactions.

In August 2012, Fiserv announced SpotPay, a mobile payment device that is a joint effort from Fiserv, Magtech, and WorldPay. (SpotPay is pictured at the top of this post.) Bank Innovation discussed SpotPay with Dave Keenan, the general manager of network solutions at Fiserv. SpotPay is a device that attaches to smartphones to enable them to accept credit card payments and also enables remote deposit capture of checks. Sound familiar?

By now, many consumers are aware of Square, which consists of a device as well as an app to drive it. The attraction of Square is that it enable merchants who could not previously accept credit card payments to accept them. Is SpotPay simply a “Square-killer”?

Devices like Square, Keenan said, demonstrated that “the market exists, the demand exists. But people should realize that alien devices don’t have the same commitment to your safety and security that banks do.” The landscape has grown crowded. Keenan explained that there is such a plethora of mobile apps “because the barrier to entry, as opposed to a credit card, for example, is relatively low.”

Why choose SpotPay over Square or another offering? Again, it is Fiserv’s connection with banks. “What will the merchant of tomorrow look like? No one knows. But we have to realize how much we take for granted the security and protection financial institutions provide,” Keenan said.

David True of Broadly Curious predicts that “there will be a winnowing process” with these devices, but “the one that will survive is the one that offers the most value for merchants.”

Again, the value of innovation is providing services to the underserved. Fiserv’s willingness to experiment and to fail, and its leveraging of close relationships with FIs, will ensure its success for some time. But it has to keep its eye on the little guy. It might seem paradoxical to worry about the needs of the customer with the smallest pile of chips, but that is where innovation is needed most.