A recent Forbes blog post, by contributor Jon Matonis,takes Square and PayPal to task as “not disruptive enough”innovations in the payments system. It’s true that neither goesaround the existing rails of the card brands, processors, andfinancial institutions so they are not disruptive in that sense.But disruption is a function of what ground you’re standing on.Square and PayPal are both disruptive to the merchant servicesindustry. More than a few financial institutions look at PayPalwith deep skepticism. Square’s one million dongle-armed,smartphone-wielding merchants are taking advantage of capabilitydisruptive to point of sale terminal and system makers. And it’skilling cash payments and improving convenience for the millions ofcustomers paying those merchants with cards.
OK, not massive disruption. Call the mobile dongle evolutionary.With a tail wind.
What makes the Matonis column intriguing is his characterization ofvirtual currency Bitcoin as disruptive. Bitcoin now has mobile appsthat make payments possible using QR codes as the means oftriggering those transactions. That’s pretty cool. Lots of folksare looking at QR codes in payments.
Like handsome people, however, “disruptive is as disruptive does”and it’s really hard to see how Bitcoin becomes the “trulydisruptive financial innovation” he’s talking about. Bitcoin, as analternative currency, has numerous issues including the fact it issubject to valuation changes and exchange rate fluctuations. At onepoint last year, Bitcoin dropped dramatically in value.
Bitcoin co-founder Erik Voorhees has said we should work toward”the separation of money and state.” Well, the huge majority of usare very attached to the warm and admittedly fuzzy notion of the”full faith and credit of the United States government” standingbehind our greenbacks or their digital equivalent. Another currencysimply doesn’t work. While we may see more national currenciesfall, the dollar, in the long term, will be among the top global orregional currencies along with the euro (assuming it survives) andlikely the Chinese yuan. We like the fact, and governments do, too,that the government is behind the currency we use on a dailybasis.
There’s reason to anticipate plenty of disruption in the paymentsindustry over the next five and 10 years, certainly far more thanhas taken place over the last twenty. But it will come fromtechnology-enabled changes in business relationships among most ofthe incumbent entities, especially financial institutions becausethat’s where the money is and that’s how we like it. Bitcoin mayfind a niche but it won’t be a handsome one. Cute, maybe, but notgood looking.