Ringing in the new is generally a theme in the month of January, although it is more normally expressed during the first week, not the third. And though the 2021 inaugural celebration was different in many regards, that excitement in peering at an upcoming future was, as always, in place.
Coming in to discuss that rapidly resetting world – in a week where the going theme was “out with the old and in with the new” – was Mark Fiorentino, principal at tech-oriented VC firm Index Ventures, who talked with Karen Webster for the latest edition of The Week in Payments. The future, uncertain though it may be, looks pretty bright to him, insofar as he believes improvements are on the way in the form of CX payments, instant disbursements, consumer and business access to credit streams … and more.
“There’s still a long way to go, but I do think the money movement – whether it’s B2B or B2C – might become more seamless going forward,” he said. Because the digital shift is now a permanent feature of the payments and commerce ecosystem, as consumers have become habituated to doing more in a digital world.
The Ongoing Move Toward Mobile
When one looks at the rollout of mobile and alternative payments globally, Fiorentino said, when compared to Asia or even Europe, the U.S. has been slower when it comes to adoption. But he believes that is changing. One reason is the tremendous push COVID-19 has given consumers. But another reason is that the digital-first economy is being pushed by a demographic changing of the guard when it comes to spending.
“You have kind of the graduation of Gen Z from college students into the working class, and there’s always been somewhat of an aversion to credit cards in that group. And I think we’ll see many more interesting paradigm shifts in this area,” Fiorentino said.
He believes some of that will be in used mobile wallets like Apple Pay or Venmo. But consumers are also rejecting the “black box” part of payments that credit cards embody, and are looking for different payment experiences that remove that entirely from the equation.
“The goal is to provide what people historically love about credit cards – the rewards piece, but not the part where you hold that debt on your own personal balance sheet,” Fiorentino said. “That’s the part that is giving people pause, and 2020 has only accelerated that aversion to holding debts.”
It’s the movement to give consumers more of what they want that is also pushing the emergence of the so-called super apps around the world, and even in the U.S. Because, as Webster and Fiorentino jokingly agreed, standing in line at the point of sale is very 2019. Which is to say it’s completely out of style, and unlikely to ever make a comeback. Keeping contact with the consumer means meeting them where they are going to be.
The New World Of Food
The digital shift is observable in all segments of commerce, but Fiorentino and Webster agreed that the food industry has been among the most marked by the experience of the last 10 months.
And that change was a long time coming, said Fiorentino.
The long tail of food suppliers, wholesalers and restaurants has been an underserved market not known for being technologically forward-thinking. And, he said, it is going to be the place where we see “the next wave of innovation.”
Outside of venture funding, Fiorentino is also the partial owner of a bar in San Francisco. Having the ability to leverage technology and digitally pay suppliers instead of relying on paper checks has been a recent and important upgrade.
“It sounds simple, but I think as payments nerds know, it’s not the easiest thing to facilitate, and we’ve seen rapid adoption of products like this by SMB users,” Fiorentino noted.
Because in a digitizing world, checks simply don’t work. Pre-pandemic, he said, a little under a third of U.S. payment volume was happening via check. He predicts that the number of checks drafted will rapidly decrease over the next few years, as companies realize they need a better, digital way to pay, and that the tools for that better experience are already out in the market.
What To Watch Next
Consumers’ preferences have shifted, and the infrastructure to support that shift is actively under construction and being deployed worldwide. That on its own, Fiorentino said, is encouraging news for the digital future. But what also feeds optimism heading into 2021 are all the ways the market is expanding to include new types of goods, services and experiences that have simply never existed before.
“These are developers that actually make money through the Apple App Store or Google Play,” he said. “How big is that ecosystem? It’s surprisingly big – it was north of $100 billion in payments volume at the end of 2020, and it’s going to be at $160 billion by 2023. It’s growing 14 percent, 15 percent year on year. And I think that makes sense when you think about the trends that are leading us there.”
Consumers are mostly at home and are online a lot, Fiorentino noted – and they have habituated their lives accordingly. Someday soon, he said, that will change. App fatigue will set in and consumers will want to get back outside. Digitization won’t go away, but it will change. And the successful players of the future are already thinking about how they are going to change with it.
“It’s going to force developers to think about the value they’re providing – and whether it is real and lasting or ephemeral,” he said. “Any company that has to question the value of the product or consumers’ desire to pay for it in a future state should revamp its offering.”
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