Where the smart money is.
We drew the cashless payments landscape in Investing in Cashlessness Part 1. The overarching movement in the Payments world is:
- Move from cash transactions to credit and debit card transactions.
- Move from credit/debit card to digital wallets and non-card transactions.
But there are still 4 basic types of money transactions, cash or no cash:
- Business to Business: B2B
- Customer to Business: C2B
- Business to Customer: B2C
- Customer to Customer: C2C
And to carry out these transactions, these used to be the main players:
- Merchant Acquirer: Merchant’s Bank
- Card Network: Like Visa or Mastercard
- Payment Processor: Like FirstData
- Issuer: Customer’s Bank
Here’s the flow of cashless payments used to look, circa 2010, according to KPMG:
But now, circa 2019, this is the slight amendment that is creating a disruption across the chain:
This ability to use neither cash nor checks nor cards to transfer money to friends and family was a C2C innovation – John to Jane. But it has reverberated from C2C (see above) towards B2C and C2B. That’s a disruptor, which in the early stages of mass adoption. When you compound this move towards cashlessness and cardlessness with hundreds of millions of yet-to-be-banked people in Asia and Africa, you’ve got a phenomenon on your hands. This technological innovation is slowly but surely leading to a world that’s:
Consumers want it. Businesses want it. The main impediments are:
Both barriers are likely to decrease significantly over the next few years. That’s our bet. This is a double-edged sword. Companies that are facilitating this phenomenon may face pricing pressure but will hope to more than offset that decline on higher volume.