After what has felt like the second-longest month in history (with March 2020 being the first), this week marked something of a shift in the news cycle. For the first time since mid-March, the week’s payments and commerce news has not been entirely dominated by COVID-19. Affected? Of course – the biggest news event in a generation has a way of exerting an almost gravitational pull on everything that happens around it.
But as Karen Webster sat down with Payoneer’s Scott Galit for this latest edition of The Week In Payments, both were somewhat heartened to note that for the first time in a long time, there was something else to talk about. In fact, there were a lot of other things to talk about, as Facebook made a major investment in the Indian market, Expedia snapped up $3.2 billion in new funding and entrepreneurs nationwide have begun seriously pondering the question “now what?” as their PPP funds have rolled in.
It might not mean the world is going back to normal just yet, but is a sign that it will keep on turning, virus or not – though how it does so is open to adjustment.
Facebook’s Big Reliance Jio Investment
Facebook made some big waves this week with the announcement that it closed a $5.7 billion deal on Tuesday (April 21) for a minority stake in Indian telecom startup Reliance Jio, giving the social media giant a larger foothold in the region. The deal marks Facebook’s biggest minority stake investment in one company and makes it the largest minority shareholder in the country’s most popular telecom firm. It is also the largest investment for a minority stake by a tech company anywhere in the world, and the largest foreign direct investment (FDI) in the technology sector in India.
As Galit noted, the investment also marks two shifts that were in progress, and were likely accelerated by recent global events. The first is the ongoing phenomenon of “the platforms taking over the planet” and becoming increasingly integrated, enabled and developed to offer consumers digital mega-hubs from which to manage many aspects of their lives – from shopping to financial services to bill payment to entertainment and beyond.
The second, said Galit, is how in the wake of India’s digital-first initiative, the competition has been heightened between all of these global platform players in the country.
“With India being such a prime market and a focus for Amazon and all of these multinationals, it is a really powerful combination, with the hundreds of millions of Facebook and WhatsApp users brought together with Reliance Jio’s commerce, payments and retail capabilities,” he said.
It’s a major shake-up in an already competitive market, he noted, and will likely raise the stakes in the market and act as a powerful innovation driver. And ultimately, the winner will be the consumers who see the market elevate and improve markedly over time.
And that improvement over time, as Webster and Galit discussed, was something of a theme of this week, as the era of the clever pivot unfolds.
The Changing Opportunity in Travel
While no vertical has escaped COVID-19 unscathed, the travel industry has been hit unusually hard, to the point that “decimated” is the fairest way to describe it. But even in the wake of big disruption, Webster and Galit noted, there is also opportunity to be found.
For example, this week, private-equity firms Silver Lake and Apollo announced they are poised to buy a $1 billion minority stake in Seattle-based travel listing giant Expedia Group Inc. Expedia CEO Barry Diller will reportedly give investors seats on the board as part of the deal, which could be announced this week. If it goes through as planned, it will mark the second big deal by Silver Lake in as many weeks: Silver Lake and Sixth Street Partners, a global finance and investment firm, invested a separate $1 billion in travel giant Airbnb.
“It is another interesting reminder that in tough times like this, people can identify winners and find opportunities to be one of the beneficiaries when things start to come back,” said Galit.
The interesting thing, he noted, is that we are seeing so much money pouring into digital travel firms as opposed to the more asset-heavy physical businesses, like airlines and hotels. That’s because these digital firms have the ability to be nimble and to quickly respond to the “new normal” that emerges – whatever that may be.
“I think there are a lot more questions than answers at this point,” Galit said, adding that in his own life, he isn’t sure how much will be traveling going forward. First, because his health is a concern amid the COVID-19 pandemic. But even beyond that, traveling has attendant risks, like the possibility of going someplace and being unable to return due to sudden cancellations.
And those kinds of concerns are going to weigh down the industry, he said, particularly when combined with the fact that after a few weeks of meeting digitally, there might be a push to do a lot of things via teleconference.
In fact, that question of how we will do things differently going forward is much bigger than the travel vertical – it is the question that firms of all sizes are asking.
Exploring the Reinvention
Another interesting fact has emerged as Paycheck Protection Program (PPP) loans have gone out and actually made it into small business owners’ hands – many say they won’t be able to use the funds to bring back all of their laid-off workers, even though that is what the program was designed to do.
As Galit and Webster noted, getting the workers back to work is, in some cases, easier said than done. For businesses like restaurants that are closed by statute, bringing employees back to a closed institution helps neither party. The restaurant could better use the funds to figure out how to reposition and modify its business for a new normal that will likely look quite a bit different. And the employees will probably be better financially served by staying home, staying healthy and collecting the enhanced unemployment benefit, which will likely be more take-home pay than working in a closed business.
“Businesses have to look at this capital as their lifeline to the future with tremendous uncertainty ahead. Making payroll doesn’t make sense as a top concern,” Galit said, noting that people make rational choices about how to marshal their scarce resources. Even if they have to repay the funds as a loan over the long term instead of having them forgiven as a grant, it will make more sense to a lot of SMBs, because the interest rates on the loans will be so low.
Moreover, he suspects that coming out of this crisis, workers and employers will think about and configure their labor pools very differently, and in a way that is apt to be a boon to the gig economy.
“There will be an increase in demand for gig workers over time. I think it will play a role for a lot of businesses as they are rethinking their operations, trying to get back on their feet and trying to stay lean and mean,” Galit said. “And not just small businesses – large businesses will also be rethinking a lot of elements of fixed-cost infrastructure."
The world is a changing place – and while COVID-19 may not be dominating the headlines this week, it is influencing how firms are building their strategies for both the short- and the long-term.
“But I think ultimately, we are going to see smart ideas emerge – and those will rise to the top and set the pace of what’s to come next,” predicted Galit.
A hopeful outlook – even in uncertain times.