Submerging Payments, Part II

codebloo —  September 14, 2015 — 4 Comments

Not much more than 100 years ago, the ice industry was a major component of the US industrial economy, contributing $660MM (in today’s dollars) to the GDP and employing 90,000 people, more than the total population of good-sized cities like Albany, Atlanta and Nashville. In the early part of the 20th century, ice went through what appeared to be its “disruption” (probably Ye Olde Techcrunch called it “FrostTech” or something at the time), where the industry shifted from natural ice (literally, I sh*t you not, chopping blocks out of lakes and shipping it coated in sawdust) to manufactured ice, made in industrial scale factories.

Sadly for the ice industry, that was not the disruption they should have been watching. What ended up eviscerating the ice industry was the advent of in-home refrigeration. Refrigerators weren’t invented to make ice, but they made ice on the side, as it were. More importantly, they obviated the need for purchased ice by doing the job of ice, which is to say, cooling food, much more efficiently. I can only imagine the self-satisfied ice-trepreneurs who moved gracefully from lake chopping to managing ice factories, smugly speaking at business schools about how they recognized that “they weren’t in the ice harvesting business, but rather in the ice provisioning business”, until they realized that they were actually entirely out of business. The key idea here is that the ice industry didn’t get disrupted by technological innovation that changed how they did business; the industry essentially went away as a result of their value proposition becoming subsumed in an entirely different value chain.

Which brings me to the payments industry. All kinds of market participants “buy” payments today … consumers make a payments purchasing decision when they choose a card (or cash, check or bitcoin); retailers buy payments when they select a merchant processing solution; governments and non-profits buy payments when they make decisions about what tender types they will accept and via what providers; and in the B2B context, both buyers and suppliers face off against the payments industry when they decide how to settle their bills and accept payments against invoices. Industry participants (issuers, acquirers, processors, lockbox vendors, etc) have been chipping ice out of lakes for years, and are newly wary about these new ice factories (mobile phones, EMV, NFC, blockchain rails, etc) that are springing up in various pockets of the industry.

Those new enabling technologies miss the main point, the real disruption that should be terrifying the incumbents, which is that fewer and fewer market participants are making any kind of payment decision at all. Over time, consumers won’t say “I’ll choose the card that has the best mobile interface”; they will choose Uber (or Apple Pay, Paypal, etc) and whatever funding mechanism they selected at inception will just fire away. God help the ISO that tries to get the attention of a retailer who has selected Booker (or Shopkeep, Revel, etc) as their ERP system; that merchant has already lit up payments within the software that runs their business. Governments and nonprofits will similarly turn a deaf ear to payments companies, having leveraged fundraising software from Evertrue (or Abila, Blackbaud, etc) or built General Ledger integrations into peerTransfer for cross-border payments. Businesses, having selected Billtrust (or Paymetric, Delego, etc) for their invoicing and AvidXchange (or Taulia, Chrome River, etc) for their Expense and Payables Management, will have no need or interest in speaking with traditional cash management and lockbox vendors.

Elegant, integrated and cloud-based software is submerging the payments business, and stripping it of its value. We at BCV have invested in a number of companies along this theme, including Billtrust, Booker, Chrome River, Evertrue and peerTransfer.  Today we’re announcing a large investment in AvidXchange, alongside Foundry, NYCA, TPG, KeyBank and other industry notables.  AvidXchange is the leader in AP automation solutions for the middle market, and has quickly built a substantial commercial payments business that provides additional value to their software customers.  Mike Praeger and his team have been ahead of their time in recognizing that controlling data and workflows creates a unique opportunity to monetize payments volume, and we’re excited to help them take it to the next level.

Many existing payments companies are already partnering with our software companies, and others, but many are ducking their heads in the sand. To those ice harvesters, I quote my 7 year old daughter: Beware the frozen heart.

4 responses to Submerging Payments, Part II

  1. Great post, as usual Matt … and congrats on inking an investment into yet another Unicorn!

  2. Is it too early to request, “Ice, Part III: The Stripeman Cometh?” And if you hadn’t seen it, here’s something my son wrote which might be of interest: http://alexdanco.com/2015/09/01/no-more-visa/

Trackbacks and Pingbacks:

  1. Headline News from PaymentsNews.com – September 16, 2015 - ResidualMarketplace.Com – Submit Residual Listings for Free - September 16, 2015

    […] Submerging Payments, Part II – Finsurgency (Matt Harris) – “Over time, consumers won’t say “I’ll choose the card that has the best mobile interface”; they will choose Uber (or Apple Pay, Paypal, etc) and whatever funding mechanism they selected at inception will just fire away.” […]

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    […] Music Factory. And, Matt Harris from Bain Capital Ventures wrote a good thought piece titled Submerging Payments, Part II on why AvidXchange is such a big […]

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