The payments business is one huge area of opportunity for entrepreneurs. Think of it: if the US economy generates close to $20 trillion in GDP that’s a lot of money moving through the system. How it gets where it is suppose to, who gets it there and how much money is charged along the way is mysterious. This mystery is what the payments business is all about.
The global business has long been a gigantic oligopoly controlled by a series of networks, governments, banks and a group of oversized corporations such as Visa, MasterCard, Fiserv and others.
Taken together it is like a mafia of financial behemoths interested in nothing more than keeping the status quo. Perpetuating the system enables them to maximize the amount of fees for the mindless service of money transfer.
Fintech Is Out To Disrupt the Industry
Efforts to disrupt the mafia have been going on for some time. So far not much can be said for most of the efforts. There are at least two major walls to climb. The first is the cost and time required to reach critical mass.
Take a really cool thing like ApplePay for example. It has been almost three years since this electronic wallet was first introduced in September 2014. The convenience of touching the screen of your iPhone is so much easier than digging out a plastic credit card. Yet with all of Apples billions in cash, ApplePay has been slow to catch on. Merchants must have special terminals to handle the electronic signal.
PayPal no doubt is the most likely candidate to shake the foundation of the traditional payments business. During the many years under the wing of eBay, PayPal was able to garner acceptance both from customers and merchants. PayPal, of course was spun off by eBay. The company is expanding from solely an online presence to creating its own electronic wallet that can be used in traditional bricks and mortar stores.
The Crypto Buzz Is Big
The second big wall is having lots of capital. Just link a capital raising effort to cryptocurrencies and investors eyes light up like a six year old kid on his birthday.
Cryptocurrencies like BitCoin, Etherium and others create the crypto buzz.
According to Wikipedia, as of now, there are about 900 digital currencies in existence in the world. This means there is a growing audience for applications.
Case in point is Revolut, a UK based payments company in business just since July 2015. Within just the last few weeks, Revolut founders Nikolay Storonsky
and Vlad Yatsenko raised over $66 million in VC funding and another $23 million from Crowdfunding. The Crypto buzz had something to do with their success.
According to company literature, the Revolut app allows customers to open a current account in under a minute, and includes a pre-paid contactless MasterCard debit card. So far there is nothing unusual about Revolut. But there is more.
The firm launched personal international bank account numbers (IBANs) across Europe just recently, and plans to integrate virtual currencies like Bitcoin, Ethereum and Litecoin in the future. This includes plans to add a wealth of new services in the coming months from the integration of cryptocurrency to pay-as-you-go travel insurance at the tap of a button.
Even before this gets accomplished, Revolut offers currency exchange with 25 different currencies and a peer-to-peer payments service. As Storonsky tells his story, “ . . . what we are demonstrating goes beyond banking.”
Storonsky must be pretty good with a pitch deck considering the implied $200-$400 million valuation of the company. He and his partner have deep experience in the global payments business. Nikolay spent years as a currency trader with Credit Suisse so he understands the absurd level of fees charged by the current system.
The technical wizardry, however, rests with his partner Yatsenko. Vlad spent over 10 years building financial systems for major Wall Street investment banks. He serves as the company’s CTO.
The one question that few investors seem to be concerned about is how all these wonderful free services will be monetized. Oh well, these are the same silly questions that few asked about during the dot.com craze. This time, however, is different, right?