Stripe and Adiene vs. Others

Ask any fintech or payments analyst and they’ll tell you they’re all focused on Stripe and Adyen. But while Stripe’s IPO keeps getting delayed, it’s always “just around the corner.” 40% reduction Given Adyen’s stock price, we have to ask ourselves – does the future of payments actually lie elsewhere? My money is in the field.

In 2011, Marc Andreessen wrote: Why software is destroying the world. Fast forward to 2022, and Credit Suisse (now UBS) payments analyst Tim Chiodo and his team have released a comprehensive report on the whole thing. payments, processors, fintech Here, you can see the evolution of this trend and its expansion into the world of payments in their fresh interpretation: “If software is eating the world… then payments are eating.” While cloud computing and API services have exploded in recent years, effectively adopting a distributed systems approach to architecture for most cutting-edge organizations, payments have remained largely centralized to date. We are entering a critical period in which the future of the payments ecosystem will be shaped by when, where, and how individual payments-related services are unbundled and rebundled.

Accepting payments (i.e., the ability to receive payment for goods or services) is, of course, one of the first steps in launching an online business. Unfortunately, this is also one of his check-boxes that, like rotisserie chicken, is “set it and forget it” (shout out to Ron his Popeil). Kudos to Stripe for grabbing this tiger by the tail. It’s not unreasonable for an organization to choose an all-in-one solution and pay for cruise control because it “just works.” But if they lose sight of the fact that their business really boils down to two things, this becomes a very dangerous proposition. 1) manufacturing and selling goods or services, and 2) collecting payment for those goods or services from customers. Accepting payments is 50% of the problem. So if your single payment partner suffers an outage or changes her mind about your business and cuts you off, you’re her SOL.
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. Or, worse yet, your partner continues to hobble, paying above-average processing fees and receiving below-average approval rates.

As companies grow, the one-processor approach may re-emerge as an issue.Instacart page 71 S-1 filing It specifically points out how reliance on third-party payment service providers and associated costs is a major risk, specifically stating that “if we are forced to migrate to another third-party payment service provider for any reason. , the transition may take significant time, lack administrative resources, and may not be as effective, efficient, or popular with consumers, retailers, or shoppers.”

Payments 2.0: Embedded payments

Many of the partners at Mark’s Silicon Valley-based venture capital firm, Andreessen Horowitz, are taking a similar approach, making grand statements through basic blog posts.Even if it’s Angela Strange’s declaration Every company becomes a fintech company Or Alex Rampel’s point of view Distribution vs. Innovation – Thematically it’s always very spot on, even if the end result isn’t always what you’d expect.

Shopify Payments is a great example of building payments into your software platform. Powered by Stripe and distributed by Shopify. This should make both Angela and Alex smile. There is an entire industry aligned with this kind of blueprint, known as payments facilitation, and dozens of venture-backed startups are modernizing the independent software vendor model for the modern digital economy in this context. I’m trying to. And this makes sense. However, this is only a smart distribution and monetization of a single, centralized, bundled payment service solution with all the value accruing to the payment companies and platforms, rather than individual merchants, and merchant services. Or let the results speak for themselves: payment processing. , account of almost 70% What percentage of Shopify revenue and this Shopify volume all account for? Approximately 25% Stripe volume growth in 2022!

It’s important to take a step back and think about this from first principles and the individual seller’s perspective. These modern acquisition and processing platforms make it very easy for businesses to get up and running accepting payments quickly, but equally what modern merchants and platforms really want is to The ability to run custom payment stacks specific to their business and their customer base. While our industry has spent money, attention, and focus on building payment solutions for software businesses, the reality is that we need to focus on enabling software solutions for the payment architecture of the future. there is.

Payments 3.0: Custom and distributed

As of September 2023, Stripe’s homepage lists 24 different products, excluding bundled custom solutions and integrations. And while Stripe has been delivering value to customers for over a decade, being best-in-class in 24 different components across the stack is impossible.

In this new paradigm, there is a growing desire to individually choose the partner that is best for oneself. your work.That might mean considering solutions like sardine or Neuro ID Local acquisition platforms in Latin America or Southeast Asia, or third parties instead of Radar or in place of a single global provider Pagos or butter In a world where alternative payment methods are proliferating in areas such as intelligence and routing, reconciliation is also a key issue, so companies like: piece and proper Building a ledger as a service. One additional consideration is to separate services such as 3-D Secure, account updaters, and network tokens in a multiprocessor approach. This may require a direct connection to your network for a single source of truth. Independent chargeback management platforms are also starting to emerge to make everything perfect. Sure, it can quickly get complicated, but given the aforementioned risks associated with relying on a single partner, the trade-off between simplicity and redundancy to future-proof your business is , making it a value proposition for most companies.

Key themes for this PSP-independent future include freedom, flexibility, independence, redundancy, and control. With up to 50% of your business operations at stake here, these will quickly become a must-have item.

The future is here. This is an incident. As evidenced by recent research From ACI Worldwide
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It shows that 57% of sellers currently utilize multiple acquisition platforms, with the sweet spot between 2 and 5 and growing. His 40% of merchants that still rely on a single acquirer are considering moving to multiprocessors within the next 12 months. AWS Currently offering There are not enough cloud computing resources to make this possible. It’s important to remember that even though Stripe and Adyen generate so much hype, they still only capture ~10% of the payment processing market. The big question is whether these will move to 20% or more and continue to be consolidated, simply passing the torch from the old guard to the new guard, or will they fragment further into individual services operating in a truly free payments market? The question is, will it be done?

As a final reminder, here’s a topic related to the recent Instacart IPO. page 71 S-1 filing It specifically points out how reliance on third-party payment service providers and associated costs is a major risk, specifically stating that “if we are forced to migrate to another third-party payment service provider for any reason. , the transition may take significant time, lack administrative resources, and may not be as effective, efficient, or popular with consumers, retailers, or shoppers.”

If you’re a seller or a platform, don’t be Instacart. They demand and deserve the freedom, flexibility, independence, redundancy, and control they need.