The Chicago Fed held their 11th annual payments conference last week, and the topics deviated widely from what you might expect. Last year it was all about the regulation and the innovations that were likely to take payments “off the rails”, or away from the existing networks like Visa and MasterCard. The consensus seemed to be that Apple was the innovator that could make this happen.

What a difference a year makes. In several discussions this year, Apple was discounted because they could not be trusted to provide a secure network. And the elephant-in-the-room Durbin Amendment was only discussed by non-Fed participants —for obvious reasons (Durbin is currently under review by the Fed so I assume they are legally barred from discussing it). One of the primary theme(s) this year—if one could be identified—was social payments, together with the social nature of payment behavior.

Along those lines, here are some synopses of the more interesting presentations:

• Since Sept/Oct 2008, there has been an upsurge in the use of cash in the U.S. according to the Boston Fed. There is some speculation as to why – but it appears that people are using it as a budgeting device. This still continues 2 ½ years after the initial spike. Does this indicate a long term trend?
• Laura Chambers from Paypal made a very interesting observation about how payments are very personal for people, and that the industry has been trying to force them into particular procedures which ultimately will not work. She used the example of how people will organize the credit cards in their wallets by APR as an example of how people will want to organize their virtual wallets differently.
• Allen Fishbein of the Fed backed this up with the observation that “the behavior of consumers is not happening the way we thought it should” when it comes to payments. The industry has basically focused on the “cool factor” rather than their customers, which has probably led to a lot of unnecessary investment in technology. He observed that the industry is trying to keep up with their competitors, and not really reaching out to find out what their customers really want.
• Erin McClune, of Glenbrook Partners, spoke about virtual goods, virtual currency and social gaming, particularly as it relates to micro-payments and offer based payments. One example of how these are changing the payments landscape is the access it gives providers to the un- and under-banked. Offer based payments, for instance, allow users who may not have a payment card to participate in surveys, watch a video or sign up for a trial subscription to earn credits to be used for gaming or to purchase goods. They basically give people virtual currency in return for paying attention to advertisements or for promoting their product with other users.
• It was also observed that even the industry is becoming more social, because they are finding it necessary to form uneasy alliances with competitors in order to stay competitive.

So, depending on who you see as Satan (the Durbin Amendment, Walmart or the large banks and payment networks), stud-dollars (virtual currency) and virtual beer (virtual goods) may ultimately become much more important as the industry adapts to a social world.