Historically, we have shopped with cash or cards. When we use cards (credit, debit, gift, prepaid, etc.) the focus has been on validating the originator. The merchant takes your details and goes to a network and says "X wants to pay me" and gets authorization that verifies the originator of the payment. This usually leads to a higher level of chargebacks and fraud as the authenticity of the payment originator is in question.

Future is likely to be more aobut verifying the recipient rather than the originator of a payment. Paying with QR codes where the consumer with a mobile phone scans the QR code displayed by a merchant is an example of this new era. Another example is when you pay your friend using their phone or email through your bank. In these new payment examples, the originator of the payment is clearly known and authenticated by the bank. Only the recipient needs to be validated for transaction integrity (recipient is indeed the one that was originally intended) and compliance (recipient is not fraudulent or prohibited).

What are the implications of this paradigm shift?

• Such transactions that verify the recipient as opposed to the originator will increasingly be carried out through open directories (phone, email as opposed to proprietary directories such as BIN's and PAN's). Use of QR codes would be a simplification to the data entry required for phone numbers and email addresses.
• They will bypass traditional proprietary networks (e.g., Visa, Mastercard, American Express) and conduct payment transactions over the Internet in a secure manner through SSL, tokenization, etc.
• Consumers will start feeling the power of unified payments (seamless consumer experience on the mobile device between payments that verify originators through proprietary networks and payments that verify recipients through proprietary or open networks)

New entrants and innovators will keep challenging the incumbents using payments through open directories and secure Internet transactions leading to revenue loss for the incumbents. However, it will take them a long time to build formidable scale to threaten the incumbents. It is high time for incumbents to take note and start supporting the disruptive payment types, open directories and networks as this will help them retain the consumer.

There are a number of practical initiatives that the incumbents can take in this area to avoid revenue erosion and consumer loss. I will be glad to share them in detail.