“It’s good to be the King,” Mel Brooks said in his 1979 comedy classic “The History of The World, Part 1,” offering a concise statement of the simple reality that rank has its privileges, and generally the best privileges flow to the highest person in a hierarchy. All true, i2c President Jim McCarthy said in a conversation with Karen Webster, but with a significant caveat Mel Brooks left out 42 years ago.
“It’s good to be the king, until it’s not, like when the coup is around the corner,” McCarthy said.
And that is the difficulty card issuers find themselves in today — mainstream banks have been the kings of financial services for a long time, but the coup is at the palace gates, so to speak, he said. The fact of the matter is they’re under pressure, and not because their businesses or their ideas are bad, but because fundamentals of that business are challenged by the fact that their clients need to move faster.
Banking hasn’t changed, payments haven’t changed, but the experiences that go with both have changed dramatically, and the folks presenting those updated experiences to consumers are the ones not beholden to legacy COBOL stacks who are trying to maintain 50-plus years of legacy code in their mainframe. Or mainframes, more accurately, because after decades of merger and acquisition (M&A) activity, large legacy issuers aren’t really one stack so much as they are lot of acquired stacks that never quite got fully integrated into a single unit.
And that fragmentation is increasingly a problem in a marketplace that has changed remarkably over the last few decades. The addition of smartphones and apps to the ecosystem in 2007, McCarthy noted, changed everything. It isn’t the eCommerce version 1.0 that he started working on 30 years ago, but the one built for consumers who carry purpose-built devices created to give them greater access to connected opportunities across the entire economy — from banking to shopping services to eating and dining services. They are opportunities increasingly connected and powered by payments.
“Payments is at the heart of commerce, and historically, we’ve been constrained primarily because technology wasn’t available,” he said. “Now when we think about the opportunity, it’s so much broader than the classic kind of four-party model of classic card issuing. It really is about payments. And payments as defined by folks like Stripe don’t fit neatly into a box because they are pushing payments. They’re issuing cards. They’re doing acceptance. It’s a little bit of everything because you’re focused on payments, not the role as defined in 1950 or 1960.”
The Great Leaps Forward
That reshaping economy and the pressure incumbent issuers are now facing is illustrated well by Marqeta’s massive initial public offering (IPO), which left the payment firm with a $16 billion valuation, he said. Part of the credit for that big IPO pop belongs to the Marqeta team, which saw a need in the market developing as they grew up in Oakland, saw firms like Square and Stripe coming up around them, and recognized the opportunity in advance of the rest of the market.
Another part of that bounce is a testament to just how great the need is in the market for their services and the size and scope of the “broader opportunity in the space,” he said.
The opportunity in the space “is truly gigantic,” he said, because firms like Marqeta (and i2c) enable innovation with services like payroll, benefits distributions and access to earned wages.
“Whether it’s Marqeta or i2c, we’re enablers for the creativity of innovators around the globe,” he said. “What we do for these companies is giving them the ability to bring these ideas to life. And so, when I think about the opportunity, it’s a global one.”
What’s Next
The future is hard to predict, McCarthy said, because evolution and advance are an ongoing process that work to change the trajectory. The world has changed over the last 15 years, and the future is going to change in different ways than we expect.
That’s a good thing because it means consumers and businesses can do more, control their finances better and gain the full benefit of the connected economy without constraints, he said.
“The world is completely changed, and this is not unique to developed markets … the progress is everywhere,” he said. “I still think there’s tremendous innovation in front of us as the world continues to evolve.”
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