Many FinTechs got walloped in 2022 for bloated valuations, which is increasing the focus on fundamentals and partnerships.
PYMNTS’ Karen Webster recently discussed what that means for the industry with i2c CEO Amir Wain and Payoneer Co-CEO Scott Galit.
Galit said it’s forcing a return to more rational valuations based on providing tangible value as opposed to a growth-at-all-costs mentality, noting that Payoneer has always focused on fundamentals and has been adjusted EBITA positive for 10 years running.
Wain agreed, saying, “The core business has to be something that delivers value to its clients that is sustainable over a period of time. I think 2022 was a good thing where it shifted people’s focus back to basics, rather than chasing the next round at triple the valuation.”
Turning to the topic of achieving more tangible value via partnerships, Webster cited a new PYMNTS data point that for three years running, consumer payments choice has been the number one factor behind the merchants they prefer and frequent.
Confirming that consumers are far more demanding on value and experience than they were pre-pandemic, Galit said that is another factor forcing FinTechs to prize value above valuation and not go it alone.
“We don’t try on our own to be all things to our customers,” he said. “We recognize that we’re going to be the best at certain things … but when there are other things that those customers need in order to succeed, we often look to partners to help us be able to offer our customers things they need that complement or supplement the things that we’re good at.”
For his part, Wain sees shifting demographic spending power as calling these shots now, saying that for ascending cohorts, “the old product constructs don’t seem to be servicing their needs,” which finds FinTechs listening more and meeting new needs with fresh concepts.
On delivering real value instead of achieving a high valuation, Wain sees the provision of credit as i2c’s mission and expertise. “It’s a service that is needed a lot more than just access to your money in a digital form,” he said.
“There is definitely this additional layer of value that credit delivers, and we are seeing that as people think about what’s the next thing, the real value being delivered is through some sort of a credit product.”
Noting that Payoneer built its reputation on helping small exporting businesses get paid for their sales globally, Galit said the future opportunities are in helping those businesses manage a broader scope of needs, chief among them access to working capital and paying out to other businesses.
While Payoneer’s Capital Advance product addresses clients’ need to seize growth opportunities, its commercial card product helps manage business expenses. “It’s not just for receivables, but for managing cardable expenses where we can provide a useful tool that helps [clients] better manage their business and save money,” Galit said. “That’s something that we’ve worked on in partnership with i2c and some others as well.”
Both agreed that the focus should be on solving problems that businesses will encounter soon. Seeing around corners in this way is often more effective when a complementary partner looks at the same things from a slightly different angle.
“We are thinking about what would be needed to service the needs of the consumer in the future,” Wain said. “One thing that i2c does differently is we build building blocks, so we don’t build an actual final composition. It’s a bit easier for us to keep building the building blocks and let our customers come in and do the composition.”
Bringing this all together in effective partnerships is about the value created rather than partnering merely for scale or similar goals that may not readily translate to customer value.
Wain pointed to Galit’s comment, saying, “Scott could think about doing a private label card, but using existing Visa, MasterCard and other networks … some of the settlement, some of the dispute resolution capabilities, etc., that just allows you to focus more on the value that you’re going to deliver.”
Agility and stability are two important considerations when FinTechs choose partners, and there’s a balance in these relationships that’s justifiable when the outcome is value.
“We could trade off a bit of agility for the long-term stability, and we obviously want both,” Galit said, “but there’s one that’s non-negotiable, and the other one we can probably make things work a few different ways.”
As Wain sees it, partners need to be “super aligned” on fundamentals, adding that in FinTech partnerships, “It’s not closing your eyes to trouble areas, but addressing them upfront and being very clear on who does what, and what’s the long-term value proposition?”
With growth-obsessed FinTechs now chastened and more uncertainty ahead, both executives kept returning to the central idea that partnerships will increase and be beneficial — as long as all parties to those partnerships focus on the basics that create quantifiable benefits.
“You will see overall an increase in partnerships,” Galit said. “I think it will be banks and FinTechs, and I think it will be FinTechs with FinTechs, with, as Amir said, those fundamentals of their needing to be a real value exchange.”
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