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Fragmentation in today's payments ecosystem actually reminds me of a phenomenon currently occurring in space, which involves satellites and space junk. Space debris, or junk, (debris from satellites, space probes, and manned space missions) is continuously colliding with other space junk in orbit.
These collisions cause fragmentation, resulting in exponentially smaller pieces of debris orbiting space and cascading down. This is known as The Kessler Effect. In the 1970s, NASA space debris expert Don Kessler observed that once past a certain critical mass, the total amount of space debris will keep increasing. Collisions give rise to more debris and lead to more collisions, generating a chain reaction. As a result, there is now a band of space junk which, NASA worries, might inhibit rocket travel.
Something very similar to this Kessler Effect is occurring in today's payments ecosystem.
Let me explain. One of the things I observed during last month's Money20/20 conference was that more than 50 percent of the companies in attendance had been in business for 12 months or less. We have a significant number of new entrants into the payments marketplace, including Apple, who are actively continuing to fragment the ecosystem.
A number of circumstances must align in order for these newcomers to be successful in today's payments market:
The continued fragmentation occurring in our payments ecosystem only makes it more difficult for smaller players to get in. It also makes it harder for larger players to stay in a permanent orbit that's meaningful enough to justify the expense of getting there.
In short, the payments ecosystem is much like space. It's difficult to get there, it's uninhabitable and it exists in a vacuum. Unless you have the tools to survive (and you've brought them with you) it could be a long, lonely journey to nowhere.
Photo courtesy of the NASA Goddard Space Flight Center.
Topics: ATMs, Bill Payment, Bitcoin, Card Brands, Carriers / Operators, Contactless / NFC, Direct Carrier Billing, In-App Payments, Loyalty Programs, Mobile Banking, Mobile/Digital Wallet, Mobile Marketing, Money Transfer / P2P, Trends / Statistics