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Hedera Op-Ed: The Rise of Itemization
Dear Developers: Is it time to change the way we think about transactional data?
Do you ever wonder why individual items appear in your receipts but never in your billing statement? This is because the average consumer exists in a world of Level 1 or Level 2 transaction data meaning that the only metrics recorded in a transaction are the total, date, and tax information. On the other hand, Level 3 transaction data records many more variables such as itemization. As of now, the majority of Level 3 transaction data only exists in business to business and business to government commerce. Now imagine a world of Level 3 transaction data where you can itemize and analyze specific purchases and spending habits both in real time and historically. The simple transaction system has worked since the inception of the credit card, but now there might be something better on the horizon.
Itemizing receipts digitally could change the way consumers shop by enabling a new generation of smart money managers. These advisors will be able to tell you if buying a six-pack of Colgate on Amazon is a fiscally responsible move by tracking your toothpaste transactions historically. They will also be able to expose the absurd amount of money that you spend on lattes each year and your hypothetical savings when you decide to mediate your addiction. Today, your smart finance app is able to tell you exactly how much you spent at each vendor over the past year. Unfortunately, receiving the feedback that you spent $1000 at Y store over the past year is far less jarring than hearing that you spent $1000 on a single menial good over the last year. When the former feedback is given there is a psychological block that allows the self to practice cognitive-dissonance and downplay the nature of our compulsive purchases. The reason why money managers cannot offer consumption recommendations now is that they have no idea what you are actually buying. Often these advisors have incredible neural nets for parsing your payment history but are starved for itemization data. The only financial information these entities can get is the obscure payments that you make to vendors. But if we are about to enter a new financial model through cryptocurrency, Level 3 transactional data may begin to help the average consumer.
Now, it is easy to see how simple payment processing is detrimental to the average Joe consumer, but the pains businesses suffer are much more subtle. Every store that offers a customer rewards card is giving you a discount to peer inside your shopping cart (for the sake of argument I am ignoring the fact that customer loyalty cards, do in fact, inspire customer loyalty). The discounts you receive from rewards cards are direct compensation from the store to see what you have been buying in response to a broken transactional architecture. Companies can only track their inventory and the transaction totals of customers. Without customer rewards cards these companies would have no reliable metrics of individuals with respect to purchases, frequency, and groupings. Furthermore, these metrics are incredibly important to merchants concerning their in-store groupings, packaging, market strategy and much more. In the digital economy, merchants must compensate for working inside a broken system. Some companies have even taken the incredible step of paying consumers to photograph their receipts in order to analyze spending habits inside their own stores. The notion that companies are paying millions of dollars a year to gain access to these insights should tell us that level 3 data is extremely valuable. If merchants have access to Level 3 data, they can use analytics to sell consumers products more efficiently than ever before. It is impossible to imagine exactly what kind of place merchants would create with widespread itemization data, but they would have the power to create a new paradigm of virtually frictionless commerce.
Soon we will live in a world where people will buy their Starbucks via NFC connected cryptocurrency wallets. The solutions that will power this near future world will are being created right now and have a chance to change the way we think about financial data. DAAP founders should be conscious of this idea when building their products and not naively tell their customers that Level 1 transaction data is enough. The ability to reprogram the financial services industry is a once in a lifetime opportunity for developers. Such an opportunity could create a future where itemization is used to create intelligent solutions for everyone, benefiting consumers and companies alike.
Inspired by the a16z Podcast: Who’s Down with CPG, DTC? (And Micro-Brands Too?)
Level 3 Transactional Data Primer: https://www.bluepay.com/payment-processing/gateway/level-3/