Money20/20 US: Payments and fintech trends roundup
November 6 2019
by Jordan McKee, Cameron O'Shaughnessy
This year marked the eighth edition of the Money20/20 conference in the US, and 451 Research's seventh consecutive year attending the show. Consistent with recent years, 2019's event was short on major announcements, but big on trends. In this report, we unpack the primary topics that guided our conversations over the course of more than two dozen meetings with payment processors, antifraud vendors, payment networks and other industry stakeholders.
The 451 Take
Money20/20 continues to be the must-attend event in fintech and payments. To get a sense of the level of emphasis the industry places on this conference, consider that in 2018, the four Money20/20 events (Asia, Europe, US and China) generated north of $70m in revenue, with the US show accounting for more than half of it. Unlike the early days of the conference, discussions with industry stakeholders, today, around new innovations and initiatives feel much more real. It seems we are finally moving past much of the hype and conjecture associated with payments and fintech earlier in the decade, and evidence of execution and market traction is now more apparent than ever. We are also observing a noted shift in focus within the industry. While early conversations often pertained to wrapping a flashy veneer over the existing payments stack (digital wallets, mPOS), discussions today are more about bringing innovations to the core infrastructure (new payment 'rails,' tokenization and machine learning).
SRC goes live
Secure Remote Commerce went live with a small handful of merchants, including Rakuten and Cinemark, the week prior to Money20/20. Pitched as a single digital terminal, SRC aims to give online shoppers a more streamlined and secure guest checkout experience through a common buy button. In our conversations with Visa executives, the network anticipates conducting more aggressive migration of merchants and consumers from Visa Checkout to SRC in Q1. A similar timeline can be expected with Mastercard's Masterpass.
SRC's consumer-facing branding (at least for the time being) is click-to-pay. We see this as a major strategic misstep, given the global migration of commerce away from desktops and laptops. With mobile rapidly becoming the dominant commerce platform and new interfaces like voice emerging, click-to-pay feels like a vestige of the past. Several network executives we spoke with agreed, and we got the sense many aspects of SRC remain half-baked. If and when this branding will be abandoned remains unclear.
We have heard mixed feedback on SRC from merchants. Some remain concerned that SRC gives the networks too much control over their transactions and the broader payment experience. A specific concern is that SRC may run afoul of the Durbin Amendment, which states that debit issuers must support at least two unaffiliated debit networks. In a 451 Research survey conducted earlier this year, we observed that further merchant education on SRC is paramount. For instance, we found one in five merchants are unfamiliar with SRC, rising to two in five businesses with under $25m in annual revenue.
M&A remains top-of-mind
According to 451 Research's M&A KnowledgeBase, the past several years have seen an average of one payments company acquired every three days. This year has been the most striking, with our research indicating nearly a quarter of global M&A spending has taken place in the payments industry, primarily fueled by the Fiserv/First Data, FIS/Worldpay and Global Payments/TSYS acquisitions.
These large-scale deals were top-of-mind in most of our meetings at the show, indicating their market-wide impact. Among the most discussed topics was the potential for at least one of these mergers to result in the formation of a new payment network born through the integration of merchant and bank payments infrastructure.
Visa and Mastercard, for their part, have been taking steps to insulate themselves from emerging threats such as this through inorganic growth. Collectively, they've inked 10 acquisitions so far this year, in an effort to diversify their capabilities and revenue streams. Visa, for instance, was keen on discussing how its recent acquisition of Rambus' payments division would help it play a role in tokenizing transactions outside of its own network. Further underscoring the push toward diversification, Mastercard had signage throughout McCarren International Airport stating 'Vegas, our game goes beyond cards.'
Our conversations at Money20/20 demonstrated that deal activity in payments is unlikely to slow down anytime soon. Large and midsized companies we met with noted they expect to continue pursuing inorganic growth well into their new year. Evidencing the momentum, BlueSnap announced during the show that it had acquired Armatic, while DNA Payments announced its acquisition of CR7 Services. Directly following Money20/20, Global Payments unveiled its agreement with Desjardins Group to acquire its existing merchant-acquiring business and portfolio of approximately 40,000 merchants.
Payment orchestration and optimization comes into focus
The 'ask' merchants have of the payments industry has evolved from 'help me accept and process a payment' to 'help me grow my business.' This stems from an increasing realization that payments can be much more than a cost center, and if approached strategically, can drive topline growth and expansion. The new desires of the payments industry today focus on business outcomes.
