Digital Accounting : Business Model Changing innovation - David Birch, Digital Money Blog

[Dave Birch] One thing that struck me about PayPal's "Innovate 2010" conference in San Francisco, in (I have to say) fairly stark contrast to many of the events I attend in the more traditional banking world is just how much innovation was actually going on. Too often I'm tempted into a presentation on radical innovation in international payments only to find that the radical innovation being discussed is changing field 27 of message type 94 from two bits to three bits. At Innovate, though, the innovation was real: entirely new products and services that depend on the existence of the new payment platform underneath them.

Some of the stuff on show was fabulous: the stuff on augmented reality (with Layar), the digital TV commerce button, the digital goods purchasing. I enjoyed looking round what the developers were doing and I even wandered into the hackathon to see if I could understand what they were doing. What they were doing was writing code to create new applications there and then. And they did.

Over 300 people hacked for 15 hours and we’re pleased to announce the winners of our Hackalicious Hackathon! Congratulations to PayTEL, Affiliation APP, Tweet Engine for PayPal Docs and Buddy Beers social gift-giving for creating the most innovative demonstrations of how to “change the way people pay” using PayPal X’s tools, services and products

[From PayPal X Developer Network: Naveed Anwar's Blog: Winners of Second PayPal X Developer Challenge and Hackathon Revealed! Innovate 2010 Comes to a Close.]

It's funny though, but I thought that one of the most significant announcement was one of the dullest. While the stuff about television buy buttons and digital goods purchases and super-cool augmented reality will grab most people's attention, I thought that it was the announcement of PayPal Business Payments that seemed to me to be something that will mean real industry change. By coincidence, I happened to be chatting in the break to a developer who works on real-estate management software and he surprised my by saying that he works on commercial projects (for shopping malls and so forth) where the tenants want to use PayPal to pay bills. This, and a couple of other conversations I was involved in, leads mean to think that Russ Jones from Glenbrook is surely right to say that

We expect PayPal Business Payments to find a good reception in B2B payments, rent payments, healthcare payments, and other similar commercial markets. Learn more about PayPal X for business payment

[From PayPal X Innovate 2010 – Day 1 — Payments Views from Glenbrook Partners]

This is why I ended up spending more time looking at what the folks from Freshbooks and Bill.com were doing, because it seems to me that these kinds of solutions will be transformational: they will make a big difference to small businesses, which are most businesses. Freshbooks provides an outsourced invoicing service for small businesses, so that if you are (say) a small architect practice or law firm then you sign up and they generate invoices for you and automate collections. Bill.com works on the other end of the problem, which is to take your bills and automate their payment: when you get a paper bill you scan it in or fax it to them, and they turn it into an electronic item that you can process online (and pay using PayPal, naturally). If you think about the processes in a typical small business, the automation of the payment by itself just does not mean a massive cost saving: you have to get rid of the paper documents that go with it too.

We might summarise the sector as "e-invoicing" and, believe me, no matter how dull that sounds, the companies that crack it are going to make a lot of money.

This "payments plus paper" meme featured as SIBOS 2010 in Amsterdam as well. At SIBOS, the management consulting firm McKinsey set out their view of the six major trends in payments, neatly summarised by Chris Skinner:

The battle for liquidity will intensify globally;

Regulatory changes will force banks to reinvent their business models;

There will be a massive increase in electronic payments, thanks to things like e-invoicing;

There will also be a digital transformation of financial information and payments delivery, which will accelerate;

The resultant evolution of the competitive landscape for payments will be very different, with telcos and others in this space; and

There will be a major rise in new models for banking the unbanked.

Nothing much new there then.

[From The Financial Services Club's Blog: A real tulip in Amsterdam]

The fifth point, about new entrants, is naturally something I spend a lot of time working on because of Consult Hyperion's market niche, but it's the second point that I think I will be spending more time on in the coming year. For the great swathe of businesses out there, automating payments is a marginal activity (just look at the take up of SEPA) whereas automating the business processes around payments means real savings. When it comes to introducing new payment technologies - around mobile phones, say - one of the ways to obtain leverage will be to do some of the dull stuff too. Electronic receipts, for example.

I saw Bo Harald of Tieto talking about the importance of ISO 20022 in extending standardization beyond payments and into billing and invoicing. He said that auotmation in thee areas will halve the administration costs of SMEs in Europe because of the introduction of automated accounting including the automatic reporting and payment of VAT. I can see how this might make new systems attractive to small retailers as well as consumers: the much richer information content can be the basis of a wide variety of services that reduce costs, improve efficiency and drive sales.

About Digital Money Blog - Debate at the intersection of business, technology and culture in the world of digital money, both commercial and government, a blog born from the Digital Money Forum in London and sponsored by Consult Hyperion

Comments

[Jamie]

This is a great and detail article. Thanks for the information.
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