Forbes contributor and investor at Bain Capital Ventures Matthew Harris recently wrote a two-part Forbes article called Fintech: The Fourth Platform. In the articles, he discusses the future of financial technology (or fintech) companies and how a major shift to fintech as ‘the fourth platform’ will create $3.6 trillion of value. That is five times the revenue multiple that the internet, cloud, and mobile platforms produced altogether upon startup at just under $3 trillion.
In other words, Harris sees fintech as a huge opportunity.
Here’s why we’re listening: Harris bet on fintech two decades ago, back when Venture Capital investment in financial services was non-existent. Today, these financial technology companies represent 14% of venture business. In 2018 alone, fintech startups raised nearly $40 billion. Bain Capital Ventures has invested over $700 million in fintech companies over the past seven years—and they’re turning their attention to companies that use fintech embedded in their business models and tech stacks, rather than as a primary business model.
Let’s unpack and summarize the opportunity that Harris presented in Fintech: The Fourth Platform.
Harris first defines fintech as “taking a well-known financial product” and “building software to make it digitally accessible as well as easier and more elegant to buy and use.” However, as with earlier disruptors (and our current technology stack) the internet, cloud, and mobile, fintech has the potential to develop beyond its original use-cases and become embedded in everyday business and life.
He describes fintech’s potential in relation to a trend: “the internet comes along and people rebuild old stuff on it. Then they build brand new stuff with connectivity as a key ingredient.” The internet first developed online versions of businesses and then transitioned to create new functionality and connectivity. The cloud began by hosting accessible software and transitioning to create SaaS products, new applications, and cloud intelligence. The third member of the tech stack, mobile, transitioned from small desktop versions of websites to create entirely new mobile-centric apps like social media, video, maps, and photos.
Harris argues that fintech is up next.
Harris explains that financial functionality is quickly becoming a native component of both the technology stack (internet, cloud, mobile) and as a business model. For example, financial functions such as payments and lending have embedded themselves into the tech stacks of many businesses today.
Take Uber, for example. The entire payment transaction takes place within Uber’s software application, making it a smooth and user-friendly experience. As Harris puts it, “having these financial functions integrated with software enables new functionality, leveraging the persistent connection to move beyond transactions to relationships.”
Having embedded financial services inside a business opens a world of opportunity for making data-driven, smart decisions that will benefit the end-user and the business. It also reduces the risk of payment issues and could lead to increased opportunities to sell, market, and grow.
Harris uses Shopify as a great example of a successful ($36 billion) software company that gets most of its revenue from payments. Shopify basically provides highly functioning, integrated shopping cart software to small businesses and e-commerce startups.
But the trend takes place beyond technology companies. Eight percent of payment card volume in the U.S., Harris states, has moved to an integrated payment, where payments are managed through third-party software companies, such as our own. That number is growing quickly.
Analysts predict that 40% of the payments industry will move to an embedded model. Harris explains that most financial innovation begins with the evolution of payments. In other words, the fourth platform shift to fintech is still in its infancy but has much potential.
As a fintech company that digitizes direct payments, VoPay is a proud contributor to advancing fintech to be a fourth layer of the technology stack and of business models cross-industry. Our payment software connects digital enterprises to banking systems to streamline payments and boost experience into the future.