By Steve Mott, BetterBuyDesign.com

Could it be a reprisal of “Hair” on Broadway? Or maybe it is the national soul-searching that’s been going on during the past several months. But for aging Baby Boomers in the payments business, all the talk about how Web 2.0, social networking and mobile devices are transforming the way young people communicate and function in society sounds awfully familiar.

Forty years ago, in the “Summer of Love,” Dr. Timothy Leary urged a generation of young people to ”Tune in, turn on and drop out!” The former Harvard hippie professor was telling legions of young people to reject a stolid, programmed past, to free their minds to interact with the society around them (how they accomplished that, we won’t mention), and to pursue a lifestyle without the commercial trappings that consumed and obsessed their mothers and fathers.

Fast forward to present day, and there’s another new generation of young people who also seem to be standing society on its head. It’s “Generation Y,” all those born after 1980 who grew up using a computer, iPod and cell phone.

Gen Y has tuned in to an era of personalized digital media, turned on to highly interactive, two-way, always-on communicating (increasingly by mobile devices), and dropped out of standard modes and forms of conducting business with the world around them (especially broadcast media and advertising).

As a consequence, Gen Y appears to be re-shaping the business world with their new behavior, as they spend nearly all their time — and soon their money — in all-consuming, communications-integrated social network venues like Facebook.

And chasing them into these virtual communities of non-stop and unfettered interactions are the nation’s advertisers and sellers of goods and services, followed closely, inevitably, by payments providers of all stripes and origins. And also, their parents. (More on that one later.)

Re-shaping the Business World

For the financial services and payments business, this Web 2.0 transformation can be downright scary. Here are some important conclusions about Gen Y behaviors gleaned from a growing body of recent research that suggests they will be hard to serve with conventional approaches:

• Gen Yers prefer pay-as-you-go, cashless and painless transacting

• They eschew invasive ‘broadcast-style’ advertising and commercial promotions unless they are relevant and personalized

• Gen Y takes online banking for granted, but are intense users of mobile banking, checking their account balances constantly as they move among bars, shops and restaurants

• They fear taking on credit (partly out of the realization that job security is an illusion), hate the ‘gotcha’ fees most banks entrap them with, and are willing to switch banks (or card issuers) when they get ‘burned’

• They are typically loyal to their first bank accounts (which their parents often set up for them), but they have a short fuse for getting abused or not receiving the services they expect from financial institutions, especially concerning mobile banking and Web 2.0 communications

• More to the point, they expect to be able to transact for the goods and services they require (especially digital content, tickets, etc.) any time, anywhere, and from any venue

• They get their product and brand preferences from their friends and colleagues, and they don’t mind if their product referrers obtain benefits for their recommendations

• Gen Yers want payments (and rewards) to be automatic, transparent, embedded and non-disruptive; the idea of breaking off their interactions to endure the convoluted process of entering in credit card information as they do on a typical website in Web 1.0 configurations is annoying and distracting

• They expect security and privacy, but are also willing to monetize their value to commercial enterprises if they can pick and choose the enterprises they value and trust; the amount of personal information they provide is unprecedented and represents a gold mine — if it can be tapped.

All of these insights into a new generation of transactional behavior are compounded by the realization that younger consumers are making decisions about with whom they’ll do business in massive numbers and with staggering impact. Some 75 million strong (nearly the size of the Baby Boomer cohort), Gen Yers already command nearly $2 trillion in spending power and are projected to easily surpass the wealth of their parents.

Because they spend so much time on social networks — especially Facebook (see adoption rate graphics) — advertisers and sellers of products and services are lining up to follow them there.

As a consequence, Gen Y has abandoned conventional media, and broadcast advertising is disappearing in droves as a result (though the newspaper industry is fighting back by harnessing Web 2.0 technology to turn themselves into social networks with a service called InfoValet). Even online advertising, which initially benefited from this shift in media preferences up until now, is worn out with 30 percent rates of click fraud and anonymous viewership. It, too, is searching for more intimate, one-to-one connections with an audience it can identify. After all, these consumers reveal an unprecedented amount of information about themselves on these venues already, free of charge! Why not solicit direct exchanges of data with them, and even reward them for viewing a highly targeted ad or filling out a survey on product preferences and plans?

But even Facebook has struggled to develop a business model that meets these preferences and requirements while still making money. In 2008, the business model results were pretty modest:

• Advertising from highly relevant ads that generate follow-though clicks: $200–225 million in 2008

• Social eCommerce: Virtual gifts (cupcakes, guitars, etc.) at $1 a pop: $30-40 million in 2008

• Software applications for the site made by independent developers to help users discover new music, play games or share slide shows: plans to take a commission on developer sales

Beyond Payments 1.0

What is known is that one-way payments interactions will find no place on most social network venues, as they do in Web 1.0, eCommerce Web sites today. Nor will  'outboard’ payments work on mobile devices, where even the first generation of simple, text-based payment applications appear clunky and over-engineered.

Instead, proliferation of smart phones among Gen Yers will usher in an era of two-way, always-on, always-with-you interactions that field both favorite social network communication hubs and dozens and dozens of applications that help young people control and manage their financial and commercial lives. Internet access via mobile devices will become interchangeable with PC access — and even more powerful.

And, Gen Yers will rely on integrated e-wallets (electronic wallets) and m-wallets (mobile wallets) to navigate their embedded, transparent payments and rewards. Will card brands disappear; payment types become synonymous; card issuers become interchangeable; and transaction fees meld into new buyer-seller economics? Will life as the payments world knows it come steadily to an end?

At least not all at once. Recent efforts by Facebook to re-use the personal data they collect was met with heavy resistance. An attempt to create its own embedded, transparent payments platform, announced in December 2007, was quietly put on the back burner a year later. Meanwhile, application providers can sell their Facebook utilities in a number of ways, and PayPal, Obopay and other new-era payments providers are insinuating themselves into the construct of Facebook interactions in order to get transactions flowing.

The Opportunities and Perils

Facebook might well fumble its opportunity to redefine how people transact, in addition to how they communicate and interact. There are hundreds, if not thousands, of social network venues in the market now that might beat them to it. But don’t count them out just yet. Boomers and businesses are both flocking to Facebook and other social networks as fast as they can.

In fact, the fastest growing new user segment on Facebook today is mature women aged 55 to 65 — the nation’s biggest wielders of financial clout. VibrantNation.com, an online site for mature women, points out rapid technology adoption by the moms of today’s ”flower children.”

“All of a sudden it seems the world is waking up to what we already know,” said Carol Orsborn, a senior strategist for VibrantNation. “Women at mid-life and beyond are early adopters [of technology], competitive with their kids and, in many cases, they are beating out their kids.” This is serious stuff.



Today’s payment account issuers and merchant acquirers now face a hugely different paradigm with radically different economics — not the least of which is that the Web 1.0 eCommerce model where online merchants pay high bank fees and bear all risk management and fraud costs won’t take root in Web 2.0 for long, if at all. Another big change is that enrollment models inherent in social network membership dramatically
reduce transactional risk, so why pay high fees? And emerging technologies like Information Card can ensure consumers’ security and privacy while still facilitating personalized interactions.

The net result is that the flower children of the digital era are well on their way to reinventing business and economics of transacting with their behaviors — with their parents in close pursuit. Payment providers, take notice: Think now about how to adapt to a new generation and the new world that comes along with it.

About the Author

Steve Mott is chief executive officer of BetterBuyDesign.com, a virtual investment and consulting company specializing in brokering high technology ideas for the New Economy. He can be reached at stevemottusa@yahoo.com.