Yet scratch the surface and you’ll discover a somewhat different picture.
Legacy card networks have remained remarkably fragmented across different geographies. The biggest regulatory shift for a generation – Open Banking – is coming to fruition, allowing a radical rethinking of how financial data is used and online payments are made. And as consumers in emerging markets come online, they’re bypassing card payments altogether for e-wallets. Each requires new infrastructure and approaches. That’s before we even touch on the acceleration of e-commerce adoption caused by COVID-19 or the huge opportunities on the B2B side.
At the same time, we’re reaching a level of maturation among e-commerce businesses, where they’re starting to outgrow their initial payment providers. They need to evolve their payment strategies in order to improve conversion rates (particularly as they expand internationally) while trying to reduce fees.
We’ve been investing into payments businesses as a team for the past decade, partnering with companies like Transferwise, Riskified, Melio, Rayd, Yapily, Libeo, Payaut & Compa. We see exciting opportunities to take the advances made by the early pioneers into 2021 and beyond. Here are the opportunities we believe will be big this year.
A payments tipping point
When we talk about maturing businesses needing to optimise conversion rates, we’re referring to two types – customer conversions (i.e conversion on-site), and acceptance rate on the back-end by their payment partners, known as their “auth” rate.
The key to improving customer conversions is to reduce checkout friction. A recent study found that seven out of 10 customers abandon their online checkout because of complicated login processes, or inadequate payment options. This is even higher on mobile. In addition there are various mandated or voluntary fraud checks that can add considerable friction and drop off through checkout.
When businesses expand internationally, these issues are often accentuated. Across Europe, card schemes and payment preferences are fragmented and auth rates vary considerably depending on the businesses payment service provider (PSP). Being based in the UK or US, you’d be forgiven for assuming Visa, Mastercard and Amex account for the vast majority of online payments, but this isn’t the case. 60% of online payments in the Netherlands, for example, were done via local bank-to-bank payment provider iDEAL in 2019. Merchants end up having to work with a range of PSPs in a bid to optimise for the best fees, market coverage, and auth rates.
So what are the opportunities?
1- The emergence of payments orchestration platforms
This move away from single PSP setups towards a more fragmented payment stack can prove difficult to manage. A challenge that can be managed via payments orchestration platforms.
Although their approaches vary, most startups in this space (Primer, PayDock, Apexx, Gr4vy) use technology to consolidate various payment methods into a single API. They can then dynamically route each payment to the most effective provider (optimising for auth rates and fees); very easily add new payment providers or services (e.g the latest Buy Now Pay Later solution, or alternative payment method); and massively simplify the backend reporting and reconciliation that comes with using multiple providers.
Although the early players (like Zooz and Optile who have both been acquired, and Spreedly) have been around for a decade, it’s a market that’s now becoming mainstream. Largely driven by the number of maturing retailers now selling cross border, and the growing level of sophistication amongst ecommerce merchants.