Implementing New Payment Types:
 Next Killer App or Road Kill?

by Steven W. Klebe

In my role here at CyberSource, dozens of companies approach me monthly to gain our support for their new Internet payment method.

These alternate payment technologies range from new ways to access existing accounts to completely new digital cash concepts. They run the gamut from simple-thin-client software to elaborate schemes that require consumers to buy and install hardware devices on their PCs (ie; smart card readers and/or PIN pads) or shop from their PDAs and cell phones. Some ask for minor changes in basic consumer and/or merchant activity while others demand major behavior modifications. Some can be integrated on top of existing infrastructures. Others require a completely new infrastructure be installed at the merchant and/or bank or processor.

The most startling part of this current phenomenon is that the smart and enthusiastic people coming up with these schemes often have little or no experience in the payment industry. There is an argument that says innovation requires a certain blindness to reality. Evaluating these new payment types requires a balance of optimism, appreciation for innovation and realism. Even so, we have to ask ourselves what the likelihood of success is for new payment types in this industry.

Estimates of the time and money necessary to achieve adoption of these concepts are consistently off target. My tool for dealing with overly optimistic estimates is the "3-6x" rule. Take whatever estimate is provided for both the time and money to implement a new innovation and multiply by a factor of 3-6. For those considering developing a new payment scheme or investing in one, I strongly suggest casting estimates in the most conservative light possible.

I have also defined two critical stages that can be observed in the evolution of these concepts. The "wind at your back" stage occurs prior to any deployment. Everyone is enamored with the concept and almost giddy about their prospects. The "wind in your face" stage comes once an attempt has been made to launch the new product or service. This is when reality starts to set in and entrepreneurs realize that 80% of the chance for success is dependent upon the buy-in of entities on either side of the food chain who may be reluctant to participate. Often, the role of these players has been consciously or unconsciously left out of the business model, much like the role of distributors in the original dotcom theories. At this point some critical element of the value proposition has probably gone bust since the costs of including economic motivation for these various entities was not factored in to the original equation. The lesson here is that it is critical to understand all of the technology and business issues on either side of the value chain.

Another obstacle I often run across is a lack of knowledge of the history of similar attempts. I was recently approached by a company with an idea almost identical to what First Virtual offered nearly seven years ago. The founder of this new firm had never even heard of his predecessor. A simple web search brought me to several articles and research studies that included mention of First Virtual. This told me all I needed to know about the prospects of this new company.

There are a number of things to keep in mind when evaluating a potential partner or new payment service. Remember, if it sounds too good to be true, it probably is.
1.    Make sure the player you are dealing with has ade- quate funds fully committed to the project in order to ride out the inevitable speed bumps.
2.    Be very careful when you hear "so and so is fully com- mitted to supporting this new offering so you better jump on it or you will be left behind." Even if you have seen a press release keep in mind that this is a classic tactic and there is rarely much substance behind these commitments.
3.    If the new offering requires consumers or merchants to change the way they do business, even in a minor way, expect a very long adoption cycle.
4.    If you don't understand the value chain and the roles and responsibilities of the various players, it makes sense to do some research or bring in someone with more knowledge. Can we expect to see digital cash or smart cards in our future? Probably so, but as with the adoption of ATMs or visions of the paperless office, adoption will likely come in the form of an evolution, not a revolution. Plan your business accordingly.

Steven W. Klebe is Vice President, Strategic Alliances, Payment & Risk of CyberSource Corporation, an electronic payment and risk management solutions company.