In the conference and seminar industry, it’s a truism that after any event a handful of customers will report that the sessions were good but would have been more helpful if they had been provided a blueprint for, say, a mobile payments strategy. Unfortunately, that’s an unrealistic expectation of a conference and it’s especially unlikely in the case of digital payments, which can evolve in many different potential directions. The best you can do is make multiple bets and watch carefully to see which pay off.
I was reminded of that as I read Uncontrolled: The Surprising Payoff of Trial-and-Error for Business, Politics, and Society (Basic Books, 2012), by former management consultant Jim Manzi, chairman of Applied Predictive Technologies. The book has attracted attention for its suggestion that we could use scientific methodology to help ensure better outcomes in public policy, which inspired me to think about the ways banks are approaching mobile payments.
More than a few U.S. financial institutions are proceeding with the “trial-and-error” approach that Manzi advocates. They’re testing offers, systematically varying value propositions and target segments, carefully examining the results, discarding what doesn’t work and trying something new.
Manzi, who studied math at MIT, writes about the utility of the “randomized field trial” and runs a company that provides testing and analysis for corporate customers. A poster child in his book is Capital One Financial Corp., well known for its test-and-learn philosophy, whose “key insight was making relentless experimentation the core methodology for understanding consumer response.” In recent months, Cap One has captured attention for lining up with other banks in the Isis mobile wallet and then for buying a start-up rewards company that was promptly placed in Capital One Labs, which specializes in “rapid prototyping, incubation, and testing of product ideas before they are rolled out to customers.”
The number of banks systematically testing approaches to mobile payments may be constrained by cost. Manzi notes that it’s especially easy to apply scientific methodology to e-commerce because the Internet has reduced the cost of studying customers’ preferences and behavior. But mobile payments require hardware, software, telecommunications, agreements, etc., and multiple experiments can get expensive. Forrester Research recently estimated that mobile will account for more than one-third of bank investment in digital channels this year. One can hope that a significant portion of that investment is going to careful testing.
One of my poster children for digital payments is U.S. Bancorp, which regularly experiments to find out how technology can be applied to future banking products. In a recent American Banker article, the bank’s chief innovation officer, Dominic Venturo, discussed his institution’s forays into augmented reality and digital watermarks. “We’re tracking human use and getting images,” Venturo said. “We’ll get a large amount of feedback and will figure out things that we need to change before the broader deployment.”
David Godsman, online and mobile solutions executive at Bank of America Corp., likewise spoke of the need to experiment in digital payments in a recent interview in BAI Banking Strategies. “This is not an original thought, but the idea of placing multiple bets right now feels like a common strategy to most people in this space,” Godsman said. “We’ve got this period in time right now where everyone knows that the payment strategy of most organizations is evolving to meet customer expectations and there isn’t a guaranteed winner yet. I think that allows a lot of room for experimentation and placing multiple bets to see what ultimately plays out from a mass adoption potential.”
Godsman made his remarks in a preview of a presentation he delivered at the BAI Payments Connect Conference & Expo last March. Venturo headlined the same conference in 2010. Neither gave the audience a blueprint, but nobody complained. Banks such as theirs give me a high level of confidence that ultimately banks not only will be relevant in mobile payments but will help define the space.
Mr. Swift is director, content development, at BAI. He can be reached at email@example.com.
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