Money2020 Payments Takeaways & Trends
Mainsail has partnered with multiple fast-growing payments businesses throughout its history and Anthony Hayes, an associate on Mainsail’s deal team, attended this year’s Money2020 conference and identified several key themes and takeaways from the event. Coming out of the conference, Mainsail is excited about the pace of innovation in the industry and will continue to actively seek investments in the space.
The Invisibility of Consumer Payments: A Sharp Contrast from B2B payments
Consumer digital payments feature less friction than B2B payments. The consumer process involves deciding to buy an item, swiping a card, and making the payment. Comparatively, B2B payments involve significantly more complexity given the inherent difficulty with manual, paper-laden back office systems. Additionally, B2B payments require coordinating with multiple users, collaboration between FIs and fintechs, integrations with financial systems, and enhanced security. B2B payments have come a long way. However, significant progress needs to be made before they become as easy and seamless as consumer payments, creating the opportunity for fintechs to build a large business solving this issue.
Digital Wallet Wars: From “Top-of-Wallet” to “Top-of-Mind”
Consumers have begun treating digital wallets similar to physical wallets, opting to use the cards that provide the best points or rewards rather than using the default card that pops up when they open their digital wallet. Historically, consumers used their top-of-wallet digital card and card providers focused on attaining top-of-wallet position. Given the shift in consumer sentiment, card providers are shifting focus to being top-of-mind rather than just top-of-wallet. To succeed at this approach, card providers have to get creative, making the interaction between purchaser and purchase-enablement more proactive than reactive. For example, some card vendors alert users when they’re near a store they can spend points (e.g. if you have a Macy’s credit card, they may now push you a notification when you’re near a store stating you can save 10% if you pay using your Macy’s card).
New Entrants in the Digital Payment War
Companies like Google, Samsung, and Apple have committed significant resources to winning market share in digital payments. These companies are investing in new ways to win market share and unseat PayPal. For example, Google now allows 3rd parties to access data contained in Chrome, YouTube, etc. to expand its payments footprint. The volume of consumer payment data already stored by Google provides the company a significant advantage over PayPal.
Cart Before the Horse: Are You Building Technology in Search of a Use Case?
New entrepreneurs looking to build a large business will face an uphill battle if they aren’t solving a real customer need. Several speakers at Money2020 reiterated that many startups build products in search of a use case rather than building tools to solve a particular need. Similarly, existing fintech companies could face an uphill battle if they build “nice to have” software rather than purpose-built products that solve a real problem. An executive at a large retailer provided an example of building a mobile POS for their stores to enable faster check out. After implementation, they learned customers did not see this as a large problem and the company gained limited upside from their investment.
Finance: A Trust Business
Many payments companies have taken a proactive stance towards security and compliance. According to the Association for American Finance Professionals, $8 out of every $100 transacted is at risk of fraud and 73% of enterprises have reported payments fraud or suspicious activity. Safety and security are top concerns for enterprise customers. The volume that many digital payments companies move creates significant liabilities. For example, companies like Bill.com move over $60bn/year while most customers represent a fraction of that amount. Given this proactive stance towards compliance, some payments companies have even reported that they find themselves educating their customers about the proper security and compliance methods.
As the payments space continues gaining momentum, Mainsail will continue meeting stakeholders face-to-face at industry events to stay abreast of key trends and themes and search for new investments.