May 30, 2012

Inflation: the next big opportunity in payments?

I used to think that the success of my last startup, Welcome Real-time, was due to our software quality, thought leadership, patents, etc. While all this was true, something else was going on.

In 2000, we launched a major loyalty program for a bank in Turkey, Akbank. This was one of our first large projects with real-time cash back at the point of sale. Banks in other countries saw what was happening in Turkey and quickly followed with their own deployments using our software. Welcome signed up banks in 30 countries around the world and grew from 30 people to 130.

However, it gradually became apparent that other banks didn't seem to get as good results as the banks in Turkey. What was different?

Inflation.



The Turkish Lira was crashing.

People were buying lots of stuff on credit and racking up and redeeming cash back instantly, a unique feature of our system. They were locking in value before the currency depreciated further, converting cash and credit into hard commodities like groceries, appliances and other things they could stock up on.

That was a decade ago. How about today? What type of business would benefit from global systemic inflation if and when that hits? A decade ago we didn't have smart phones. Very few of us had friends on social media. What kind of solution will thrive this time around?

Stocking up is the traditional way of converting cash into commodities. But you have to store everything somewhere and exchange the actual physical goods with friends and family members when they need something you have.

Mobile phones can help do all of this in a much more convenient way.

Retailer top-up cards let people prepay things like coffees and sandwiches, storing dollars on their account. Customers get a discount and retailers get cash flow. Most point of sale systems support the feature, and most retailers could easily use it if they want to.

Imagine storing lattes, sandwiches or Carrefour Bucks instead of dollars. Pay $50 now to load 10 lattes to your account. Next month you may need to pay $55, so better load the value now and lock in those lattes.

Smart phones make it easy for customers to manage dozens of these accounts. Social media makes it easy to share and exchange value with friends and family, without needing to store and exchange physical goods.

Payment brands have a key role to play in creating a safe and secure environment, not just for each payment transaction but also to have the insurance in place in case a merchant goes out of business.

Like barter, but nothing like your ancestor's idea of barter.

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