Payment platforms for online and mobile businesses – current and future landscape

While most of the press around mobile payments has focused around B2C solutions such as Square and LevelUp, online payment platforms such as Zuora, Stripe and Braintree are also seeing robust growth, riding the tremendous growth in e-commerce and P2P mobile payments. Example client include Uber, LivingSocial and AirBnB (Braintree), box.net and zendesk (Zuora) and shopify and edmodo (Stripe).  Such platforms have a few key elements that all competitors in this space try to replicate:

  • A robust, reliable and scalable solution
  • Simple developer-friendly APIs
  • Excellent customer service
  • Quick (and in some cases “instant”) set up, including setting up a new merchant account for the client

A robust, reliable and scalable solution

Accepting payments for a new high-growth startup can be a very painful process if attempted on your own, but companies such as Braintree, Stripe and Zuora attempt to simplify the process as much as possible. The goal is to provide a solution that scales as your startup scales – from facilitating 100 transactions a week to a 1000 transactions a minute, all the while providing a reliable, secure and affordable service. Key to this space is supporting both desktop and mobile transactions, as a growing number of e-transactions occur on mobile devices. A number of startups also make international expansion a very early priority, as they attempt to be the first-mover in several markets. Payment providers try to stay one step ahead of the curve by expanding internationally and having a deep understanding of foreign legal and financial frameworks.

Simple developer-friendly APIs

Stripe is perhaps the best poster-child for having developer-friendly payment APIs. Stripe boasts having APIs “that get of your way” and also pioneered the “instant” setup features that were replicated by Braintree – which allow you to get started with a payment solution in under a day. The key here is to have API wrappers for various languages such as Ruby, PHP, Python and many more to make it incredibly easy to get started and integrate with your service.

Excellent customer service

Braintree seems to be leading here, and promises to always have a real person answer a customer service call. Customer service is key in this business, which is based on having reliable, trustworthy service with quick turnarounds if something goes wrong. Parts of the payments process remain tedious and high-touch. For example, setting up a new merchant can often involve multiple long-threads between the payment-solution provider and the client, where the payment-solution provider acts as the middleman (and underwriter) between the client and the bank. The client wants to have the account set up as soon as possible, while the bank wants to make sure that a proper risk assessment as done – companies like Braintree try to simplify the process by having excellent customer service and quick turnaround times.

Instant set-up

Now that Stripe and Braintree have instant setup (by eliminating the waiting period for a new merchant account or underwriting approval), startups can have a quick headstart in facilitating e-commerce transactions.  Through this process, companies such as Braintree also get more insight about the client’s business model and growth plans, and try to ensure that clients’ accounts are never frozen or shut down because of unanticipated activity.

Disruption and future landscape

While there are certainly scale benefits to serving many clients, I do not see any network effects associated with providing online payments. However, this could change as some of these providers attempt to get into the mobile P2P payments space, such as Braintree’s acquisition of Venmo.

On the other hand, the companies in this space are addressing an unmet need. For many high-growth startups, solutions such as PayPal, authorize.net are too expensive, slow, outdated and too hard to integrate with. I see solutions by Braintree and Stripe taking away a lot of business from PayPal. Switching costs are also high – it is usually hard to migrate customer payment information from one platform to another.

Although payment providers are seeing tremendous growth just because of the amount of growth in e-commerce and online/mobile transactions, all these solutions (except for Braintree’s Venmo business) are still reliant on the infrastructure provided by the credit-card networks. All the startups in this space seem to be playing the puppy-dog strategy – posing as small players who are friendly with the credit-card networks and are doing little to disintermediate them.

Competition is tough in the payment space, and more and more players (both large and small) are getting into this space everyday. Braintree, Stripe and Zuora seem to have carved out a niche, but need to remain innovative and competitive to stay relevant going forward. I’m looking forward to seeing many more innovate solutions come out of these companies to make payments for young, high-growth startups even easier.

 


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