This article is part of a series on the present and future of digital payments. For the full report, click here.
Some companies straddle the definition of traditional roles in digital payment processing. American Express (NYSE:AXP) for example operates its own payment network and its own bank. When you use your AMEX, the issuer and payment network are the same company.
Other non-traditional companies are also entering the mix and having a huge impact on the industry.
I'll refer to these companies as payment enablers, and they represent the cutting edge of payment technology.
Neither are they merchants in the traditional sense (Amazon being the obvious exception here). Google and Facebook don't charge you money to search the Internet or send a friend request. Yes, you can go to the Apple store and buy products directly, but Apple's real business is selling iPhone and iPads wholesale to merchants.
These companies are not networks either. They don't have the desire to develop technology to manage charge backs, authorizations, clearing, and settlements.
What these companies are doing is reshaping the way that consumers engage in commerce. Jim McCarthy, Executive Vice President of Strategic Partnerships and Innovation at Visa told me that, "a lot of the experiences being shaped are primarily being driven by these third parties. They are the ones writing the programmable interface, the new mobile edge for the way consumers engage in commerce."
In other words, these companies are replacing the swiping of a plastic card with new, easier methods for the consumer to initiate a transaction. They are redefining the front-end, the façade that takes the hugely complex and intimidating back end of payment processing and hides it behind a simple, fast, intuitive design that consumers love.
What about PayPal?
PayPal, the payments division of eBay (NASDAQ:EBAY), is similar to American Express in that it straddles a few of these definitions.
PayPal has some bank like qualities – it offers credit to consumers to pay later and offers deposit like products where you can keep your money in a PayPal account. It also has some enabler like qualities – there is hardly an e-commerce website online that doesn't accept PayPal as a method of payment.
But PayPal is not a payments network. It taps into the payment network of the card you have stored in their system – it could be Visa, example.
In this way, PayPal exists as a sort of platform, a bridge with qualities similar to many of the various players but without fully embracing any one role in the process.
How have these "enablers" evolved over time?
This concept does work in theory. PayPal has very successfully applied this framework across the Internet. Amazon's "One-Click" feature is a brilliant application of making commerce easier by storing credit card and shipping information. But beyond that, the feature largely flopped.
In an interview with Fortune , American Express CEO Ken Chenault addressed the failure of the "digital wallet".
I don't think [digital wallets] are dead, but if you go back to what I said publicly in 2011, I didn't think these wallets met a value proposition. I'm going to tap to pay? What's the friction that it's really solving? What are the benefits that I'm getting? How is that helping me in my shopping journey? At the end of the day, the failure of wallets was not being focused enough on customer needs.
Chenault's reasoning on digital wallets defines not only that technology's shortcoming, but it also defines the future of the industry.
To read Jay's full report on digital payments, click here.