We invited Chris Skinner, one of the most influential people in tech and author of the highly respected blog, the Finanser.com, to share his thoughts on the role of tech companies, like GPS, who provide the technology and payments processing infrastructure behind business-to-business (B2B) operations, that ultimately deliver the innovative payments solutions to their customers (B2C). A role that is not always understood, is often overlooked, and is slowly gaining recognition as the pace of innovation in embedded finance gathers pace.
He begins by picking apart the issues that B2C FinTechs face:
If you really look at the business models of many consumer fintechs, particularly savings products, their fees are often effectively 5% a year. That’s not far removed from predatory lending. In effect, they’re saying, “We’re going to get you to use our product and charge you on such small transactions that you don’t notice that you’re never really getting ahead” …
For example, one major fintech company that automates investing, buying and spending has a noble mission and has also publicly said that it expects to earn 1% across all assets. That’s a high fee and almost twice as much as many non-digital platforms.
But if you really do the math and charge a truly “disruptive” quarter of a percent, $5 billion in assets is only a $12 million business. Investors don’t want to create small companies, and $12 million is a small company. At 1%, suddenly, you’re a unicorn with the ability to change the world.
He goes on to talk about solving C by focusing on B2B.
Solving business problems means you can better avoid the other fintech founder traps. Right-sizing the addressable market of a B2B solution is far less prone to delusions of grandeur. There are far fewer distracting shiny objects and “fast growth” tricks in the B2B world. The investors backing B2B fintechs tend to be more patient and reasonable in their expectations for runway and ARR.
It’s an interesting angle because we all usually focus upon the consumer issues because we are consumers. We can see the issues. We don’t focus upon the business issues unless we’re in that business. However, the business issues are often far bigger, harder and tougher to deal with than the consumer issues because, if we can solve the business issues, we can deliver the consumer a better experience regardless.
So yes, I agree with Jason to a large extent and would pick out GPS as a great example of his theory.
Global Processing Services.
What do they do?
GPS provides simple APIs for embedded finance for companies like Revolut, Starling, Curve, Zilch and Paidy. Its services are used in 48 countries and, in 2021, processed more than 1.3 billion transactions, with 190 million cards now issued to date. That’s why it has raised millions in funding and despite being the home of multiple fintech unicorns, no-one has ever heard them.
Sure, but what do they do?
Well, according to their own words:
Our award-winning issuer processing platform GPS Apex enables many of today’s most high-profile fintech innovators and disruptors.
In other words, they focus upon issuing.
Well, whenever you make a payment online using a card or card-related product, you have four entities involved, called the four-pillar model. You have the merchant, acquirer, issuer and bank. Actually that’s flawed as its five-pillars as the last one is you.
Cryptocurrency is breaking this model to eradicate three of the pillars – the acquirer, issuer and bank – but, whilst the world is still stuck in the 20th century, you still have these players at large.
Stripe, Adyen, Klarna, checkout.com and others focus on the acquirer side. What does an acquirer do? Well, they onboard the merchants – the retailers – and provide them with the ability to get paid. The more merchants on your platform, the more attractive you are.
GPS focus on the issuers. Who are the issuers? The banks and FinTech firms that want people to be able to pay online. The faster, easier and better that structure, the more success you have and, behind the scenes, solving B2B issues, enabling issuers and banks to get more presence easily and globally online, the more you have companies like GPS growing massive and not everyone knows.
Because they’re solving B2B, not B2C. But the B’s know. It doesn’t matter if the C’s don’t.
About Chris Skinner
Chris is known as one of the most influential people in technology and has been described by Seth Wheeler, Brookings Guest Scholar and Former Special Assistant to the President for Economic Policy at the White House, in the United States as “one of the most authoritative voices on Fintech anywhere”. He is a prolific independent commentator on the financial markets and fintech through his blog, the Finanser.com and many television, conference and newspaper appearances.
His latest book (sixteenth!) is called Doing Digital, and shares the lessons of doing digital transformation learned through interviews with BBVA, China Merchants Bank, DBS, ING and JPMorgan Chase. In his day job, he is CEO of the Finanser Ltd, a research and media firm focused upon FinTech and the future of finance.