Earlier this week, I participated in a truly special event, the Lydian Roundtable. Lydian is a gathering of the best and brightest in the electronic payment industry and is hosted by my friends at Market Platform Dynamics, David Evans and Karen Webster. Every year, they bring together 50 to 100 key executives in the industry to discuss what is next in payments.
Lydian should not be mistaken for a conference. Rather, it is a discussion about what matters in the industry – today and in the future – lead not by a conference organizer, but rather by the attendees. Everyone in attendance had participative responsibilities; speaking on a panel, giving a presentation on an issue, etc. For my part, Karen and David asked me to moderate a panel on Innovators in Payment. Doing the panel and in general interacting with the high-caliber of attendees was a real treat for me. And the best thing about the day is that I was one of only two VCs in attendance. Sorry fellow VCs but I’d much rather spend the day hanging out with industry folks.
As I absorbed the day, a couple of observations stuck out.
Mobile: When not if
There was near-perfect unanimity about mobile’s role in electronic payment; it will be big. But an equal level of unanimity that it was not clear when mobile would play a meaningful role. Personally, I attribute this to the incredible number of players that are required to collaborate in order to launch a true mobile payment platform and to tie it into the systems that matter at the point of sale. There is also that issue about five different players in the value chain each wanting 30% of the economics. The math just doesnt’ work. With there being no representatives from mobile carriers in the room, there was lots of dancing around the fact that the payments industry wants mobile to be another dumb pipe. No one would say it explicitly, but the intent was clear enough.
The Future: A payments operating system
Most of the innovation in payments is happening at the application layer of the value chain. Payments are increasingly being integrated into the workflow applications (software and web-based) that small businesses, retailers and people use to collect and move money. Innovation at the app layer helps everyone in the industry, even the infrastructure/network players, because it provides a new growth opportunity. Unfortunately, the industry is ill-equiped to serve the needs of nimble, fast-moving applications developers, given its legacy technology infrastructure base. The existing infrastructure is good at one thing; working efficiently at scale. What is required is a new paradigm where the network players continue to benefit from scale economies, but open up their services infrastructure to app developers who can create new value and transactions at the edge of the network. I like to think of this as a payments operating system. David Evans drew an analogy to what both Facebook and the iPhone have done for applications developers. While those analogies are imperfect, they are reflective of the application innovation and growth payment can experience if it exposes its services core to innovation. I just happen to be an investor in IP Commerce which is executing this exact opportunity. I was excited to hear the industry is aligned on the need.
Social Payments: What is in store
Everyone is talking about social media and its intersection with payments. The incredible early volume of micro-payment within social networking platforms like Facebook and in social-related applications like gaming is truly impressive. But relegating the intersection of payment and social media to these digital goods category would leave incredible opportunities untapped. Although Facebook was not present, everyone is wondering how their payment strategy will evolve, having hired 50+ hardcore payments people in recent months. Stay tuned.
A hearty thanks to David and Karen for organizing the Lydian Roundtable. I was honored by the opportunity to participate.