Monday, March 14, 2011

Knowing where you're going: roles in payments and how your company fits in

Several months back I wrote about archetypes of players in the payments ecosystem. The post got some replies that objected to its proposed division of the ecosystem for various reasons; the most common one of all were those that cited regulatory and legal definitions as ones that determine who you are and what role you play. However diving into these details takes attention away from the most important parts, in my opinion - my post was aimed at categorizing business model and market approaches. Those, and not your PCI/DSS or money transmitter status, define your product needs, the brand you build and ultimately your market.

The confusion is apparent when talking to payments-related startups. As I like to say, moving money out of one's hands is a commodity and building a bi-directional network of sellers and buyers is a huge undertaking. And still, many startups that develop incremental improvements for the current process insist that they are going to compete with PayPal. If that's your way of showing commitment to a goal, maybe it's a reasonable tactic; but trying to "compete with PayPal" as a default in payments creates a distraction that may prevent you from realizing the real benefits of your business.

For example, do you think you can create the ultimate payment experience for a type of product (most popular are mobile and micro payments)? Realize that by virtue of simplifying the flow and integration you are not creating the foundations of a network - you are creating an engagement driver. Trying to sign sellers and buyers on to demonstrate superior conversion and ease of use, then being sold to a larger company (think Jambool) is a viable strategy - and a completely different one than creating you own payment network. Bling Nation is demostrating how hard, frustrating and capital-intensive is such an attempt, and I am not sure they are winning it.

Another one: do you have a new technology that allows an easy addition of NFC capabilities to existing POS systems? That's a neat solution to an adoption issue that many companies will be interested in; however, again, building a payment experience to try and capture a piece of the pie would be the wrong way for packaging your solution. You do not have to turn into a technology vendor, but deciding to build your own network is a diversion that will cost you your focus and a lot of money.

All of the above does not mean to say that starting a payment network is not something to be done, nor does it imply that you cannot use some other company's infrastructure if you want to be successful in payments. What you need to do is understand what role you can, want and should play in payments and use it to direct your product strategy. Diving head on into the business of building networks is an unnecessarily automated decision that can turn a potential money making machine into a very effective capital incineration one.

1 comment:

anoaharc said...

Hey Ohad,

Very interesting post. I've been thinking more about our discussion last week, and we're working on figuring this piece out better.

Talk soon,