Pii360: Payments Top Innovators Revealed

Disruption, then innovation. Or is it innovation then disruption? Either way you slice it, the payments industry is going through a massive wave of disruptive innovation.

And what better way to demonstrate this than a 360-degree, comprehensive review of how companies are choosing to develop themselves through the products and technologies they produce. Yesterday (March 19) at Innovation Project 2015, Market Platform Dynamics released its Payments Innovation Index — Pii360 — study, which provides the first and most comprehensive look at the state of innovation in payments. The study, which participants at Innovation Project got a sneak peek into, shows what companies are leading the innovation and those that are falling behind.

This proprietary index reveals how a company ranks overall in payments innovation and how it compares to other companies in its segment. The study from MPD, which included collaboration with leading global academic experts, involves a massive research effort to determine where every significant company—about 100—in payments stands when it comes to innovation.

“Companies that innovate continually will see it to the other side. Those who don’t won’t. If you’ve been part of the payments industry in the last seven years, and weren’t hiding under a rock, you know this,” MPD wrote in the Pii360 executive summary. “But what may be hiding under that rock is exactly how innovative any one company is in the payments industry and whether what they are doing is actually enough to build and sustain a competitive position. ‘How are we really doing?’ is a familiar refrain from the board rooms to conference rooms all across the payments ecosystem as executives strive to answer that question and to do it in a way that is fact-based and not just gut-checked.”

And that’s exactly what Pii360 — as its name implies — provides : “a 360-degree look at payments innovation by company and segment.” As a result, the study uses vast analysis of data on the three levers of innovation that MPD examined for each of the 100 companies analyzed. This included: patent portfolios, expert opinions and market-and-company indicators.

“These three levers – Patent Portfolios, Expert Opinions, and Market/Company Indicators – result in a 360-degree examination of payments innovation – and the most comprehensive and quantifiable assessment of players in payments that has ever been completed,” MPD wrote in the executive summary. “Pii360 shows how much innovation companies have produced through their own efforts as measured by the value of their patent portfolios. That’s the inside-looking-out measure.”

So just how can this study be used? The study shows how companies are not only investing in innovation, but also seeing results in the marketplace. This, together, is reflected in their ranking overall. By analyzing the data within the individual components as well as the final scores, companies can determine specific actions that can be best positioned to improve – or sustain their performance in future years.

“But who’s really innovating in payments and who isn’t?” David Evans, MPD Founder, said to the group of payments innovators yesterday. “And how are you doing? Are you smokin’ your rivals, or huffing and puffing at the back of the pack?”

That’s what the analysis in Pii360 reveals. So just how did the study come to fruition? A year ago, MPD leaders set foot on an effort to measure innovation by the major companies that influence payments. They worked with Josh Lerner — Professor of Investment Banking Unit Head and Entrepreneurial Management at  Harvard Business School — to delicately, and analytically, craft the methodology that generated the results to capture the nuances of innovation.

“We all recognized that innovation is hard to measure. You might say impossible,” Evans said. “But we took to heart the advice of one of the most influential physicists of the 19th century, Lord Kelvin, who said: ‘When you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind.'”

The methodology involved taking a broader definition of payments, otherwise many of the top innovators would have been overlooked.

“We’d be crazy not to because a lot of the innovation in payments is coming from outside of payments, and because a lot of the innovation in payments is bleeding into the broader area of connected commerce,” Evans said.

The initial companies selected to be part of the index were chosen to achieve three objectives: adequately reflect each of the core segments of the evolving payments ecosystem; adequately demonstrate results and expected product sustainability; and ensure enough depth and breadth to reliably assess the performance of that segment. In the end, Pii360 evaluated over 100 companies in digital and mobile payments for the first release of the index.

So Just Who Are Those Top Companies?

During Innovation Project 2015, MPD CEO Karen Webster and Evans gave the scoop on the Top 10 companies that made their way to Pii360’s highest ranked payments innovators. And those companies (in order) are: Apple, Visa, Amazon, Facebook, MasterCard, American Express, PayPal, Google, Alibaba and VeriFone.

“[Apple] got the top ranked spot because the payments professionals we asked said it was highly innovative in payments. Because it patents a lot of highly valuable innovations. And because a whole lot of other indicators point to it to being very innovative,” Webster said during Innovation Project on March 19. “I want to be clear though. Apple did not make it to the top spot just because they came out with Apple Pay a few months ago, although that helped. It’s been cranking out valuable payment patents for time now. It’s been positioning itself. And that’s what Pii360 measures.”

