No matter who you are, money matters. It’s how we feed and shelter our families, send our kids to school, and take care of aging parents.
As consumers, we spend our time and money buying things and services that improve our lives. Businesses provide these same services for their livelihood, too. Through consumption or commerce, we’re all able to achieve our goals and earn a living.
For merchants, enabling great commerce experiences creates happy customers, trust, and increased revenue. A babysitting service, for example, understands that for busy moms with limited time, it’s easier to book and pay their favorite babysitter on the same platform. On the other side of this platform, a gig worker who babysits appreciates being paid immediately after childcare services are rendered.
All around us, money is moving to power our lives. It’s such an essential part of life, and yet, it’s one of the most complex industries to understand due to fluctuating regulations across nations and age-old operational structures. To facilitate a single transaction, several financial institutions must work together for just one payment to make it from a consumer to an end merchant.
It’s this complexity and the challenge of solving big, meaningful problems that drew me to payments some fifteen years ago when I began my career at PayPal, and it continues to fuel my interest and passion in the industry today at Finix. I want to share with you my version of how payments have evolved over the last two decades, why software companies becoming payments companies is a logical progression, and how Finix is catalyzing this transformation.
Online Payments Make Their Appearance
Back in 1998, when PayPal launched, shopping online was in its infancy. PayPal made it easy for merchants to get paid online with little more than an email address and a bank account. Merchants pushed PayPal on willing consumers. Consumers were re-assured that only PayPal had their payment credentials. Merchants had to make their peace with relinquishing control over the majority of the checkout experience -- since paying using PayPal required consumers to leave the merchant website.
Advent of API-first Payments and Mobile POS
By 2010, merchants were more savvy about technology. Additionally, tech-forward startups started to obsess over the checkout experience and wanted more control. These trends proved to be the perfect launchpad for API-first payments companies like Adyen, Braintree, and Stripe. Developer-entrepreneurs and large enterprises alike could now use modern APIs to create customized checkout experiences while still being shielded from other aspects of payments such as merchant underwriting or settlement.
Growth of Marketplaces and Software Platforms
The need for more control only intensified with the next generation of companies. Fueled by mobile data connectivity, the last decade saw the creation of several successful consumer marketplaces from Uber to Grubhub. Efficient onboarding and underwriting became central to the experience, not something to be outsourced or avoided. Also, the dual-sided nature of marketplaces meant that settlements and payouts are as important as checkout and payment authorizations.
At the same time, we have seen the rapid adoption of vertical-specific SaaS platforms serving the needs of verticals from healthcare to legal services to restaurants. These companies have catered to a new class of enterprise users seeking to get complex tasks done via intuitive, mobile-first user interfaces. SaaS platforms, like marketplaces, have waded into the entirety of payments. For some of these companies, payments have even become the primary source of revenue.
Outsourced Payments No Longer an Option
Software companies’ need for controlling payments has only intensified over time. Existing payments companies have responded to the needs of marketplaces and platforms to varying degrees. However, the partnerships have often been awkward despite the best of intentions on both sides. After all, systems that were built expressly to shield companies from the apparent complexity of payments naturally struggle to fully expose the inner workings of payments in a logical, accessible manner. Harder still is the ability to atomize and recombine payments primitives into a software company’s own platform. Last but not least, platforms have unique money movement needs that existing payments companies, and even banks struggle to fulfill adequately.
The Global Picture
While the story that I have shared is US-centric, several elements of the story apply globally but with a couple of relevant modifications. The chief difference is that countries who reached critical mass in internet usage and digital payments in the last decade have simply skipped a few steps and surged ahead with mobile payments on the consumer side. But the growth of local marketplaces and platforms is a global phenomenon. And these companies, in turn, are going global faster than ever.
For software companies, the promise of creating better experiences and capturing a bigger slice of payments margins is alluring. But how can a company make payments part of its very DNA? Equally importantly, is it possible for companies to take on the attendant cost and complexity of this transformation with confidence? What is Finix’s role in this? We will explore these topics in Part 2 of the blog.