Dark software: a new model for SaaS and fintech; Income statement: Visa, Mastercard, and American Express; Why the interest in Payfacs?;

In this edition:

1?? Nuvei partners with Cash App Pay

2?? Paypal is the latest tech company to announce layoffs

3?? Apple Card users earned more than $1B in Daily Cash in 2023

4?? Dark software: a new model for SaaS and fintech

5?? Why the interest in Payfacs?

6?? Income statement: Visa, Mastercard and American Express

7?? There Is Significant Potential for GenAI in Payments Operation

News

Nuvei partners with Cash App Pay

Nuvei , the Canadian fintech company, announces today that is has partnered with Cash App, a fast and simple payment method that enables U.S. customers to make online payments either by scanning a simple QR code or by tapping Cash App Pay during the checkout process.?

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Paypal is the latest tech company to announce layoffs

PayPal will lay off around 9% of its global workforce, the company's president and CEO Alex Chriss announced in a letter to employees Tuesday.

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Apple Card users earned more than $1B in Daily Cash in 2023

Apple users earned more than $1 billion in Daily Cash from spending on Apple Card last year. The tech giant also announced that Apple Card has topped more than 12 million users. Apple Card, which first launched in 2019, is exclusively available in the United States.

Insights

Dark software: a new model for SaaS and fintech

Many founders are realizing that the last decade’s model for building SaaS and fintech products just doesn’t work anymore. Stagnant or declining growth, high and rising CAC, declining LTV… all are symptoms of this breakdown.

These dynamics require a new model, which is called dark software. It has three key points:

? a hyper-specialized ICP to maximize conversion and minimize CAC. The narrower an ICP is defined, the more effective marketing and cost effective marketing dollars will be. Compensating for this narrower focus requires…

? a full stack product offering to maximize LTV. This both compensates for and capitalizes on the narrower ICP focus: dark startups can sell more products to a narrower customer set rather than a narrow product to a wide set of customers. This means bundling multiple software and financial products, each of which were previously offered as point solutions by independent companies. Because these products span many areas and range in complexity, it’ll be difficult to build all in house, requiring dark startups to…

? outsource the maximum amount of product to minimize fixed costs. Dark software will require much more product much sooner in a company’s life. It’ll be most economical for dark startups to act as a systems integrator of sorts for various third party providers of features. Much of today’s infrastructure is outsourced, but this will be extended to individual features as well. More on this below.

Here’s a hypothetical comparison of the old model versus dark software. A classic SaaS business would offer a point solution, say invoicing, to a broad set of companies and use cases, like SMBs. Nearly all of the product would be built in house, with a focus on making the core invoicing use case 10x better. It would be marketed through competitive channels on Google, Facebook, etc, targeting several broad ICPs that other traditional point solutions are competing for also.

On the other hand, a dark software company would start with a hyper-specialized use case, say small law firms in the US. Rather than start with a wedge product like invoicing, a dark software company would launch with multiple products on day one, like marketing tools, project management, time tracking, invoicing, payment acceptance, payroll, etc.

Nearly all those products would be integrations offered by third party vendors rather than built in house. This would require minimal product, design, and engineering headcount and reduce time to market. The dark software model is to offload entire, complex, and even user-facing features to third party, headless, and/or infrastructure providers and build much less de novo product in house. Instead, the focus of product development would be on seamless integration and a smooth, consistent experience across these various products.

Source Matt Brown

Why the interest in Payfacs?

PayFacs are the payments infrastructure that makes it possible for intermediaries to offer payments as part of their endto-end experience. They play a critical role in enabling embedded payments for software providers and do so by providing payment capabilities that are easy for platforms and intermediaries to set up and start using.

Using sub-accounts, PayFacs allow individual merchants to skip the lengthy application and underwriting process to establish their own merchant accounts. Through the use of application programming interfaces, merchants can make and accept payments within their existing workflows. For example,users can complete purchases, pay for services or subscribe to premium features without being redirected to external websites. PayFacs provide risk management tools and compliance support to handle fraud prevention and regulatory requirements associated with payment processing. This protects the PayFac, merchants on the platform and platform users from potential security breaches while also helping merchants maintain compliance with the many regulations that govern the safe movement of money between parties.

