Some thoughts on BNPL and implications on payment networks, aided by $V CFO’s comments

TLDR: More opportunity than a risk. With multiple irons on the 🔥, V/MA are the ubiquitous payment infrastructure layer that ultimately benefit from enabling new ways to pay (and to be paid)
1) While it has captured headlines recently, BNPL not a new concept. It’s subset of installment or point-of-sale lending—the modern day version of layaway

A key distinction is the end consumer skews millennial/GenZ, is relatively affluent and not subprime…
2) V/MA have been active in BNPL for years, largely through partnership (embedding tentacles 🐙 into payment flows) and selectively making investments

Here’s $V CFO speaking about the ones it’s involved with. MA has a few others, some overlapping. Both emphasize consumer choice
3) How do V/MA benefit when consumers choose BNPL at point of purchase?

Just like with choosing to “pay” with PayPal, usually the purchase is actually funded in the back end by card

BNPL increases both frequency of (re)payment and propensity to buy (more), both good for V/MA
4) V/MA benefit from BNPL greasing the wheels of commerce, but also help BNPL players by acting as rails that connect into near-ubiquitous merchant acceptance globally, on- and off-line

There are 3 specific use cases highlighted, will take each of these in turn

1/ BNPL merchant settlement with instant issued virtual card:

This is exactly how it works when you choose Affirm to buy a Peloton in person

Credit approved by Affirm > instant virtual card issued > card number entered into Peloton POS > Affirm pays Peloton via card rails

2/ BNPL prequalified credit via one-time use virtual card:

Affirm basically riding V rails to allow user to shop at anywhere and buy anything at any merchant, with pre-provisioned credit approval. Not too different than a traditional credit card 💳…

3/ BNPL debit card (aka credit card):

Basically the same features of the one-time use virtual card on V rails, but perpetual use subject to credit and in a physical form factor

It’s called a debit card but functions effectively as a credit card 💳
8) Aside: If skating where the puck is going, pretty clear BNPL is trending towards some blend between a digital wallet app and a credit issuer (or co-brand if a third party does the lending)

This is pretty much where PayPal is today— which lives harmoniously with V/MA (for now)
9) If you subscribe to the thinking that BNPL will be net users of network rails, then not a logical leap to believe the same value added services V/MA provide other participants in this ecosystem will also be of sold to BNPL players

V/MA equivalent of selling picks and shovels
10) V/MA also playing both sides here— not only enabling closed loop BNPL players, but also facilitating incumbents (credit card issuers) to participate in open-loop BNPL through native pay-by-installment features embedded into the core V/MA network offering
11) V/MA already have BNPL/installment APIs available to issuers, acquirers and processors for both

As with all things in the 4-party model, this will take some time to roll out, but once it does the network effects will take hold and scale

The empire (banks) will strike back
12) ... and if it doesn’t, that’s probably okay for V/MA given their role as enablers of anyone looking to ride their rails: collect a toll, don’t discriminate 🤗

“It’s not our job to pick winners and losers ... some will do well, some may not, but we’ll enable them all”

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More from @BlueToothDDS

6 Apr
Recent thoughts on $DXC, which appears to be delivering on everything the new CEO had committed to since joining ~18 months ago

TLDR: Despite doubling of stock price, turnaround of the melting 🧊 is just getting started—ingredients in place for some good value creation from here
1) Important: a bet on today’s $DXC is a bet on the horse, the jockey, and the plan (turnaround)

The past 12 months proved that:
- the horse was out of shape, but can still run
- the jockey has a winning track record and knows what he’s doing, and
- the plan is solid and working
2) The $DXC 5 part strategy put in place by new CEO Mike Salvino is simple. It’s really about focusing back on basics and ruthlessly prioritizing what’s important: customers and it’s people

The swift actions taken and continued execution are bearing fruit, will take each in turn
Read 10 tweets
2 Mar
President of $V breaking down the 4 opportunities they are pursuing across crypto/digital currencies:

