What does the payments industry bring to the elder?

This question is intriguing me for a couple of months now. Loads of payment professionals try to find ways to innovate. The topics that come up are: even better mobile solutions than the ones before, new prepaid domains that can be targeted, e-invoicing, the future of ‘the cloud’... However most of these innovations can be collected in ‘youth’ with fancy and cool developments and infrastructure to decrease processing costs.

Of course these are very important elements to work on. Infrastructure is a key element in the competitive landscape as it determines your processing costs, and maybe even more important your time to market. It is the heart of every payments processing division or company.

Or for example e-invoicing as part of the value chain of goods will not only reduce the costs of paper invoices and the manual processing of these invoices. It will also increase the loyalty of customers towards their suppliers as they are more connected and have a more convenient service than competition maybe.

Youth is a very important segment as well, probably even more for banks than for payment institutions. They are the future, the future of the world and the future of deposits for banks. Thus they are many times probably perceived as more important customer than the elder. Youth can be attracted with a cool brand, and cool brands follow the wishes of youth. Udo Milkau talked about that on Next Generation Cards & Payments 2010. He analyzed the German demographic trends. He divided the population into 3 segments. Youth would be the first (“Digital Natives”, the once that were born after 1995). He characterised them with:

• Don’t even use e-mail, but Facebook etc.
• Don’t forget their (smart)phone
• Live in the “cloud” (always on, always access, always same look & feel)

I believe this is a pretty good summary of how they can be attracted. So in order to attract their future client database they need to focus more on innovations that reflect the upper characteristics.

Now why do I only talk about banks? That is because I believe that payment institutions have different reasons to attract new customers. Banks’ core business is loans and deposits, or more general: making profits by investing money that has been deposited on an account. Payment is many times only a facilitator for this business. Payment institutions however have payments as a core business. Transactions are their reason for living, and not just a facilitator for making profit. And that is the reason why youth is more important for banks! Banks are interested in long-term relations with preferably wealthy clients, while payment institutions don’t need such a long-term relationship. Of course it is better to have it, but many time not necessary!

This should not be generalised, as some payment institutions do work on a business model where the long term is indispensable.

Now let us have a look at the history of the elder population on a very high level. Years and years ago, when Europe was not yet that developed you had big families and the men worked for the family. If one couldn’t make money and more by labour, we would still be living with the family, with his/her children. As women would not be working out, they would do the household, they would service grandma or grandpa. They would support and feed him. As times changed also society did. People could afford to be more individual and they did not need to stay as one big family anymore. Later also women started working on a career and there was less and less time to take care of the elder. The elder had more money to spend after their retirement, and more and more people saw business in this segment: from cruises to customised city trips and bike trips... All this is a lot of fun, until... these people become more and more helpless.

This problem became even bigger as health care became much more efficient and useful, so people could stay alive much longer with their old age diseases. The result is that the older population became even older that before, but the family didn’t have the time to take care of them. However, they do have the money to pay for retirement homes and home services etc... All this creates a whole new dimension in the way to look at this population segment: you have a segment with specific needs, with the money to spend it and even sponsors to help them if needed.

If we go a bit further in the demographics in Europe there is one conclusion to be made: the future of payments should be focusing more on an elder public. By 2050 up to 35% of the population will be older than 60! As banks are many times less interested in serving this segment, there lays a huge opportunity for payment institutions. These people need to make payments as well of course, and their age leads to specific needs. Today this is characterised (according to Udo Milkau) by:

• Want convenience and security
• Are open to innovations such as biometric payment systems, if they can trust them

You can go much deeper in this. If you would think about it for 5 minutes you are likely to find also characteristics like:

• Are less interested in fancy innovations
• “The old days were the best days”
• Cash is mainly still their preferred payment method.

Pensioners will also need to get their pensions (hopefully they still can by 2050), which is now surprisingly much still paid in cash or by cheques. Luckily times are changing, like in UK (Citi Prepaid Services), where beneficiaries can ask to have their pensions to be paid on a prepaid account. Question will still be to what extend the older beneficiaries will choose for prepaid of course, as it is many times perceived as less convenient for them than cash, and the tangible aspect of their pension disappears so even the security aspect can be doubted by the older population. A lot of the success will likely depend on the marketing campaign that is launch with this service...

Are there other providers that have found solutions to facilitate life of the elder? I would be very interested in the offers on the market, as I truly believe there is a future for payments in this segment!

To be continued...