Banking on the just noticeable difference

I bought a bagel yesterday from Brian and paid for it by credit card. He processed my payment using Square. Having built and run online stores in the US and EU, I find the simplicity of this payment solution staggering. A decade ago, I spent months dealing with banks, merchant service providers, accounting, legal, finance, developers, and designers, just to figure out how to accept money from people who wanted to buy stuff. Today, a merchant can fill out a four-field form and be processing payments in a week.

Industry disruption happens - but it often transpires over years and decades, not in days or weeks. E-commerce hasn't killed physical retail, but a strong multichannel presence is necessary to win today. Social media haven't supplanted the mainstream, but outlets see the benefit of an integrated presence. Trends in technology and culture have started to change the payments industry - we're seeing evolution in NFC, peer-to-peer, and new intermediary models. As mobile devices become increasingly powerful and consumers gain comfort submitting payments in non-traditional ways (think about it: mail to phone to web to mobile), the basis for change is starting to solidify.

One of the best TechCrunch articles I've ever read outlined the downfall of Blockbuster Video and the rise of Netflix. Key quote: "Blockbuster probably could have done dozens of things to counter the rise of Netflix in that initial six year space. They were either simply too arrogant, too slow, too stupid, or all of the above to make a move."

My colleague Kate Niederhoffer talks about the psychological concept of a Just Noticeable Difference (jnd). I wonder if incumbents facing current innovations in payments will dismiss Brian and Square as not meaningful or take note of a jnd within their industry landscape and do something about it. Before becoming a Blockbuster.

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[Connectme]

The first Redbox kiosk got its start about two blocks from where I live today (and not too far away from where the first Chipotle launched 15 years ago). The cable and satellite companies were so preoccupied with each other that neither one saw Redbox or Netflix as anything more than a niche player. I was a Netflix subscriber for six months and pooh-poohed their earlier efforts. I was wrong to believe that would always be the case. The combination of widespread broadband wireless combined with a much larger on-demand library transformed their JND into something far more lethal.

So when I think about Square, the logical competition is the credit card processing equipment manufacturers, who seem to have done as little as possible to wi-fi enable their payment processing terminals. I think these guys are inconsequential. These manufacturers serve a greater master, who could end up being the next Blockbuster failure. Will it be the credit card processing arms of banks? Or will it be the merchant account itself?

Brian doesn't need multiple accounts for his money. He needs to take orders, pay vendors, himself, and Uncle Sam, with as little friction as possible. Square is not a bank, but if he could have a bank account integrated with his Square, that little fob just might be all the bank that Brian would ever need.

So if I hear that Square is buying a bank, perhaps that will be the game-changing event that turns the Square JND into a killing blow.

[Carol L. Weinfeld]

Blockbuster reminds one of the music industry, which was too slow (or "all of the above") to adapt, and is still playing catch up. Incumbents need to constantly scan their competitive environment in order to maintain their positions. Otherwise they may miss a just noticeable difference.

@clweinfeld

[Andres Rosello]

Great post Pete. So is Square here to stay or is it just a Flip?

http://mashable.com/2011/04/12/rip-flip-camera/