The Kessler Effect and today's crowded payments ecosystem

Dec. 23, 2014 | by Dan Kramer

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:

  • They must achieve a successful launch, which requires a significant investment in time and intelligent, creative individuals;
  • They must be big enough or fast enough (and have a pretty thick skin) to pass through the junk field; and
  • They must maintain orbit for a prolonged period of time (which costs money and human capital) in order to sustain themselves.
  • Apple certainly has the scale to get itself into space. However, the question remains whether it will be able to get through the junk field and maintain a permanent orbit — and whether it has a thick enough skin to do it.

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


Dan Kramer / Dan has an extensive background in merchant portfolio management and electronic funds transfer sales and marketing. He joined SHAZAM in 1999 and currently serves as senior vice president of marketing and merchant services.
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