The Business and Legal Landscape of Commerce and Fintech
The micro-level view of Fintech is daunting, with thousands of companies and consulting firms pursuing every aspect of commerce with overlapping footprints. Even the concept of Financial Technology (Fintech) is amorphous - does it include cloud-based software solutions and mobile technology handling payments and data, or are those different industries?
But stepping back, and looking at Commerce and Fintech at the macro level, the ecosystem can be segmented into a few discrete components, which helps get a better perspective of economic activity across the omnichannel spectrum.
Here is a high-level view of the commerce ecosystem, including payments, banks, mobile technology, web, omnichannel functionality, and SKU-level data analytics and monetization:
As seen in this diagram, the payment infrastructure serves as a bridge between consumers and merchants. Payment processors like Chase Paymentech, Wells Fargo, First data, Bank of America, Vantiv and Square handle the payment flow, directly or through ISO arrangements. Gateways like USA ePay and a range of newcomers to the space are rounding up the payments block in this ecosystem. It is important to note that Square pioneered the mobile payments field, but virtually all other payment processors now have competitive mobile payment solutions and the margins for payment processors are continuing to shrink. Payments remains an alluring space for many entrants, but as Square learned, this is a high- volume, low-margin business, and scale really matters. Some processors like First Data and Chase Paymentech are more established in the Enterprise space, and some players like Square are focused primarily on SMBs. The Enterprise and SBM spaces have significantly different economic characteristics, with the higher attrition rates of SMBs being a noteworthy factor.
Payment processing outside the US is an exercise in contrasts. On one hand, EMV has been standard in many countries for years, particularly in Europe, and mobile payments via cellphones are ubiquitous across much of APAC. On the other hand, some global enterprises are running payments without encryption or with obsolete payment terminals in some countries, and the level of innovation is lagging the US.
The Payment Terminal space remains dominated by Verifone and Ingenico both in the US and abroad. New entrants like Poynt are trying to reinvent the payment terminal concept, but fundamentally that remains a hardware business with challenging economics for new entrants. Verifone and Ingenico are significantly improving their product portfolios as well. This is an industry in which challenging the incumbent leaders will be difficult unless the new entrants figure out a way to change the economics and leverage data or payments as a subsidizing revenue stream.
The Point of Sale (POS) industry has decisively moved to the cloud. Micros and NCR remain the leaders in the Enterprise space, but newcomers like Revel have announced publicly deals with large global enterprises and are likely to penetrate the Enterprise space with iPad and Android-based POS products connected to the cloud. The SMB POS market remains fragmented and is ripe for consolidation. There are some significant differences between the Enterprise and SBM markets from a POS solution standpoint, but some companies appear well positioned to bridge that gap with scalable solutions.
The Omnichannel space includes a wide range of Commerce and Fintech features, including reservations, loyalty programs, digital offers, digital coupons, ERP solutions, accounting solutions, and CRM functionality.
Vendors like IBM, Netsuite, Oracle and SAP are focused on the Enterprise ERP space, while Intuit, Xero and some newcomers are primarily targeting SMBs. The move to the cloud has allowed ERP and Accounting solutions to improve economics, move to a SAAS pricing model, and better integrate with SKU-level data and other back-end systems.
Catalina Marketing, RetailMeNot and Coupons.com (renamed Quotient Technology) have successfully transitioned a significant portion of the advertising space from print to digital, demonstrating a solid ROI to the CPGs. This industry area will continue to grow, but it is susceptible to disruption from companies that hold large SKU datasets and have a technology nexus with Brick and Mortar stores.
The Loyalty space is a very interesting area because it bridges consumers and businesses. This is one of the few industry areas in which companies can evolve to operate as both B2B and B2C players. The Loyalty industry is fragmented, with vendors like Loyaltree and Foursquare competing with organic or white labeled solutions deployed by large Enterprises.
The reservations space is another industry segment in which companies could grow to be both B2B and B2C companies. OpenTable is one of the few companies that was able to successfully span both the B2B and B2C business models, and is now a ubiquitous brand for both merchants and consumers. The possibilities for companies that can bridge the gap between B2B and B2C are endless.
As you can see in the diagram above, our view is that SKU-level data is fundamentally important to Commerce, which is why we showed it twice symbolically. Data is the Nirvana of Commerce, and if collected and monetized properly, SKU-level data has the potential to revolutionize Commerce. SKU-level data, if collected across verticals, SMBs, Enterprises and geographies, has the potential to enhance consumer behavioral analytics, increase ROI on digital offers and coupons, improve inventory management, business operations and other Business Intelligence (BI) KPIs, and drive sales and profit margins for both Brick and Mortar stores and Online Commerce. SKU-level data is what makes Amazon a formidable retailer, and SKU data and analytics have the potential to bring physical commerce on an equal footing with Web-based Commerce. The first trillion Dollar company in market capitalization is likely to be the company that figures out how to monetize SKU-level transaction data throughout the full omnichannel space, across verticals, and for both SMBs and Enterprises.
In future posts, we will look at the Legal issues that arise in each of these industry segments of the Commerce ecosystem. The business and economic models vary across the various blocks of the Commerce ecosystem, and consequently companies need to adopt different Legal strategies in each segment. For example, the legal issues that arise in Payments and ISO agreements are different from the concerns that need to be addressed in data monetization or cloud-based technology agreements. We will explore these is debt in the future.
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