PayBefore/FinTech Futures November, 2017–
Joining FirstView Financial in July 2017 as president and CEO, Bob Raffo has quickly become a proponent of developing the paytech segment, the opportunities it presents to serve larger consumer and B2B bases and accelerate payment processes.
FirstView Financial provides prepaid, financial, mobile and payment solutions. Over the last decade, FirstView has been delivering prepaid program management and processing services supporting a diverse array of prepaid card solutions, and Raffo is now preparing to take the company deeper into the paytech segment as a payment solution provider.
PayBefore recently had the opportunity to speak with Raffo about his views of the future of payment technologies and paytech.
Obviously there is a move to mobile, virtual cards, digital wallets, and remote data capture, which are already here, but which will gain wider acceptance. Next will be increased use of smart devices, new digital applications, alternative processing networks, wearable technologies and new payment processes like push-to-pay.
More important though, there has been a shift in how consumers and businesses think about payments. Beyond moving to cashless, paperless payments, there is an element of immediacy that makes near real-time payments increasingly important. In this post financial crisis world, it’s still difficult for many people to get credit and purchasing power. The more we compress the timing between getting paid and making a payment, the less dependent we are on credit. We’re moving toward closing the time gap in payment processing, so people and businesses can get paid immediately, similar to how Uber pays their drivers. The future of payments is paytech.
Paytech is all about payment innovation, encompassing physical, digital and virtual technologies, which is a large and growing space especially here in the US and in the UK. It’s all about disrupting payment processes and the future of near real-time settlement throughout the supply chain.
For example, right now the supply chain provides terms of payments from manufacturers in the form of Asset Based Lending credit, to distributors and retailers though AP terms and lines of credit, and to consumers through instruments like credit cards and home equity lines of credit.
Paytech can digitize the float in the supply chain and settle all payments near real-time which increases the velocity of payments. This is a huge shift that can change the dynamics of the economy. Our growth is a function of money supply and the velocity of money. Increasing the velocity of payments will drive economic growth.
Fintech has grown to include a wide spectrum of existing and potential technologies, which encompasses everything from cryptocurrency to loan management systems. It is natural to see a coalescing around specific applications in the financial industry.
For example, there is now a vast regtech sub-category which are technologies that help companies better manage regulatory compliance.
Paytech is a sub-category focused on changing how we think about and execute transactions. According to the Emerging Payments Association (EPA), even in 2016, paytech companies represented more than 40% (and growing) of fintech.
The vision of paytech is to transform payment processing from “one to one” payments like checks, ACH, credit and debit cards to “one to many” payment marketplaces, and eventually to a “many to many” payment ecosystem based on emerging new blockchain technology systems.
The evolution is analogous to how communications have changed. From hand written letters and fax machines which only went from one person to one person, to text messages and emails which can be delivered asynchronously from one person to specific groups of people and now social media platforms like Facebook with instant messaging shared among large communities of people.
In paytech terms we will change from a consumer paying a retailer, who pays a distributor, who pays a manufacturer, to a system where the consumer payment at the point of sale is automatically split and distributed to the retailer, the wholesaler and the manufacturer at the same time. That will be the real impact of paytech, collapsing the payment cycle to near real-time payment for all participants in the supply chain.
PayTech is a natural extension for prepaid companies because the underlying processes and platforms required to process payments and authorize transactions are the foundation for paytech.
The four core competencies of prepaid: remittance, reimbursement, deposit, and disbursement, are already well established and provide the cornerstones of a paytech strategy. Many prepaid companies have already transformed their transaction processing platforms to embrace mobile, digital and virtual payment capabilities.
As we continue to move toward a cashless economy, prepaid companies are well positioned to deploy new technologies that will enable advanced closed-loop marketplaces, support push payments across networks, and provide the infrastructure for financial toolkits that allow consumers to take control of their spending. Prepaid companies already understand this market and are well positioned to dominate the paytech arena.
Historically prepaid has focused on very discrete markets; gift cards, loyalty and incentive cards, payroll cards and GPR cards. Between regulatory changes and saturation, opportunities for growth in these traditional participation strategies is limited. However, nearly 40% of Americans still have trouble paying bills in a timely manner, so near real-time payments are increasingly important to them.
