By Ann Train
Just five years ago, the interconnectivity we now take for granted in everyday commerce was not fully realized, and the requisite technologies were often cumbersome to integrate. Now, numerous fintech startups, encouraged by recent successes in the tech community in advancing commerce, continue to step forward, hoping to attract investors, partners and even buyers. Clearly, developer entrepreneurialism is booming.
Wary of the financial perils associated with the dot-com collapse at the turn of the 21st century, companies today are more calculating about committing resources to upstart fintechs.
"Technology comes and goes, so not every solution in the marketplace today is going to be around five years from now," said Jason Oxman, Chief Executive Officer of the Electronic Transactions Association. "We know that technology as a whole is a crucial component of payment services, and not having a technology solution is telling your customer that you don't want to keep them around for the long term. I think that's the most important lesson out of technology."
The ETA has welcomed technology members in various stages of development and has long supported industry collaboration through member councils and hosted events, including the launch of regional Transact Tech events showcasing startups in such tech corridors as Atlanta, Boston, New York and San Francisco. Through the ETA, acquisitions have materialized, and partnerships have blossomed.
"Clover became an ETA member when it had seven employees and hadn't yet launched, but within a few months First Data saw the technology and bought the company," Oxman noted. "North American Bancard is a great ISO, and they've been around for a long time. When they saw Apple get into the market and become an ETA member, they launched a new product called PayAnywhere, which is sold in Apple retail stores."
To better understand how progressive payment companies are navigating the latest tech boom, The Green Sheet invited North American Bancard Holdings LLC and Cayan LLC, both ETA member companies, to share their perspectives on the journey to embrace technology.
Marc Gardner, founder, President and CEO of North American Bancard believes that being a privately held company has enabled NAB to act in a nimble and strategic fashion as it builds out its technology platform in-house.
"What's really nice about owning our own processing platform is we are able to bring value to our distribution partners, our end users (mainly the merchants), based on what's most important to our organization," Gardner said. "We control our own product and technology roadmap, which is very important to our corporate growth."
To keep up with demand, NAB expanded its technology team, which today has more than 100 people managing select projects. "There are a lot of good ideas that you might not be able to monetize in the near term, and creating and adding value related to the ability to monetize those products in the near term is very critical," said Gardner, who stressed the importance of prioritizing ideas from an income opportunity approach.
For NAB, the vetting process often begins by asking what touch points will be served. "Are they franchisee or franchisor locations, because if they're franchisor, they control their integration path as well as their upgrade path," he said. "In many cases, when they come to us we are able to take a much more thoughtful and constructive approach."
Henry Helgeson, co-founder and CEO of Cayan LLC, told The Green Sheet that the company's cloud-based Genius platform, which launched in 2012, was built on the concept of future-proofing merchant systems by offering the ability to aggregate and integrate every conceivable transaction technology, payment type and customer engagement program that enters the pipeline.
By the time Apple Pay debuted in 2014, Cayan's platform had evolved. The Genius endeavor required building a team to build the product. Its staff of technologists grew from 15 to nearly 150, with software engineers in both Boston and Belfast, Ireland, where much of the day-to-day coding gets done today. Architects and engineers have joined remotely, and the company's Phoenix team is dedicated to building out its gift and loyalty platform.
To unify teams and maintain deadlines, Cayan employs a special unit that interfaces between its partners and the integration and engineering teams to ensure that projects flow smoothly. As such, partners are chosen carefully. "You have to be very thoughtful and deliberate what partners you're going to bring into the fold and what you're going to leave in your roadmap and get done another time," Helgeson said.
Beyond evaluating the product, funding and viability of potential partners, other factors carry weight. "If you went to Money20/20 three years ago, a lot of those startups are no longer around, so there is risk in doing business with a company," Helgeson said. He recommends taking a close look at the management team to determine whether it's a good fit culturally, since doing so will increase the probability of accomplishing shared goals.
Helgeson noted that with independent software vendor (ISV) and POS developer partners, it may be tempting to allow as many of them to integrate as possible, but with only 24 hours in the day, it is best to pick partners strategically and spend energy focusing on Tier 1 prospects. Once the integration is done, the real work begins. Sales, marketing and support must then align on the message to board and manage merchants effectively.
To illustrate the importance of evaluating technology from the merchant's standpoint, Helgeson described a customer with thousands of checkout lanes. "For every one second we add to a transaction time, they have to add 100 lanes to get through their peak hours," he said. "These retailers are very scientific. Can you imagine that one second equals 100 employees?" In such cases, a few seconds delay could lead to severed relationships.
Kelly Cullum, Director of Business Development at SUR Technology Holdings LLC, has run the full circuit, from building an online software brand to opening a sub-ISO and working with a startup focused on 3D-Secure authentication to now directing a technology consulting firm that offers end-to-end solutions.
"The big thing that I found right out of the gate with any type of payments company is that it is about digging into the type of client that technology is going to attract, trying to find the places that are going to become issues and then empowering the ISV to educate merchants," Cullum said, adding that education and customer service play critical roles, as does briefing ISO underwriting and risk managers to prevent problems down the line.
