#DigitalSkeptic: Payments Industry Proves Disrupting Is for Losers

NEW YORK ( TheStreet) -- George Peabody knows that when it comes to moving money virtually around the globe, the blunt sledgehammer of disruption is nowhere to be found.

"Today's markets are used to digital-time disruption," Peabody told me. He's senior director for Glenbrook Partners, a Menlo Park, Calif., consulting and research firm that specializes in the so-called payments business that enables financial transactions without actual cash.

"But the payments industry lives in a very different world," he said.

Peabody has been patiently explaining to me over the past several months the intricacies of the almost absurdly vast payments universe. Austin, Texas-based Creditcards.com, for example, sums up last year's combined purchase volumes for domestic credit and debit card giants American Express ( AXP), Discover ( DFS), MasterCard ( MA) and Visa ( V) to be just north of $2 trillion dollars.

What's remarkable is even just this fraction of total global payments -- which excludes payment volumes from emerging markets such as China and India -- dwarfs the combined revenues of all pure-play internet companies including Google ( GOOG), Amazon ( AMZN) and Facebook ( FB) by roughly a factor of 10.

Spend any time talking with Peabody about how this far-more-valuable-than-the-Internet industry is adapting to the Internet Age and you'll realize that the payments business fundamentally questions the foundational Digital Age myth that disrupting first and asking questions later is the only doorway to tomorrow.

"Payments is not like the music or publishing industries," he explained. "It has an established regulatory framework, a very strong network infrastructure and -- at least at the higher echelons -- the transition to digital technologies that moves at a measured, almost planned, pace."

For disgusted investors, sick and tired of struggling with collapsing digital music, publishing, financial services, corporate IT and higher education sectors, payments is a refreshing island of logic and common sense.

"If any of the new emerging technological options grows to take even 10% of the payments market over the next decade, that's going to be a lot," he said. "Payments take time."

The planned payment revolution
What's fascinating about spending time with Peabody is that despite the mind-boggling complexity of the payments industry -- only insomniacs would tackle the tedium of how merchant processors differ say, from card networks -- innovation in today's payments biz can actually draw a logical line all the way back to the days of the Kennedy administration.

"In many ways, how money is moved now during a transaction has not changed much since the 1960s," he explained.

Innovation in payments, it turns out, is a planned affair, laid out by regulators and industry members. That, Peabody says, comes in defined sections inside the larger market. For example, hip Web payments plays such as Square, PayPal and Google Wallet really only work in discrete, relatively small sections of the overall payments industry.

"Servicing how merchants connect to the larger payment network is a fertile ground for innovation right now," he said. He thinks that Square deserves real credit for allowing anybody with a smartphone to accept a credit card without a pricey card reader or expensive payments terminal.

"But that does nothing to change the fundamental path of a payment through the network," he said. "That core payments infrastructure has been left essentially intact."

"And that protects the system," he said.

The coming of the MCX network
Even more interestingly, Peabody points out that the next big round of innovation in payments will not come from disruptive Silicon Valley startups such as PayPal or Square. Rather, the payments industry itself is adapting to tomorrow on its own.

Starting last year, a consortium of large merchants founded something called the Merchant Customer Exchange. This MCX, as it is called, is backed by giants including Banana Republic, Walmart ( WMT) and Shell ( RDS.A). And the startup, which just hired a chief executive named Dekkers Davidson, plans to build a payments network around mobile devices. Though it is still in its infancy, the MCX is expected to slowly but surely grow to rival payments heavies such as Visa and MasterCard over the next decade, bringing a new generation of payment options to consumers -- but in small, dare I say, planned steps.

"It will take years for them to gain a foothold. Five percent is a lot of market share in this business," he said. But slowly but surely, the business of moving money in the digital age will be just as innovative as moving music or books.

But it will get there with much less pain -- and much more profit -- than most anywhere else in the digital economy.

"You are talking about money here," he said. "Nobody is going to mess around."

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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