Prepaid is already addressing some of the needs of the underserved constituencies both on the consumer and merchant sides of the equation. Furthermore, prepaid companies already have established access to networks of retailers and the ability to reach consumers wherever they are.
Paytech creates new market opportunities for prepaid companies to provide new products and services for the underbanked and underserved consumers to help them get paid faster and to make their payments faster which will improve their financial health.
In addition to the underserved consumer, B2B is perhaps one of the largest underserved markets in terms of moving to cashless payments – there are still such a large number of corporate payments – up to 78%, being made by check.
There is a huge opportunity to develop better connections between businesses to streamline payments and remittances processes. When merchants can pay their suppliers faster, who in turn can pay their manufacturers quicker, the whole economy accelerates. Several markets share similar demographics and are already using prepaid to solve very specific problems. They include: healthcare, consumer finance, corporate B2B, and travel/incentive. These markets can be better served with new PayTech solutions which present new and exciting growth opportunities for prepaid companies.
Prepaid is a technology-based business to begin with, but now the role of technology becomes even more central to the business strategy. Expanding the underlying technology and payment authorization process to support push-to-pay, direct to merchants, closed loop marketplaces, and how to best incorporate blockchain technologies are critical to the future of paytech.
The impact of blockchain cannot be underestimated. Beyond these early days of cryptocurrency and Initial Coin Offerings (ICOs), blockchain promises to change the way we contract and execute transactions.
Blockchain has the potential to be to finance what Twitter has been to mainstream media. Before Twitter, news agencies aggregated news feeds to media outlets that then distributed the news, much the same way we aggregate payments to banks who then redistribute the payments. Twitter provides a platform for news to be distributed directly to and between consumers, without the need for media outlets to aggregate the information. Blockchain provides the technology for payments to be made without the need for banks to aggregate and redistribute funds.
We’ve already seen how the well-known players such as Apple, Amazon and Walmart are making changes in the marketplace which alters the way we buy, so it’s up to companies like FirstView to focus on building out the technology to meet the needs of specific markets like healthcare to fully integrate the payment transaction cycle and provide real value by improving cash flow for every participant in the supply chain.
There is an old adage “speed kills”. The more we accelerate the speed of payments the more sensitive the entire system is to even the slightest disruption. Building out the infrastructure that provides consistent and reliable near real-time settlement is no small undertaking.
Even more daunting is the challenge of retro-fitting or upgrading banking systems, payment networks, corporate purchasing systems and more. The technology supporting B2B payment processing is entrenched and not easily changed. Besides the investment needed to make the changes, many markets are heavily regulated. Ensuring that we can change the technology and processes and get over the regulatory hurdles without breaking the system will be critical to the mission of paytech.
From a market perspective, the challenges will be different for each target market. For consumer finance – how do we deliver solutions to help underserved and unbanked to not only pay their bills, but rehabilitate their financial status? In healthcare – how do we develop unique payment solutions for insurers, providers, manufacturers and HSA banks that make it easy for patients to navigate a complex and disintermediated industry? And in B2B, how do we replace traditional AP models and check processing – there is already some acceptance on the remote data capture side, but how do you move them to EFT, ACH, and beyond to virtual, while providing near real-time solutions without putting any of the participants at risk?
The real disrupter for paytech will be the increased adoption of gig-pay or day-pay models like Uber. Labor costs are typically the largest single operating expense line item for a business and a big cash flow item. Broader adoption of near real-time payroll will drive changes throughout the supply chain to speed up remittance of trade payables.
Eventually, the supply chain will be compressed or shrunk down to the point of sale (POS). That is when not only the “one to many” model comes into play, but a “many to many” experience occurs, and a single POS transaction is paying everyone in the chain at the same time. The transformation will result in less cash, less float, and will speed up the velocity of transactions, ultimately accelerating the growth of the economy.
Change can come very quickly, we see that the speed of technological change is just accelerating every day. However, this is a seismic change in how we transact and although I see this change is inevitable, it will likely take years or maybe decades before the full effect is felt.
Nonetheless, P2P payment platforms are gaining traction and banks are already identifying and adopting new mobile technologies to meet the demand of millennials who are a new generation of people entering their prime earning and purchasing years.
Now is the time for prepaid companies to embrace the changes and develop the technology and business models to meet the needs of the future.