Looking ahead to a new decade in payments — and the opportunity to monetize transactions — over the horizon lies the vertical.
Vertical payment solutions are nothing new. But the idea of bringing payments in-house, as part of software offerings — and in turn helping merchants and marketplaces embed payments in their chosen verticals — is gaining traction, and will continue to do so in the 2020s and beyond, as Bob Butler, president of Payrix, told Karen Webster in a recent podcast.
But to get a glimpse of the future, it’s important to look at the past. And the end of the decade is a good place to take stock of where we thought we would be, where we are and where we most decidedly are not.
The Way We Were
“Back then,” Butler said of a decade ago, as the 2010s began, “most payments products were being sold through independent sales organizations (ISOs), and that was just the beginning of the emergence of what we could call the integrated software vendor model,” where back-end processors and acquirers partnered with software companies.
Fast-forward a bit, and for several years now, at least some observers have been predicting that the ISO model is dead, or is dying.
ISOs, Butler told Webster, may not be as energetic as they once were, but they’re still a vital part of the payments ecosystem — they’re just being distributed differently.
He mused that he would have thought payments would be almost wholly cardless by the end of the 2010s, but that hasn’t turned out to be the case. Nor have biometrics advanced as far as he would have anticipated.
Where We Are …
Butler remarked that 10 years ago, payments processor Square was just getting started, Stripe had just begun operations and Uber hit the road in March of 2009. Those firms, and of course a host of others, have helped shift the payments landscape markedly from where we were to where we are.
“A lot of firms have looked at these pioneers as setting the groundwork for where those integrated software vendors, software-as-a-service (SaaS) companies and marketplaces want to go” when it comes to payments — which are destined to become part of every solution, Butler said.
That roadmap is especially important against the backdrop of consolidation that marked the megamergers of the past year, which Butler said represents a scramble to retain market share within rapidly commoditizing business lines.
He predicted that in this coming year, 2020, companies will have to digest these newly merged acquisitions, which will provide ample opportunity for disruptors to keep tackling the intersection of software and payments.
Asked by Webster whether payments are pushing open the door to software or whether software is pulling payments into their environment, Butler said it’s been more a case of the latter. As he pointed out, just a few years ago, payments accounted for half the revenue of small and mid-sized software companies — and now that contribution could top 70 percent.
Embedding payments into SaaS platforms and marketplaces offers a way to monetize interactions with end users, especially across a range of different payment methods, such as monthly recurring billings or subscriptions.
The Vertical Focus
After all, Butler said, “at the core of every business is the need to collect money and pay out money … what you are going to see, and what we are already seeing, is the tailoring of solutions that are vertically focused.”
He drew a parallel to the cable industry, where subscribing to a cable provider years ago meant getting 600 channels, even when you might be interested in only a few of those channels. Now, there’s the ability to tailor subscriptions to a level of specificity that caters to individuals’ interests.
… And Where We Are Going
In payments, noted Butler, the winners will be the ones that specialize in a vertical but offer broad services, payments and commerce that prove to be indispensable — all in a bid to make complexity, well, simple. Finding the right balance can be tricky, he said, but the process can be smoothed by companies such as Payrix that offer white-label solutions for partners’ digital marketplaces and software.
Leaving one decade means anticipating what’s next. Butler remarked that some features within payments solutions are bound to become standardized — table stakes, in other words — when once they’d been deemed cutting-edge. He pointed to risk and authentication tools as examples of those features, as it has become critical in the eCommerce age to validate that transactions are real and that the people transacting are not fraudsters.
“We’ll never get to a ‘no-fraud’ environment, because the fraudsters are pretty smart, but it’s going to get tighter and tighter for them,” he predicted.
Payouts remain a significant field of opportunity, as Butler pointed to the emergence of real-time payments and the initiative of companies like Uber to get drivers paid more quickly.
“Anything that speeds up the transaction is valuable,” he said, offering the observation that “we are going to start to see movement toward more ‘closed loop’ collections and payouts … as we move into 2020 and beyond. The embedded payments model is not going away.”