Tomasz Kurczyk, Chief Transformation & Digital Officer, AXA Singapore
We are living in a world where seven out of the ten largest global corporations by market capitalization are in the platform and ecosystem business. Today we hear more and more about developing platforms and ecosystems starting from professional publications, boardroom discussions to start-up pitches. Pursuing the platform strategy seems to be the new mantra and ultimate ambition for many companies across industries.
At its core, platforms are about creating value through connecting multiple parties and growing network externalities. For this to happen, the marginal cost of a single transaction needs to be minimal along with reduced friction and a high level of trust. This is where payments, and especially payments innovation, is becoming one of the critical enablers for the growth and scaling of platforms.
If we take a closer look at the history of the successful platform business, the ability to solve two key issues – trust and transactional friction–is critical for the scaling and ultimate success of the business.
Let’s take the example of PayPal, it helped greatly to address the lack of trust between strangers transacting on-line at the early stages of e-commerce. By introducing its digital escrow service PayPal platform acted as neutral party, assuring the transaction and removing the need to share credit card details with unknow third parties. By solving this trust issue, it allowed marketplaces like eBay to gain momentum and accelerate growth and scale rapidly.
The second example worth mentioning is WeChat and its rapidrise as a dominant ecosystem in China for almost any type of online and offline services. A critical point for the company was the introduction of WeChat Pay back in 2013. This wallet feature inside the application virtually removed friction from peer-to-peer and business-to-consumer transactions and provided trust and assurance to the users. This laid the foundation for the development of new services, enhanced integration and greater access to data, thereby creating the perfect self-reinforcing environment, which enabled them to grow at an unprecedented scale. WeChat has now become the world’s largest payment and transactional ecosystem, surpassing the likes of Visa, Facebook, Amazon or Google.
Payments are a vital element of any commercial transaction regardless of which type of business or industry you are operating in. Being part of this essential process provides the foundation for the development of new services and allows you to gain a foothold and the option for future ventures or extension of your services into different verticals.
Controlling such an ecosystem and having access to information allows businesses to exert influence and control.
The best illustration of how significant it can become is WeChat. The latest Chinese government initiative to launch its national digital currency is seen by many as a way to regain control over the payment ecosystem from WeChat and AliPay and cede it back to regional banks.
We see the attempts to apply the same playbook across the world, especially in Asia. Companies that have clear ambitions of becoming dominant platforms are Grab and Go-Jek in ASEAN and Google Pay in India. The first step in realizing this ambition is simple– create a pervasive and sticky payment ecosystem that you can control and build on top of. If successful, it will grant them the power of control and influence along with access to a treasure trove of data that was previously not accessible to a single party.
Payment data was previously difficult to collate across merchants, banks and card schemes due to the very fragmented nature of the payment landscape. Today it is possible for digital platforms outside of traditional financial institutions to compete with the likes of banks. Visa and Mastercard have access to customer spending data, which is driving the power shift especially in large unbanked markets like Philippines, Indonesia, India etc. This high-density information comes with granular data about customer spending, providing intimate insights into consumer habits and preferences for both online and offline transactions. In the past, companies like Mastercard and American Express have been able to effectively monetize data and develop large ancillary revenue sources based on their data. Now, this opportunity is available to ecosystem players that were suffering from data scarcity.
Thanks to payment advancements and innovation, resulting in reduced marginal costs from lower internal and external transaction costs, more traditional businesses have started innovating around their product and service value propositions. New business models and products that were long on the backbench are now becoming realistic and profitable. Let’s look at my industry, for instance – creating new insurance products was typically a very lengthy and complicated process with several limitations. However, my teams have been working on improving our products in the past 18 months – micro insurance for low-income population and developing markets, service subscription models, pay-per-use, pay-as-you-use, peer-to-peer insurance, and more. All of this used to be very difficult to implement or required significant compromises in the product design or customer experience as transaction costs were prohibitive.
Today, the trend across industries is to adopt subscription-based models, establishing the ability to easily collect payments periodically. These models are aligned with the customers’ interest as it removes long commitments and provides the flexibility to adapt and personalize the service to their exact needs. This trend pushes companies to refocus on the customer with an emphasis on the continued delivery of value and increased use of the product or service.
In the case of traditional industries like insurance, it requires a shift and a new way of thinking, even though insurance is a subscription business. Adopting subscription-like thinking combined with advancements in payments allows improved experience in crucial areas such as claims, renewal and purchase. From our own experience, personalizing payment methods and adopting new digital payment capabilities allowed us to significantly improve the costs of doing business as well as key metrics like renewal rates, while connecting the offline and online experiences to achieve better visibility. The number of opportunities for your company increases significantly when you collaborate with ecosystem players to leverage data and integration capabilities to provide better financial planning advice, improve savings habits or even deliver personalized protection solutions that are automated and aligned with customer needs.
For all industries and mainly for more traditional businesses, it is essential to be aware of the trends in the evolving payments space. This knowledge should be applied to business and IT strategy and used as a key input in product and service design. This is why major decisions should be made by the company as a whole, and not just appointed to a single department.
For many companies, exploring the adoption of new payment services is a first attempt to potentially connect to larger ecosystems. These choices often come with the implicit decision to support the broader strategy to develop larger ecosystems. Ultimately there is no escaping from being part of the platform and ecosystem economy. We are already in it, the choice on whether we want to be passive participants, contributors or savvy players is all ours.