This message came across loud and clear at Money20/20, with various payment processors and antifraud providers eager to discuss their optimization capabilities that are designed to drive approval rate increases and mitigate false declines. Payment orchestration – including capabilities like intelligent transaction routing, rule management and reporting – was also a topic of prominence in several of our meetings.
One of our most intriguing conversations on this topic was with Forter, which is strongly positioned to help merchants optimize acceptance, given the significant volume of transactions it handles. Other players with orchestration capabilities include ACI Worldwide, Zooz (acquired by PayU), Modo Payments, Spreedly, Optile, Switch Payments and Renovite.
Friendly fraud fight intensifies
Fraud prevention is not a new concept for merchants, but the need to account for and protect against cases of 'friendly fraud' remains more foreign. Friendly fraud comes in many forms including accidental and intentional payment disputes, policy abuse in areas like returns, referrals and coupons, sign-up/multiple account workarounds, multiple refund attempts and loyalty point plans. Negative impacts of friendly fraud can include heightened chargeback rates, lost goods and double refunds.
Friendly fraud is often carried out by non-criminal actors taking advantage of loopholes and gaps in merchant and bank chargeback processes. As a result, combating friendly fraud can be challenging – it requires a delicate approach so as to not to scare away loyal customers. It can also be difficult to recognize and account for because perpetrators generally act much like normal customers.
With this type of fraud becoming more prevalent, many fraud prevention providers are placing increased emphasis on bringing tools and products to market to combat it. We are seeing the use of machine learning to score transaction risk, in addition to increased transaction information flow between merchants and issuers to better challenge false disputes. Another best practice among providers is delivering analysis on friendly fraud trends to better prepare merchants and banks. Multiple vendors we met with at Money20/20, including Kount, Ethoca and Forter, were keen to discuss their capabilities in this arena.
The 'fintech-ificiation' of tech accelerates
It's no exaggeration to say that nearly every technology company is becoming a fintech company. This phenomenon was on full display at Money20/20 across a number of fronts. Uber made one of the biggest splashes at the show with the announcement of a new division called Uber Money, which is charged with building out the ride-sharing company's financial services business.
Mirroring moves made by Southeast Asian ride-hailing provider Grab, Uber sees a large opportunity to empower both drivers and customers with access to various financial products. Among the first manifestations of its strategy is the launch of Uber Wallet, which will be integrated into the Uber Driver app (and soon Uber and Uber Eats apps) to enable centralized access to earning and spending history, money management and movement, and discovery of new Uber financial products.
During a keynote by Amazon Pay VP Patrick Gauthier, it was announced that Amazon will be helping facilitate utility bill payments through a partnership with Paymentus. Through the partnership, consumers can use Amazon Pay to settle bills online or via Amazon Alexa. Paymentus will connect Amazon Pay to its network of 700 utilities companies, and Amazon expects to be able to reach 95% of zip codes with this capability by the end of the year. Samsung also had updates to share at the conference, discussing its recent partnership with Finablr, to enable cross-border payments for Samsung Pay users in the US.
One of the most interesting startups we met with at Money20/20 was Rapyd, which recently picked up $100m in funding for its fintech-as-a-service offering. Rapyd is uniquely positioned to create inroads for tech companies and platform businesses in fintech via products such as Rapyd Wallet, Rapyd Issuing and Rapyd Disburse.
Libra looks to reset
Facebook's Calibra head David Marcus sought to temper expectations and walk back some of the initial, aggressive positioning of Libra during his much-anticipated keynote fireside chat. His aim was to hit the reset button amid growing geopolitical concern and backlash following the launch of Libra, a blockchain-based cryptocurrency, in June of 2019.
The cryptocurrency, which is intended to be tied to a basket of the world's most stable currencies and managed by a consortium of global businesses, has faced major headwinds since its public unveiling. After significant US congressional scrutiny and major pushback from international regulators, cornerstone partners including PayPal, Visa, Mastercard, Stripe and eBay withdrew from the Libra Association in the weeks leading up to Money20/20.
Facebook is moving forward with a 21-member Libra Association (down from 28) that now lacks support from the payments industry. Various industry stakeholders we met with were generally coy, but not dismissive, about their potential to collaborate with Libra in the future. Marcus insisted he was near certain that financial institutions would be involved in Libra down the road.
Marcus made it a point to emphasize that he sees the currency and the association as a long game, and urged the public to not expect immediate results. Plagued by trust concerns, the Libra team intends to win back public opinion by upholding privacy commitments over time, and through comprehensive third-party audits.