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What I Learnt from Comparing Payment Industry with Railway Industry

5 years as product manager in Payment industry, I’ve worked on products from mobile wallet to gateway, and know how each player in the industry work and make or loss money. I consider payment industry as an infrastructure industry, an enabler for value exchange and creation. Let me explain why:

When I say infrastructure, you may think about railways, roads, cellular network etc, the main characteristics of these systems are: 
  • Massive and connected (in most places); 
  • End users don’t consume the network directly but through a “vehicle” (train of the railway; car for the road etc); 
  • End users of the network pay to use the facility; 
  • Ownership differ by level of criticalness (most important owned by gov, regulators or MNC; smaller ones by province, city or companies); 
  • Network owners and “vehicle” owners are in constant conflicts that both facilitate and hold back innovation.

And payment industry is the same:
  • All providers are connected (or you can’t pay while traveling);
  • Credit cards, debit cards, cheques and cash etc are the “vehicle” of payment industry
  • Merchants and consumers pay various fees for using the network (“Merchant Discount Rate” or MDR is the most typical fee)
  • National switch connect banks and financial institutions are usually owned by the country, card schema (Visa/MasterCard) are almost regulators and  mobile wallets (e.g. PayPal) and other smaller parts owned by others;
  • The most recent struggle being on mobile payment, it is a “vehicle” innovation, when the “vehicle” hits the road, the road is not supporting because it needs an upgrade to support such “vehicle”, the wrestling goes on

The reason I am making this comparison is because it makes it easier to understand what is the current situation and what will be the likely future for the payment industry, in other words, where the opportunities and threats and how we “define” them.
ooking at the railroad industry for example, we know that simply, the innovation is either about the railway or the “vehicle”. Take the 2 newsletter I received from “The Paypers” and “PYMNTS.COM” yesterday, the list of articles are as follows:
  • SIX Payment Services deploys smart payment terminals for the Swiss Post (Railroad)
  • Paytm integrates UPI payments system for wallet recharge  (Railroad)
  • Amazon sets off pilot programme in India for people selling old products  (Railroad)
  • Kraken announces the support for Monero trading on its platform  (Railroad)
  • Bitcoin Breaks $1,000 (Vehicle)
  • More Holiday Shoppers Made Mobile Purchases This Season (Vehicle)
  • The Traditional Payments Player Role in The FinTech World (Railroad and Vehicle)

These articles represents 70% of all the articles in the newsletters, the other 30%, of course, is about regulation and crimes.  These two creates their own market, the more regulation, the more crime; the more crime, the more regulation. One thing they don’t create, in most cases, is “Value” and “Opportunities". If everybody drive in a good way, we don’t need traffic lights and police.

So what are the key indicators of a company or technology that suggest if it is an “opportunity”?

First, let’s see if it is “Railroad” or “vehicle” or how the “Railroad” or “vehicle” can use it, take the block chain technology for example, it is a material, which is great because the whole network will be using it. ApplePay for example, is a “vehicle”, actually, it is more like a better wheel on a old car (credit card) that runs on the same road (contactless terminals).

Then let’s look at if it process the key criteria to be successful in the sector it belongs. For example, as a payment material it needs to fulfill one or several of the following criteria:
  • Reduce cost (producing, transporting, exchanging, circulating, ownership and governance)
  • Increase speed (producing, transporting, exchanging, circulating and verifying)

If it is “vehicle”, then the key criteria will be:

  • Affordability (it can be created and bought and used in an inexpensive way; money wise and effort wise)
  • Have existing and expanding end points (therefore plenty of places to use it)
  • Security (allows continuous use of the vehicle and no harm to the railroad and passenger)

If it is a “railroad”, then the key criteria will be:

  • Connectivity (it enables a vehicle to go to many places)
  • Affordability (passengers don’t pay much to use it) 
  • Have existing and expanding vehicle population (therefore plenty of passengers can use it)
  • Security (allows continuous use of the railroad and no harm to the passenger and vehicle)

Finally I usually look at how active the sector is, academically (“The Paypers” and “PYMNTS.COM” for example, are academics, most of the audiences are from payment industry) as well as generally (Google, BBC, CNN, TechChurch etc). It tells me if the company  am looking at is compatible in its sector, or in other words, as a consumer of this sector, will I be better off choosing the competitor instead.

At the end of the process I summarize the list of topics I want to look at, throughout this year, that fits the above criteria
  • Material: Block Chain Technology
  • Vehicle: Mobile Wallets; Cryptocurrency
  • Railroad: Integrated Solutions; Mobile Terminal

I want to look at the sector development, the previous and current major players and the major investments (which indicates how the industry used to see the future and how they see future now). As Joby Orlowsky, VP of Discover Global Network (as I think Discover is a perfect company to use to predict the future), kindly put it "It is an exciting time in the payments business. The pace of change is like never before and only continues to accelerate.” As a infrastructure business, looking at opportunities and working on it is exciting, because you know at least from the high level, you have a future.


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