She also recommends drip campaigns to establish communication between parties as each new development takes shape. "It's about making sure that you're available to be included in all processes they decide to create," she said. For an ISO, these might include drafting a basic features guideline that is consistent across merchant accounts.
According to Cullum, revenue splits can be a touchy subject, since ISVs entrenched in technology may not understand them completely. ISOs need to offer guidance on expected terms and the flexibility to renegotiate based on milestones as volume accelerates and features advance.
She recommends first piecing together only a few targeted solutions for specific verticals. In vetting tech companies, she has found online category searches for the top 10 to 20 percent to be effective, as well as learning about companies on Crunchbase and blogs, checking capital investments to date, and attending networking events to meet targeted clients and the tech companies that might serve them.
Helgeson agreed that starting small is best. "When I talk to other ISOs out there that haven't made the leap to technology, the advice I give them is to stay focused and start small. Pick one thing you're trying to solve for and start there. You can't be everything to everyone. If I were starting out somewhere, I would pick a niche and focus on one particular problem they're trying to solve."
He said the problem with tackling technology too broadly from the outset is not having the scale, money or engineering teams to execute properly. "The broader you go, the more likely you are to either have the product fall over and generally fail, or just not be able to deliver what the merchants expect," Helgeson noted.
Instead of reaching out to large established fintech companies that may not be particularly receptive, he recommends that ISOs seek smaller tech startups that are a good fit for their objectives, and to build out platforms incrementally.
To jumpstart the search process, CB Insights created a tool tech experts recommend for analyzing the health of a startup. Funded by the National Science Foundation, its Mosaic algorithm delivers predictive intelligence that helps users narrow searches. The algorithm synthesizes three independent criteria into a Mosaic Score, derived from analyzing a number of momentum, market and money-related factors.
The spirit of "coopetition" (cooperative competition) has also become a driving force behind tech innovation. Having spent the past 12 years building the Technology Association of Georgia into the largest state technology organization, TAG President and CEO Tino Mantella understands this concept well. TAG hosts more than 200 events yearly as the umbrella organization for 34 professional societies representing over 30,000 members.
"Five years ago, you could count the number of incubators and accelerators and co-location spaces on one hand," Mantella said in reference to Georgia, which now boasts over 100 locations where young companies can grow and flourish. According to TAG, Georgia fintech companies collectively generate more than $72 billion in total annual revenues, third only to New York and California.
To encourage continuity in the tech sector, Georgia introduced an angel investor tax credit and added computer science as an elective in public high schools for students on the path to higher education and careers in the field. Events like the Georgia Technology Summit, Venture Atlanta and regularly scheduled $50,000 competitions for best new fintech launches have raised awareness and participation by established companies in that state.
"We have a really good base of mentors, so when they're in a business launch competition, oftentimes we align a mentor with them, somebody that's established in business who is willing to spend the time, whether it's helping them to develop their pitch or how to make their sale or how to connect with a company that's in the area," Mantella said, noting that while acquisitions do occur in conjunction with these competitions, startups often gain a strong foothold.
One payment processor that has latched onto the accelerator model is Vantiv Inc., whose accelerator program has reduced the time to build and deploy emerging payment options for merchants aligned with Vantiv. Merchants are able to integrate options at their own pace. The program also encourages dialog within the Vantiv O.N.E. developer community, where technical knowledge is openly shared through discussion threads.
"Using this idea of an accelerator-launchathon program, as new technologies become available, there are typically several sets of groups of merchants that want to add it to their services right away," said Tony Rose, Director of Product Management, Mobile, for Vantiv. "We've found that by doing a class type of program, the accelerator lets us find constituencies within our organization and allows shared learning between merchants."
In September 2016, Vantiv completed its first two accelerator programs for Android Pay and Apple Pay on the Web, and plans to roll out Android Mobile Web in 2017. "It will open the door for one- or two-click mobile web checkouts," Rose said, adding that one-click purchases from product or checkout pages will be possible without a user account. After the sale, merchants can then offer incentives to create accounts and join loyalty programs.
"There are some really interesting new ways to market products via social media to drive traffic to a product page with one-click purchase and different kinds of models that weren't possible before," Rose said, noting that a primary goal will be to remove all barriers to purchase whether that be online or in-store.
For payment companies, the future commerce model will revolve around targeting key constituents and monitoring outcomes as each new layer is added. "We really let our merchants demand and form our products," Rose said. "Google and Apple have different business reasons for what they're doing, and then our merchants have their needs, so just helping to connect those dots so that everyone is successful with it, it's a lot of fun."
Also, to be truly unified, merchant channels must interact seamlessly. As an example, Rose said that by combining the Vantiv token in-store and its eProtect product, merchants have the same token for the customer's online and in-store shopping. "You're able to blend the data of your customer's behavior both online and in-store," he said, noting that this is one advantage of using integrable products in combination.
Gardner believes that consolidation among processors, dealers, distributors and software companies will ultimately drive a majority of revenues for hospitality, practice management, automotive and other segments moving forward.
But at the moment, tech-forward payment companies are mapping out an exciting future. For some, the future of commerce is already in place, technically, but awaiting mass adoption.
Once that occurs, technology will advance further, and again experience, research and imagination will combine to create what follows.
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