And company No. 2 was Visa — the company that Webster said “has been investing in innovation and wowing our payment experts” — which might be more expected in the payments innovation side. The difference between the first and second spot is “so slim, it’s really a statistical dead heat for the No. 1 spot,” she added.

What about the other Top 3?

“Amazon isn’t such a surprise. Their innovations in payments and commerce are decades in the making. Hey, they got the patent on one click!” Webster said, noting that, “Facebook is a surprise. It doesn’t just have a lot of patents, those patents are relatively valuable and important patents. That reflects a significant investment in payments innovation over the years. But its ranking also reveals an incredibly valuable takeaway from our work.”

What Pii360 shows, Webster noted, is that innovation isn’t always seen on the front-end, it’s what’s building up and being pushed out from the development and production side that really matters when it comes to being an innovator in the payments space.

“Payments innovation is like an iceberg. It’s what you can’t see that’s critical. Remember, Apple wasn’t in payments awhile back either. In other words, these could be the players who maybe you should be sweating bullets over, and should be keeping you up at night.”

Webster noted that what makes the list of top innovators in Pii360’s study unique is that six of the Top 10 are tech companies.

“They are companies whose core business isn’t payments but are interested in payments because it’s complementary to their commerce platforms. If you wanted validation of the importance of the theme of this year’s Innovation Project, here it is,” Webster said. “Payments innovation is happening at the intersections. What’s also stunning is how many traditional payments companies, including some of the giants of the industry didn’t make it into the Top 10. Or even, as we’ll see next, into the top of their respective segments.”

Top ranked companies for each segment were also revealed. Intel, the highest ranked firm in the Security category was noted for its patents and high ratings on the expert survey scores. Michelle Tinsley, Retail Solutions Division Director, spoke about what it’s like to work at an innovative company like Intel.

“It’s infectious. …You never stop learning at [Intel],” Tinsley said. “You have the ability to grow at the company. …You define your own career path.”

Key Takeaways

Innovations in payments isn’t just about what traditional payments companies are doing. It’s about what companies are doing to shake up the traditional model of the payments industry. Who’s changing it for the better? Who’s creating a new customer experience through its devices? And who’s delivering on the patented side?

“Innovation is trending in the category with players using payments to advance a broader commerce agenda … a segment in which you see the tech players coming on strong – Apple, Amazon, PayPal, Google, Facebook, etc.,” Webster said. “The least innovative companies overall are concentrated in the Prepaid and Loyalty segments. [Instead] the innovation in the space is being driven by those emerging players who are creating assets that deliver the kind of sustainable innovation that not only builds value to their customers and the sector but erects barriers to entry and competitive advantage for themselves.”

What does this study show? At least from Webster’s perspective?

“We think that our study shows that what the most innovative players do overall and within their segments is to look thoughtfully and strategically at the bigger picture and direct their innovation investments and choices accordingly,” she said.

How much do patents play into the concept of which companies are being the most innovative? Evans weighed in on just how important patents are when it comes to becoming what the Pii360 study embodies. Quite, Evan says. And the data in Pii360 backs it up.

“Any company that is really serious about innovation is coming up with stuff that is good enough to get a patent. …But all patents aren’t created equal. In fact most are worth about as much as a roll of toilet paper. Let me tell you, if you haven’t thought about patents before, you should,” Evans told the crowd at Innovation Project. “They are a powerful indicator not just of who has been innovating in payments, but who has put together an arsenal that makes them powerful rivals in the future. Patents are only a part of the story though. A lot of firms don’t do much with the patents they get. Maybe they don’t want to. Maybe they try and fail.”

But they tried — and many of them succeeded. And they became innovators, in every definition of the sense.

During the Innovation Project 2015 panel that focused on the Pii360 results, Nils Omland, Co-Founder at PatentSight, shared his views on what can help differentiate companies in the ever-competitive payments space, particularly when comparing to other segments. Recently, the trend is for payments companies to be more like tech companies, which has made them at the forefront of innovations that may have once been considered outside the payments space. But those innovations need to get guarded in order to reach their true potential.

“Patents are very valuable to protecting these innovations,” Omland said, citing Google, a company he said can’t sustain without patents. “[Patents are a] wonderful opportunity for everyone in payments — everyone can see innovation by looking at patents. …Most companies don’t talk about payments schemes, they talk about the innovations that talk with these payment schemes.”

And as MPD Director Gloria Colgan noted during the panel, innovation isn’t about trying to patent everything a company does; instead, it’s about creating something that’s new and valuable. It’s about capitalizing on opportunity. It’s about working on product development.

“If you’re not doing that, then you’re probably not working toward something innovative,” Colgan said. “Those trying to develop the patents are likely the ones trying to innovate.”