Chief Transformation Officer at Altimetrik
According to a study conducted by Upwork (via CNBC), over a third of U.S. workers are part of the “gig economy.” They’re driving for rideshare services; crafting clothes, jewelry and home goods for online marketplaces; delivering food for on-demand delivery services; and picking up graphic design and writing projects on freelancing platforms.
While this way of working might seem simple, the rise of the gig economy is forcing the payments industry to rethink much of how it handles business-to-business (B2B) transactions.
The payments industry is adapting on the fly, working to complete a complex technological leap that will satisfy both gig workers and the consumers they serve. Ultimately, the moves it’s making offer lessons to all businesses and industries about how to handle digital transformation and even turn it to your advantage.
How the gig economy upended the way we make payments.
Payments have always been split into two camps. Retail consumer-to-business payments are designed to operate at scale. These “low value, high volume” transactions are efficient enough to avoid checkout abandonment and ensure a smooth customer experience.
On the other hand, business-to-business payments traditionally have been “high value, low volume.” They bring in more revenue but have longer cycle times due to invoicing, accounts payable (AP) terms and letters of credit (LCs).
With the emergence of the gig economy, independent contractors are springing up as a “business of one.” This has sparked a hybrid of those B2C and B2B models, pushing “low value, high volume” transactions — and an expectation of immediate payment — into the B2B world.
Building a new payment method.
Both the business model behind the gig economy and the technology landscape are forcing financial institutions to transform. The pull-based models in the credit card world are giving way to push payments. Instead of the acquiring bank pulling funds from the issuing bank, the issuing bank pushes customers’ funds in near real time to the acquiring bank on behalf of the merchant.
The move to push payments will ultimately mean greater speed and security for all of us. As the rash of card skimmers and credit card hacks has shown, the traditional pull-based credit card process is vulnerable to attack. Credit card numbers are highly sensitive information. Push payments, on the other hand, are built around putting money into accounts. The account information is public — such as a ZIP code — but you can only put money into it, not withdraw.
But this is not a small change. Existing back-end rails and the subsystems are not designed to handle the transaction volume of this new flavor. These systems are getting refactored to use modern horizontal scaling techniques that employ cloud, containers and microservices.
While newer financial technology startups and bank initiatives have an edge, some existing financial services organizations — including some credit card companies — are undergoing transformation at a rapid pace, and other initiatives are emerging in this crowded green space of new models for speedy B2B payments.
The digital transformation lessons from the move to push payments.
The way the payments industry is responding to these changes points to several strategies smart businesses can take in the face of change and competition.
Here are several lessons for businesses in any industry about how to approach digital transformation:
• Start with what customers need. Don’t chase after technology because you think you need to or because you want to stay in lockstep with your competition. Pursue digital transformation to improve your customers’ experience and give them what they want. That will boost adoption when you roll out the new capabilities.
Push payments touch on the key customer needs of speed and security. Those two value propositions are helping drive adoption.
It’s important to pick the right use case when looking to drive early adoption of a new technology or process, something that hits close to your core customer value proposition.
If you try to force a use case that’s more of an academic exercise, you’ll struggle with acceptance. For example, blockchain technology has a lot of promise, but apart from a few select applications, the killer use case has not yet emerged.
• Build upon your existing infrastructure. People and businesses won’t change their protocols, technology, infrastructure and work processes overnight. You can increase adoption by fitting new capabilities smoothly into their existing ways of doing business.
The payments industry did this smartly, leveraging the existing infrastructure for automated clearinghouse (ACH) and card networks. Push payment is, at heart, a variation of the existing underlying infrastructure. It’s easy for people to understand, and it lowers the bar for adoption.
• People expect instant gratification. Mobile phones have trained people to expect an immediate response. Companies increasingly need to conduct business in real time, adding speed and efficiency without compromising security.
In the payment world, it’s about real-time funds transfers and push payments, but the expectation of consumers for real-time responses now cuts across industries.
What we can all learn from gig economy payments.
The shift to push payments, fueled by the gig economy, has left financial companies scrambling to adapt. The back-end technology changes that make push payments possible are complex, but that transformation is what customers need, and that need is fueling quick adoption of this new payment method as payments companies roll it out.
This is just one case study in how, by pursuing digital transformation based on customer needs and built on existing infrastructure, an entire industry is repositioning itself for continued success.