Fintech 1,000: B2C Payments will be be 10x cheaper but volumes will increase 10x

The Fintech revolution is Moore’s  Law finally impacting Banking, Finance, Securities and Insurance (BFSI). If the cost of a payment is simply a flicker of attention from a server somewhere whose cost is dropping every year, expect the price charged for payment to eventually catch up to this reality.

At a macro level, payments is the big one.

When you find a market worth $1.5 trillion (yes, trillion) growing at 20%, pay attention!

“Business-to-consumer (B2C) ecommerce sales worldwide will reach $1.471 trillion in 2014, according to new figures from eMarketer, increasing nearly 20% over 2013.”

Note that this is only B2C. That is what I want to focus on today. B2B payments is another big market and there are cross-overs in the supply chain world i.e. B2B2C or distribution finance. However in this post I want to focus only on B2C.

Lets move from the macro 30,000 foot level to the micro ground level view of a small business wanting to sell something online. By small, think really, really small. Think of the Uber driver and the AirBnB host, the eBay seller, the family business in the developing world. Or a creative person selling a book or music or painting. Or a consultant selling expertise.

There is no shortage of options. To make it easier, I put them into three categories.

Category One: Kinder, gentler Paypal.

Paypal set the pricing standard with 2.9% plus 30c. Many ventures follow that pricing model (with some tweaks) but add value around:

• User experience. Sending your customer from your site/app to Paypal is needless friction for customers and bad branding for the seller.

• Countries where Paypal is difficult.

• Fewer issues for sellers around holdbacks and frozen funds.

Companies in this category include:

Square

Stripe

Amazon (Checkout + LogIn and Pay)

Braintree (now Paypal)

2Checkout

ProPay

Intubus

Sellfy

Gumroad

Payza

Paymill

You can also put in this category all the vendors such as Authorize.net that use the Credit Card rails.

Note: I am counting the fees to the seller i.e. the cost to receive funds. Sending money is usually free i.e. no cost to buyer.

Category Two: Flat Fee Disrupters:

Most in this category charge a flat monthly fee (like a SaaS product) without any % based on transaction value. These tend to appeal to sellers with higher volume of sales. Most of these payments vendors have tiered pricing based on features, so the entry level is low. At scale, the cost of the monthly subscription is tiny compared to pricing based on a % of the transaction value. I don’t see a Freemium play yet, but expect this will come.

Take-A-Payment (from Web.com)

FetchApp aka Shopify

Pulley

Paystand (which I have covered here).

Category Three: Direct Debit from Bank A/C.

This is not always appealing to the buyer (i.e no credit), but it is a lot cheaper to the seller. This is where I would put services such as:

GoCardless

Paysera

Category Four: From Digital Wallet

This is where all the Micropayments services go plus all the Big Tech vendors such as Google and Facebook go. Once the idea catches on that you can send a digital token of money as easily as you can send an email or text message, we will be on the path to Free Payments (monetized through data or Freemium upsell).

The venture that is hard to categorize is Dwolla, which charges just 25 cents (and transactions below $10 are free). So they almost free. Yet they also have a B2B part of their offering. Dwolla will be interesting to watch.

Technically, the trends to watch are a) Bitcoin/Blockchain and b) emerging W3C standards for payments.

The societal mega trend that drives this is the rise of the Rest and micro multinationals ie cross border trade for tiny firms. Alibaba is the behemoth to watch.

We have already seen mega raises in this space from Adyen, Klarna and BlueSnap. For a long time, payments has been the boulevard of broken dreams. This is changing now. These ventures are showing major traction today not just dreams of future disruption.

I have seen other big waves of disruption go through 3 phases;

• Shock, horror, prices will be decimated (literally meaning what costs $1 will cost 10c).

• Observing that lower prices drives growth. 10x more people paying 10c is still $1. This happened when equities brokerage was decimated by first deregulation and then the Internet.

• Figuring out how to add value. That 10c is a commodity race to the bottom and volume won’t save most players. Payments is simply an enabler for some other value creation. This is what ventures that are payments disguised as e-commerce such as Uber, AirBnB and Alibaba discovered.