Now a victim of its own omnipresent success, the global electronic payments industry is increasingly turning to new technologies as it looks to expand its footprint and find new ways to make money by getting consumers to spend theirs.
The pace of technological advancement in the payments market has even caused regulators to take notice, with innovations like cryptocurrencies continuing to grab headlines and attract government scrutiny at the federal and state level.
Those same regulators are also looking for ways to alleviate the financial pressures and burdens that affect the underbanked and to address the issues of privacy and security that continue to bedevil the industry.
These are no small problems, but then again, the electronic payments business is no small industry. In 2013 there were $4.9 trillion worth of volume on cards in the U.S. in 82 billion transactions, according to data from the Electronic Transaction Association, the industry’s trade group — that’s 2.6K transactions per second.
An industry that large is bound to attract venture dollars, and indeed, startup companies are beginning to make their presence felt even among giant companies like Visa, Mastercard, and the privately held First Data Corp.
Venture capital investment in payment technologies hit a five-year high in committed capital in the first quarter of 2014, when 59 startups raised $492 million for technologies to support, or supplant, existing payments companies.
While executives in some industries would be quaking in their boardroom chairs over a surge of venture money into their markets, the payments space embraces disruptive technological change more readily than most, according to the organization’s chief executive Jason Oxman.
“Our industry has embraced disruptive technology in ways that others have not,” Oxman said. He pointed to the music industry’s response to Napster as an example. Rather than trying to litigate new technologies out of existence, the group’s members are actively embracing new payment methods via the mobile phone, and working strenuously with technology companies to improve security and provide additional services.
In some cases that means companies like Payoneer, the global payments processor leveraging Mastercard’s transaction network; mPowa, a mobile payment company; or Stripe, which is trying to improve the process of transacting online.
“There’s a synergy between these core players in payments and venture-backed startups,” said Rick Yang, a principal with the multi-billion-dollar venture capital firm NEA. The value-added services that technology companies can provide through software and big data analysis can help juice the payments industry’s razor-thin margins.
And technology companies like the ones backed by Core Innovation Capital can help companies like Visa achieve one of its main objectives — expanding stakeholders in the electronic value chain. Speaking at the ETA Transact conference at the Mandalay Bay Hotel in Las Vegas last week, Bill Sheedy, head of Visa’s corporate strategy and mergers and acquisitions efforts, said the company was looking to create new stakeholders and improve the ease and speed of commerce and securing payment technology.
Core exclusively backs startups that are working on bringing financial services to the underbanked, according to co-founder Arjan Schutte.
Schutte’s firm isn’t the only venture capital team to tackle the payments market. Investments in payments are fairly evenly distributed among what most would consider to be some of the top quartile funds.
Source: TechCrunch
