The week began with market watchers going nuts over a single unsourced report suggesting Amazon was looking to launch dozens of brick-and-mortar department stores across Ohio and California. Whether it turns out to be true or false, if nothing else the outsized reaction and subsequent speculation are an indication of the enormous stakes involved.
On a separate path, investors poured more cash into the FinTech space with Chime raising a hefty $750 million funding round that took its valuation to $25 billion. And in the background, the buy now, pay later (BNPL) blitz continued its relentless march into mainstream commerce.
Amazon Squares Up To Walmart In Retail
As it plots to expand its retail footprint, Amazon has been keeping itself busy selecting markets that are a perfect fit for its demographic, PSCU President and Chief Executive Chuck Fagan told Karen Webster during this week’s edition of The Week in Payments.
“You look at Walmart, it has a very geography specific strategy, mainly hitting markets that other retailers don’t target,” Fagan said. “I don’t know if Amazon is going down that track. It’s going to pick markets that really fit its strategy.”
Related: Amazon Hatching Strategy To Open Mega Brick-and-Mortar Stores
Amazon’s alleged strategy has several components, the most important being its focus on the shopper’s experience, Fagan said. “I don’t know if 30,000 square feet is going to be enough, but to have a shopping experience where you can go from groceries to hard goods and other things, that’s going to be very, very compelling.”
The brick-and-mortar stores would reportedly also be able to leverage Amazon’s unmatched supply chain infrastructure as well as its proven ability to get goods into consumers’ hands fast could well be its trump card.
“You know, to go and buy a piece of furniture, it could take months and months to get it,” Fagan said, alluding to the COVID-19 pandemic-related supply chain challenges. “In the case of Amazon, it has its own distribution network with trucks and systems. It has access to product it can get quicker. Amazon is very, very well positioned from a speed perspective to really change the dynamics of the competition.”
FinTech Values Come Into Focus
The conversation quickly turned to the momentum of startups in the FinTech space, notably with Chime which is now valued at $25 billion, getting close to the current $33 billion valuation of another hot rival in the space, Revolut. Even though Chime’s valuation was about $1 billion two years ago, Fagan said its 20x rise didn’t come as a surprise.
See more: Chime Now Valued At $25B, Nearing Revolut’s $33B Valuation
“I’ve seen the subscriber growth over the past couple of years and it has been amazing how quickly they have accumulated such a large client base,” he said.
There’s a lot of mystery around where these huge valuations are pegged though. Webster noted it’s not really clear if they’re just something these companies are expected to grow in to, or if it relates to the value of their existing customer base.
Fagan thinks one things that plays into the valuations is the personalized customer experience these FinTechs offer.
“They’re enabling the customer to do things that fit with them, it’s kind of a reverse focus of how traditional brick-and-mortar financial institutions are going about it,” he said. “That’s the way it’s going, and everyone is going to have to align with the consumer and do things on their own terms. That’s what has made them so attractive to create such fast growth.”
Buy Now, Pay Later Finds Its Niche
In a buy now, pay later space that’s still reverberating in the wake of Square’s acquisition of Afterpay, PayPal raised the stakes by canceling late fees for customers across the globe, expanding upon a program it launched in Australia two months ago. Meanwhile another major player, Klarna, said this week it’s considering going public as soon as next year.
“BNPL is a natural piece of the landscape now,” Fagan said. “You can see what’s happened around the world in countries like Turkey and others. It has become the way consumers go about their business.”
Read more: Klarna Might Consider IPO As Soon As Next Year
Fagan said the U.S. has actually lagged behind a lot of other countries, though this week’s developments show that it’s rapidly catching up.
“Now we see Visa and Mastercard aggressively getting into BNPL, and then you have all of those startups, and the dollar volume flying through those is growing much like we described with Chime and Revolut,” he said. “It’s just taking off and I think the timing is right. The purchasing that was done online through the pandemic, this is the behavior now. So buy now, pay later solutions are perfectly fitted to take some of that purchase.”
In another notable news item this week, i2c announced an expanded partnership with Visa to offer issuers BNPL capabilities at the point of sale. Webster said this looks like a key play that could help to eliminate one of the big unknowns in the space, which is that consumers never know how much they have to spend until they make a purchase.
Further reading: i2c Expands Visa Partnership For BNPL At POS
For Fagan, FinTechs that come in with mobile solutions will play a key role in solving this riddle.
“I think the mobile apps and mobile or digital banking platforms that provide some kind of spending guide will be able to allow consumers to set up some kind of parameters on them,” he said. “This will be different but as it takes off, there’s going to be education for people my age, but my daughters will be all over it and they’ll use these tools available to them to manage it closely.”
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