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ETA Expert Insights: What Does It Mean to Innovate Responsibly? Part 1

By Brandes Elitch, CrossCheck; Member of the ETA Payment Sales & Strategy Committee

Fintech innovation creates many opportunities and brings new players into the ecosystem, but it also creates poses new challenges and risks. The ETA Payment Sales & Strategy Committee reflected on how payments providers can embrace innovation in a sustainable way. Below, committee member Brandes Elitch sets the stage for this conversation by exploring some of the downsides and potential risks of innovation in the payments space.   

If you attended this year’s TRANSACT, the Electronic Transactions Association’s annual trade show, you were likely overwhelmed by the 200+ vendors in the exhibit hall showcasing their new products and services in the world of financial technology, or FinTech. To put things in perspective global FinTech investment totaled nearly $112 billion in 2018, with $52.5 billion invested in the United States. This is big money. As we begin what is called the Fourth Industrial Revolution, FinTech has been described as “the beacon of global innovation.” Every ETA member organization is affected by these developments such as faster payments, mobile technology, biometrics, artificial intelligence, distributed ledger technology, as well as new hardware and API solutions for automation and improved productivity at our merchants.

The DNA of an ISO/MSP salesperson is composed of people skills, a focus on innovation and bringing something new to the merchant, problem-solving abilities, and sales skills. When we speak to our merchants, we must show them how we can tangibly improve the bottom line of their business. Success to an ISO is defined as making the sale, and successful ISOs must have fast-firing reflexes to make that crucial connection to their merchant with tonality, emotion, and certainty. There are about 7-8 million small businesses in the country and on average they change merchant processors about once every three years, so there is a lot of opportunity here!

The FinTech industry is increasingly starting to think about what it means to “innovate responsibly.” Even the Office of the Comptroller of the Currency (which inspects and regulates banks) has an Office of Innovation and an Innovation Framework, which looks at how a FinTech would align with the bank’s risk appetite, its internal controls, and strategic objectives through the product lifecycle. Salespeople in the payments industry stand to gain from approaching innovation through a similar lens.

When we think about what this means, we would typically look at ethics, governance, data protection and privacy, gender equality, and open access (a process that is transparent and accessible). We might also consider science education (do our people have the right knowledge and tools?) and rules of engagement (does everyone who should be involved have knowledge and understanding of the product?). We might not consider the environmental and societal impacts on the public at large, but others will.

Like everything else that is new, there are consequences, some negative. As more data is used to drive strategic business decisions, that data becomes more vulnerable to data breach. Large technology platforms are susceptible to bad actors who can cause damage at a much larger scale than before. Facial recognition technology has been deployed, and in some cases it has proven to be wildly inaccurate. Personally identifying consumer information (PII) has routinely been stripped from customer data and sold to data brokers. Consumers don’t know who is collecting data about them or what is being done with it, so quite naturally they are distrustful of data security. These players did not innovate responsibly.

Because these new technology platforms scale quickly, and because their success relies on broad consumer adoption, early entrants can quickly seize market share and become near-monopolies. Newer start-ups lack a large consumer base and find it relatively more difficult to scale quickly. This can often undercut innovation and prevent new ideas and products from gaining a foothold in the market.

Someone is always going to be displaced by innovation and new technologies. Of course, this goes back to the Industrial Revolution and the invention of the steam engine and knitting mills. Old jobs become obsolete and new jobs are created. But now we are dealing with robots and chatbots, which are a new phenomenon. A recent report by the World Economic Forum found that it will cost $34 billion to reskill the 1.4 million  American workers who may lose their jobs to automation like this. This is usually referred to as the “creative destruction” of capitalism, and up to now it has worked pretty well. Many of the new jobs that innovation will create in the coming decade don’t even exist today.

One thing is for sure: there is no going back now. In the near future, we will see increasing adoption of mobile and contactless payments, faster payments, crypto or token currency, AI, the Internet of Things, and many other new things. And consumers love it. According to a Nielsen report, the average person spent 3 hours and 48 minutes a day on digital mediums in the first quarter of 2018, in addition to the four hours a day they spend watching television! Over the last decade, innovation has brought us many things that we take for granted today. Going forward, we want to be particularly careful not to repeat the unintended consequences mentioned above, because the most important goal is to win the trust and confidence of the consumer.

Click here to read part 2.