Few people know more about the future of payments than Jim McCarthy. McCarthy spent nearly 20 years at Visa, coming to the payments giant right as the first Dot Com Boom was beginning to crest and staying on as the world shifted more and more to mobile and online. He watched as gold and platinum cards were supplanted by rewards cards and while the old-school Point-of-Sale terminal business was completely upended by Square and Stripe.
While holding the title of Executive Vice President of Innovation and Strategic Partnerships, McCarthy decided to leave Visa, and eventually joined a Fintech he believes will completely disrupt the card issuing space. So, for the last nine months, McCarthy has been President of i2c Inc.
We gave him a call to talk about where payments are going and what backend technology will make that future possible. In McCarthy’s mind, legacy banks will play an unlikely role in the financial future. “The sooner some of the banks realize that Compliance-as-a-Service is their sweet spot, the better,” he told us. “Think of it as a business as opposed to trying to become, you know, Google.”
McCarthy: So, if you think about the period, I was at Visa, the amount of change is just mind boggling. I got there in 1999, in the early innings, of the Dot Com Boom and, within days of getting there, I got thrown into a group called eVisa, where we tried to surf the Dot Com Wave only to have it crash all around us. But coming out of that, the thing that stuck was the authentication efforts that led to 3-D Secure, which is still relevant today because it addressed a real pain point in terms of authentication of remote consumers. So, I did that, and then went into consumer credit at a time that that world was changing rapidly in the US — the market went from classic gold and platinum cards to a real focus on rewards-based cards, which, until COVID, has continued in the US. Then I moved into a digital-mobile world as Visa went from being a private company to a public company. With real equity to burn, we invested in and acquired some companies and that was a jumping off point for what was the most interesting time of my career, which is the innovation work we did with the advent of tokens: like Apple Pay, Google Pay and Samsung Pay. We created innovation-design centers in order to really start to move quickly as possible as the Fintech landscape began to change.
If you went back to 2010 and asked me, the piece of the business that was least interesting was the merchant side. Most stores had hardwired point-of-sale devices that went in place and stayed there for seven years and merchants with low margins didn't want to innovate. And then along comes a company like Square that completely changes the paradigm. But the piece that's continued to be stuck since I got to Visa is the issuer processing space. Nothing has really changed there — if anything, the mergers and acquisitions activity has made legacy players slower and harder to work with. So, while Fintechs have increasingly focused on the user journey, creating digital-first means of delivering financial services, the platforms they've had to choose from haven't changed. So, I've been under the belief that much like the acquiring side eventually changed, the issuing side needs to change as well. When I found the i2c platform and what they were capable of doing, not only in the forms of prepaid and debit but also in consumer commercial credit, value-added services, and digital capabilities, it was a no-brainer for me to join the company.
McCarthy: Yeah, I still think we're early innings of what's going to be a complete democratization of payments. What I mean by that is that the early work done in support of Apple Pay that led to token creation, effectively allows a secure payment to occur today on any mobile device. But as IoT devices continue to proliferate, it will mean a future where cars become commerce, appliances become commerce, and more. As the internet connects to things inside and outside the home, commerce will eventually occur. The thing that I'm most excited about is the ability to create and then provision payment credentials into all these devices.
At Visa, we did early experiments in that space which are beginning to pay out. There's a company that we work with here at i2c called Purewrist, who has a wristband that you can effectively load a payment card into which means now we've got a wristband that can tap and pay. We have another client that came on called Car IQ, who is effectively binding cars to payment credentials. So, the car itself will become a payment credential that you can use to pay at the pump, or pay at fast food restaurants. So, all this stuff is still early, but the big change is the ability to get out of the plastic card environment, and start to digitally acquire customers and then provision in real time payment credentials, so they can start paying you the way they want to.
McCarthy: Great question! You need to think of it in two different dimensions. The first is one you already see today: the digital user experiences consumers are beginning to move to. Whether it's a neobank like Unifimoney, people are going to start to choose digital first, especially in a COVID environment — I don't know how many people have been able to go to a bank branch, even if they wanted to. So, you're seeing this rapid migration — which is only accelerated with COVID — to digital and contactless and virtual environments.
One of the things that the challenger banks have realized — much like WeChat did in China — is that payments is the core of the consumer relationship. The money in and money out, the ability to pay my bills, to buy groceries, to buy from Amazon is the primary relationship. Consumers don't think about deposit accounts, especially in the low-interest rate environments we had for the last 10 years or so; it's really about transactions. When you realize that, then you can build a suite of services around the payment relationship, where I can turn on and turn off my card, I can send money to friends or family, I can add parental controls to my child's card, and all sorts of interesting things that are digital controlled through the mobile device. The folks that have come into this space are primarily focused on great consumer journeys, consumer experiences, and they're not wed to the way things used to be. So, I think you'll continue to see innovators come in that build better consumer experiences.
Now, that said, the flip side is that you still need a bank involved, right? It's still a heavily regulated environment: your compliance, KYC, AML, the CFPB, the FDIC — I mean, it's an alphabet soup of things you need to do. And what banks actually do really well is compliance. So, I think you're going to see this bifurcation of great consumer experiences, primarily driven by innovators, and banks increasingly serving something like a Compliance-as-a-Service function where they begin to partner with the Fintechs. I don't think most banks have the bandwidth or the bench strength to really compete on a tech basis. The sooner some of the banks realize that Compliance-as-a-Service is their sweet spot, the better. Think of it as a business as opposed to trying to become, you know, Google — those banks will be some of the folks that do really well over the next decade.
I still think that the next big move will be in the B2B space. Crypto, not so much as a digital asset but as a token that can be a complete gamechanger. The way supply chains are being rewired now; payments are going to be rewired as well. Crypto tokens, whether they be stable coins which are central-bank based or even just private blockchains like Visa's done with B2B Connect, the blockchain tokens can effectively disrupt age-old correspondent banking flows which are very inefficient, very slow and very expensive. In a world where trade finance is increasingly becoming digital, I do think payments will be disrupted, because the old ways of moving money — which took a long time and were expensive and inefficient — are going to be the next thing to go. Once that happens, consumer consumer flows will follow that. But for me, B2B is the next space that's really ripe for big disruption.
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