Thanks to an influx of innovation in both technology and payments, two new trends have transformed the world of payment facilitation and payment processing and created multi-billion dollar industries. The trends we’re referencing are the rise of the sharing economy and the birth of the on-demand economy. While the two terms are often used interchangeably, there is a significant difference in what they actually mean, and how payment processing is handled and facilitated between parties.
Of course, the terms sharing economy and on-demand economy are used so frequently today that they appear to be new concepts. While technology has certainly elevated them beyond what was thought possible in the past, the concept of an “experience economy,” is something that dates back to the 90s.
In a Harvard Business Review article from 1998, it breaks down how economies change based on consumer trends. Whether you’re looking at the 90s or the year 2017, customers still want one thing with every purchase: an experience.
The experience economy, as it was dubbed in the late 90s, was all about selling experiences that had a dual purpose. For example, this meant having stores that offered demonstrations and family activities, instead of just being a place to shop.
Now, let’s fast forward 20 years and you’ve got the same concept — but on a much more technologically-advanced level. The sharing economy and the on-demand economy were born out the same philosophy: customers want better experiences. Increasingly, that means a faster, frictionless way to book a vacation home or rental car. They don’t want to think about the payment process; all they want is to have a good experience from the service they are paying for.
Where the Sharing Economy and Payment Processing Intersect
The most successful example of the sharing economy is Airbnb, the home rental site that allows everyday people to turn their homes into short-term rentals. With an estimated value of $30 billion, Airbnb continues to raise round after round of funding from VCs and grow its 100 million+ user base. VRBO and HomeAway are two other companies gaining ground in this market.
What’s made this option so popular comes down to a few key factors. First, the fact that companies are essentially software companies powering vacation-rental experiences. The company’s success wasn’t born out of its ability to help people rent homes, it was created because of the software that enabled a frictionless experience between the owner and the renter. This includes everything from communicating, booking and paying.
Similar to how your customers want a more unique experience in their everyday service needs, people today want new experiences when they travel — and how they book that travel. The sharing economy has filled this gap.
This has also paved a new niche for those in the payment processing world to innovate. What also makes the sharing economy unique is it adds a layer of trust in the payment facilitation process between the property owner and the property renter. Unlike old-school rental agreements in the past, the software that these companies offer has taken the friction out of the payments process.
Because the renter is paying the site overseeing the transaction, instead of the property owner directly, there is a sense of security over the payment process. Neither party has to think about payment processing issues, and both can expect the process to be done quickly and accurately.
Car sharing is another example where the sharing economy is gaining ground, thanks to companies like Turo and Getaround that allow car owners to rent their rides out to people without ever having to meet or talk to those people. The experience is all conducted through a website or app, making the payment experience nearly invisible.
In either of these types of sharing economy models, the payment facilitation is handled by the company that oversees the listing of the product and the agreement terms between the owner and the renter. This enables all parties to pay and be paid without having to think about payment processing or having to be a payment facilitator themselves.
The On-Demand Economy Model and the Payment Processing Difference
Just as people today expect better, faster payment experiences in all of their everyday activities, they expect to be able to book any service in an instant.
And so the on-demand economy was born, which means you’ll find an app for nearly every service imaginable. If you want to book a ride, there’s an Uber or Lyft that will show up in minutes. If you need a handyman, there’s an on-demand option to have one quickly. Need a dog walker? There’s plenty of on-demand apps that power that experience. Need a task handled? There’s an app for that too.
At the heart of this $50+ billion industry is software companies that have found new ways to connect people and eliminate the need to conduct business through a company. Although the company is in charge of the transaction and the terms, the end experience comes down to the service provider and end user.
Compared to the sharing economy, the on-demand model is about providing an instant solution to a request that is then fulfilled for a one-time purpose. You won’t likely get a duplicate experience each time you book with these types of services. This model is also tied much more to trends in the economy and how willing people are to use this type of services.
The on-demand economy is almost almost entirely dependent on the app software model as most of the companies rely on apps to power how customers interact with their services. The app handles the interaction, from start to finish, and you could in theory complete a job without either party ever communicating.
Since mobile payments play a far more significant role in the on-demand economy, that matters for the types of software and technology used to power the payment facilitation and payment processing. These companies rely on mobile apps and web-based payment processing to facilitate transactions, which is then processed through the ride-sharing company’s software platforms.
For example, many of the on-demand apps that are used today also rely on people storing their payment credentials with the company when setting up an account. Unlike the sharing economy, which closer emulates the payment process of booking a hotel or renting a car, the on-demand economy is supported by one-time in-app payments and software that allow for payments to be made without the user having to think about the payment process itself.
Instead of entering in credit card information each time a ride or service is booked, the user is able to authenticate a purchase with a simple click of a button or scan of a fingerprint. Technologically-speaking, the payment process done in the on-demand economy is typically more invisible than in the sharing economy.
In either case, regardless of what type of business model you’re talking about, what has shaped both the sharing and on-demand economies is the desire for people to want new, better experiences, powered by software and technology. Both sides of the equation also want the payments processing part to be managed by a third-party so they only have to worry about making a payment, or getting paid.
Regardless of what type of “economy” a customer is engaging with, both of these trends are only made possible thanks to advancements by payments software companies. Through those innovations, it has allowed for the integration the latest security features possible to create seamless payment facilitation and better payment processing experiences for all parties involved.
And what do we have to thank for this? Besides an technology-driven, app-addicted society, we can thank the growth of the “experience economy” trend from the 90s. This paved the way for companies to take the desire of what customers care about most and translate that into services powered by software companies that built their businesses because of innovations in payments.
Experience Payments Differently
Anna Lothson is a content contributor for Payline Data. She previously wrote for PYMNTS.com, as a Sr. Content Producer, where she focused on financial services and payments innovation, fraud and security, emerging payments, and FinTech news, research and thought-leadership content across the payments industry.