2 distinct market segments here:

- BTC/other non-fiat crypto asset equivalents to “digital gold”

- CBDC/stablecoins backed by fiat currencies as a form of “digital money”
First some background:

$V had not always embraced crypto, it’s been a several year journey

Approach today very different from precautions both V/MA took on behalf of issuers concerned about BTC’s significant volatility in late 2017 / early 2018…
1) It sounds straightforward, but the first and most basic opportunity for $V in crypto is to ensure V credentials are the preferred payment instrument to purchase these digital assets, just like anything else

What to buy digital gold? Use V, it’s everywhere you want to be
Read 6 tweets
11 Feb
Recent musings on payments as it relates to $SHOP + $FB: first some basics, then a few thoughts on recent developments

TLDR: Capturing % of GMV great for SHOP (already well appreciated), but perhaps even better for FB (still early days, unlikely to see impact until Q3 this year)
1) $SHOP launched Shopify Payments in mid 2013 and this substantially changed the trajectory of its business, which previously didn’t scale (directly) with the GMV running through its platform

Shopify Payments today is ~75% of SHOP’s faster growing non-subscription revenue
2) Shopify Payments currently drives ~50% of $SHOP revenue and is enabled by 2/3+ of all SHOP merchants (in 🇺🇸 90%) accounting for nearly 1/2 of GMV generated on SHOP digital store fronts

As we all know, Shopify Payments is powered by Stripe, so not available where Stripe is not
Read 21 tweets
31 Dec 20
More thoughts on $FISV, digging into the Payments & Network segment (~40% of FISV revenue)

TLDR: Lots of moving parts but this is where the most synergies and growth optionality can be found, with 2 highly complementary and strategic pieces of legacy FISV/FDC now merged together
1) $FISV Payments & Network is a dynamic set of businesses, best summarized as payment solutions for banks comprising:
- card payments and related services to issuers of all sizes, worldwide (2/3 of segment revenue)
- non-card digital payments: P2P, A2A, RTP, Bill Pay (other 1/3) Image
2) Focusing first on the $FISV card payments business, today this is the:

a) undisputed #1 in issuer processing with capabilities across all products (credit, debit, private label, installment loans) operating around the 🌎

b) clear #3 debit network in the 🇺🇸 behind $V and $MA Image
Read 41 tweets
17 Dec 20
More thoughts on $FISV following investor day last week

This time focused on the newly named FinTech segment: core account processing and digital banking arm of legacy Fiserv

TLDR: While it’s the smallest segment (~20% of FISV revenue), it’s the “glue” that ties things together
1) $FISV FinTech segment is the #1 provider of core processing and digital banking solutions to the ~11,000 banks and credit unions in the US

Its mission critical systems power 3,700 FIs:
- core processor for 1 out of every 3 banks
- digital offering for 95 out of top 100 banks
2) This segment dates back to the origins of $FISV, and today it’s the market share leader with nearly 40% of all US banks relying on FISV to power everything from new account opening, items processing, online/mobile banking, regulatory compliance, general ledger/reporting, etc
Read 17 tweets
12 Dec 20
$FISV investor day this week provided some new insights into the composition of — and more importantly, the growth engines within — each of its 3 operating segments

Will attempt to deep dives on each to build on some of my musings from earlier in the year on this topic 🤗
Will also try to bridge to an earlier thread laying out the $FISV growth algorithm and the operational/financial levers that support its medium-term outlook of 15-20% FCF/share growth

Here we focus on the top line, most notably the impressive acceleration across all 3 segments
Let’s start with Merchant:

1) This segment, which ~40% of $FISV revenue today, is the #1 merchant acquirer globally processing $3T+ annually for 6M merchants worldwide

2/3 of revenue is from SMBs, ~20% from mid-to-enterprise merchants, remaining ~15% is wholesale processing
Read 27 tweets

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