Smart Money: Payer Innovations

This is the first in-depth post in a series on how mobile payments make money smarter.  See the Smart Money Overview for an introduction to the series.

Financial transactions generate a lot of information.  But the payer benefits very little and retains control over virtually none of that payment info.  Credit card companies have a trove of transaction-based data about payers and they use that data in financial modeling as well as selling aggregated forms of it to advertising firms.  But the most information a consumer gets from a financial transaction is a small paper receipt (that will soon be lost or thrown away) and potentially a cryptic line item on the month-end credit card bill (if a credit card was used).

Imagine a world, however, where you as a consumer had full access to your payments and transactions data.  That data would include not only the information about your transaction (how much you paid, the exact items you purchased, the date, time and location of that purchase) but also information about the merchant (name of the company and of the sales associate that served you) and the products you purchased (warranty information, consumer reports, any warnings or notices).  In isolation, these data may not seem like very much but when aggregated they will be incredibly powerful.

Innovations on the payer side might include:

• Budgeting and mental accounting[1]: Because your phone is with you all the time and it’s able to receive and process payment information in real-time, it will be possible to set up budget alerts that help you stick to a fiscal plan.  Does your monthly budget allow for $150 in restaurant spending?  Your phone could let you know when you’ve hit $100 and only have $50 left; or if you’ve spent more than half in the first week, for example.  There could also be innovative attempts to compensate for the impulse buying that so many find difficult to avoid.  If you’ve set up a savings goal for your next vacation (to New Zealand), the next time you’re considering buying that shiny new toy, your phone shows you a picture of your long-term goal (a beautiful New Zealand sunset).  For more on the psychology of spending, the NY Times has a good article here.
• Loyalty and rewards: Loyalty and rewards programs are great if you’re really organized.  But if you’re like me, you always lose the half-filled punch card and are left to rue the free ice cream cone that could have been.  If the mobile phone manages your history of purchases for places that you frequent, you will be eating that free ice cream cone as soon as you earn it.  Google’s recently announced Google Wallet includes such capability.
• Smart recommendations: Because Amazon knows what you’ve bought in the past from Amazon, they’re able to recommend items that might be of interest.  Same with Netflix in terms of recommending movies based on movies that you’ve enjoyed in the past.  That use of past information to provide suggestions will open up whole new experiences and purchases.
• Trends and analytics: All of your payments information can also generate valuable insights on various aspects of your life.  Examples are numerous but include: 1) gas consumption, mileage, and costs may provide advanced notice of a mechanical problem as well as a more informed car purchase decision in the future; 2) all those purchases at Starbucks may seem small but in aggregate add up to more than enough to justify the purchase of an espresso machine; 3) an established record of staples purchases may help to foresee the need to buy eggs or toilet paper before you actually run out.

These potential innovations are exciting but perhaps nothing compares to the simple shift in access to these data.  Forgot how many hamburger buns you bought for the last BBQ?  You can just look it up.  Can’t remember how much money you’ve donated over the year for tax purposes?  You can just look it up.  And so on.

The amount of data created by financial transactions is stupendous and consumers don’t get much value from that data today.  When that information is digital, stored securely and opened up to innovators, consumers will reap the benefits.

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[1] My current job involves trying to help people save more of their money in the bank – so this is an area of particular interest.  One thing that we hear over and over again from customers is that they need more discipline.