With a perpetually increasing number of available consumer technologies, it’s easy to forget about the core infrastructure—and the backend systems—that allow for seamless, comprehensive, and even delightful consumer experiences.
One operational layer that remains imperative across technology companies in nearly every industry is payments. In the past two decades or so, a number of disruptive innovations have been accompanied by progress in payments—demonstrating that, in many ways, payments are central to innovation.
At many of these companies, payments innovation isn’t merely a nice-to-have—it’s a core part of the customer experience, and therefore key to success.
Uber’s approach to hailing a ride by phone would arguably not have seemed so magical without its frictionless payments, which have become so second-nature that many who still dabble with taxis plumb forget to pay cab drivers. And what would eBay have been without an easy way for auctioneers to accept money? And on the other side of the world, Flipkart found that building Amazon’s Indian equivalent would actually call on it to become the FedEx and PayPal of India, too.
eBay plus PayPal
Illustration by Victoria Joh
The history of eBay and PayPal is a story of symbiotic technologies that became rivals, family, and exes. And although the two companies parted ways almost exactly a year ago, the businesses needed each other in the earliest days as they each worked to change digital behavior.
When Pierre Omidyar founded eBay in the fall of 1995, he just wanted to create a peer-to-peer auction marketplace—a garage sale of sorts—that took advantage of the power of the Internet to connect people.
“I had always been interested in markets—specifically, the theory that in financial markets, goods will trade at a fair value only when everyone has access to the same information,” Omidyar told Inc. magazine in 2013. “The takeaway was that the theory of efficient markets is really great—in theory. In practice, regular people are locked out. I started thinking, This Internet thing—maybe I can use it to help bring the power of financial markets to regular people. Of course, regular people aren’t selling stocks in their households. They’re selling stuff.”
Sure enough, growth came quickly. By 1998, just three years in, the company had half a million users and revenues of $4.7 million. That September, it went public.
But further growth was hamstrung by limitations in the payments landscape. This followed Omidyar’s initial thesis. To bring everyone together, everyone also needed adequate access to payment options. After all, figuring out how to actually get paid is one of the biggest challenges any new business or merchant must confront. In the early years, most eBay auctions were settled via check or money order.
And that’s the dynamic PayPal seized onto when it launched its money service in 1999 and merged with online banking company X.com (no, that’s not a typo) in 2000. At the time, online credit card payments were a challenge for most merchants, and even more so for the ordinary people brokering sales via eBay. This was well before the days of Stripe and Square, processors that have made it easier to accept various forms of payments like credit cards in person and online. PayPal was the first to let people exchange real money via regular email, something that again seems novel with the ease of Square Cash.
At the time, eBay had also attempted to build its own electronic-payment service, Billpoint, in a joint venture with Wells Fargo, which it bought in May 1999. But these efforts were, to put it plainly, futile. Billpoint was hemorrhaging around $10 million to $15 million per year. Users still preferred PayPal, and the ones who did use Billpoint were more likely to use credit cards to access the service, which cost eBay more money.
PayPal was just what eBay needed—prompting the auction service to acquire its payments adversary for $1.4 billion.
"Putting them together is the right thing to do,” Meg Whitman, chief executive of eBay, told the Wall Street Journal at the time that eBay acquired PayPal. “We have the marketplace—they have payments,” she explained.
At the time of the sale, 70 percent of all eBay auctions accepted PayPal payments, and roughly 1 in 4 closed auctions used the payment service. PayPal and eBay didn’t simply complement one another; they needed each other. (Until, of course, they didn’t: eBay spun PayPal off in July 2015, creating two independent Fortune 100 companies to better position both for growth. But that’s the difference a decade makes.)
Along came Uber
Illustration by Victoria Joh
Uber has done more than just transform the taxi industry; it has also pioneered frictionless payments—which reach an estimated $10 billion in global ride payments in 2015.
Taxi rides end in an awkward, time-consuming payments dance. Not so with Uber: The user inputs payment info before hailing his or her first ride, and after that, they never have to think about it again. Uber uses a cashless system, removing human-to-human money transfers from the system. Further, at least on iOS, Uber uses Card.io for credit card scanning, enabling users to input credit card information by simply holding up their card in front of the phone’s camera—ultimately removing yet another friction point. You can even split an Uber bill between multiple riders from within the app.
Just take the listing from an Uber job posting: “One of the ways to significantly increase our total addressable market is by offering frictionless payment methods people love to use.”
By focusing so much on making the payment experience great, Uber effectively decoupled its service from the cost of experiencing it. And this was key to its step-function improvement over the status quo, playing into the consumer psychology around the ease of use.
It’s continued to innovate here as it’s moved into new geographies with different payment expectations. Earlier this month, for example, Uber announced a partnership with Mexican online bank Bankaool and MasterCard to launch the Uber Bankaool Debit Card as an alternative way for riders to pay for the service.
Flipkart: India’s Amazon, UPS, and PayPal
Illustration by Victoria Joh
When Flipkart was founded in Bangalore, India, in 2007 by Amazon alums Sachin Bansal and Binny Bansal, it had ambition to become, well, the Amazon of India. But to get from being a bookseller to the behemoth it is today—with 75 million customers—it had to contend with certain peculiarities in its chosen market.
For one, India doesn’t have a universal package service like UPS or FedEx, and security is notoriously lax. For another, credit card penetration in the country was—and still is—extremely low.
Before it could even begin doing business, then, Flipkart also had to innovate ways to deliver its goods. For that crucial last mile of delivery, Flipkart therefore needed to develop its own routes—using everything from scooters and bikes—to get its goods to shoppers’ doors. Building out that logistics network gave Flipkart a huge advantage and helped it attract an early user base. But it was still held back by the payments landscape.
And so, in 2010, cash-on-delivery came to the transportation company. Cash-on-delivery, where customers pay for products at the time of receiving them, accounted for up to 60 percent of all e-commerce transactions until 2014, according to a study by Internet and Mobile Association of India and KPMG. And it helped that the company was able to leverage its trusted network for delivery and collections. As one former employee put it in a Quora post, “If you're going to rely on having a 3rd party guy collect cash for you when their annual salary is less than the cost of the mobile phone being delivered, god help you.”
Cash transactions, however, aren’t ideal from an accounting or fraud perspective, so the company rolled out card-on-delivery and developed its own online payment gateway, PayZippy. “The mission with PayZippy is to reduce cash in e-commerce,” Bansal said in an interview with Gadgets Now, even as he acknowledged that “realistically, I do not think cash-on-delivery is going away anytime soon.”
Flipkart has also lobbied India’s government for help in reducing the number of steps needed for card transactions and storing card details—mainstays of transacting online in the United States. In essence, Flipkart has created not only the Amazon but also the PayPal and UPS of India, necessarily driving the customer experience end-to-end.
Sum
Many defining technologies of the past decade achieved their sweeping disruption and widespread adoption by innovating at the payments layer. With the proliferation of financial technology companies continuing to push the boundaries of innovation, payments will even more seamlessly fade into the background of consumer technology experiences. It remains to be seen how the next generation of game-changing consumer tech companies will capitalize on these advancements to deliver the most engaging and inventive user experiences yet.