In addition, PayFacs typically provide merchants with access to reporting and analytics tools, enabling them to monitor transaction data, sales trends and other important metrics. This is often accomplished by using centralized management tools from the PayFac that allow merchants to oversee their transactions, settlements and other financial aspects from a single dashboard.

The PayFac ecosystem gives businesses the opportunity to monetize payments and payments flows without being a registered payments services provider. PayFacs give businesses the ability to elevate payments from a transactional part of the business to a strategic enabler of the value-added experiences that grow customer loyalty and the top line.

Businesses can introduce new ways of enabling payments, such as subscriptions or paylater programs, and use payments data to personalize offers and develop new services and products that improve conversions and add new sources of revenue. There are four primary ways that PayFacs unlock new sources of value for businesses, whether they are retailers, marketplaces or software platforms.

? The architecture of the embedded payments ecosystem

The PayFac ecosystem orchestrates transactional, regulatory, fraud and risk requirements necessary to accept and make digital payments on behalf of the merchants, marketplaces and software platforms that want to embed payments into their businesses without taking the steps required to be a payments business.

Additionally, the PayFac ecosystem has grown increasingly dynamic because any given entity can play multiple parts. For example, intermediaries such as marketplaces can add PayFac capabilities through partnerships with third-party solutions providers

Source PYMNTS

Income statement: Visa, Mastercard and American Express

Visa

Visa’s fiscal first quarter results pointed to continued growth in consumer spending — particularly on travel — though growth rates are slowing.

Management, however, noted that growth rates in new payments flows and value-added services are outpacing the transaction growth seen in credit and debit conduits.

Investors sent the shares down about 3% after hours.

The company’s latest earnings supplementals and commentary from the Thursday (Jan. 25) conference call show that overall payments volume increased 8% in the first quarter on a constant-dollar basis.

Debit volumes, in constant currency, were up 9%, outpacing credit-related volume growth of 8%.

The company issued 6% more debit cards in the quarter, for a total of 3 billion cards in force, compared to 4% growth in credit cards, to 1.3 billion.

Cross-border volumes were up 16% year over year (YoY), the company said.

During the conference call with analysts, CEO Ryan McInerney said that total credentials were up 6% YoY and said that the company has issued 8.7 billion network tokens through the latest fiscal year, up 55%.

Acceptance points were up 17%, according to the call, to 8.5 billion endpoints globally.

Mastercard

For Mastercard, new payment flows and digital innovations outpaced spending growth on cards — though consumers remain resilient.

And as management noted in a press release and on an earnings call discussing the fourth quarter of 2023, demand has been strong for security and authentication solutions that protect those transactions.

Supplemental materials reveal that fourth-quarter gross dollar volumes were up 10% to $2.3 trillion.

In the United States, debit and prepaid card spending was up 2.7% to $345 billion, while credit spending was up 5.5% to $382 billion.

Overall cross-border volumes were up 18% in the most recent quarter, as measured year on year.

The company also noted that its value-added services and solutions net revenue was up 17% on a currency-neutral basis. The increase was driven primarily by demand for cyber and intelligence solutions, as well as identity and authentication offerings.

Looking into the month of January, management noted on the call that through the 28th, switched volumes were up 10%, slowing slightly from the 11% rate seen in the most recent quarter, and cross-border volumes remained steady at 18%.

Drilling into payments innovations, he said that Click to Pay is now available in 35 markets, with more than 60% growth in transactions throughout 2023.

Tokenization, he said, has been effective in battling fraud and increasing approval rates by 3% to 6% across all regions.

Contactless, he said, represents 65% of all in-person switched purchase transactions.

Source App Economy Insights / PYMNT

There Is Significant Potential for GenAI in Payments Operations

? Customized Marketing. The marketing campaign funnel contains several areas where GenAI can effectively be applied. We estimate that Gen AI can deliver an average productivity gain across the value chain of 25% to 35%, although realizing these gains will depend on the intensity of the company’s marketing activities and the extent to which the organization relies on third parties (such as agencies) to execute campaigns.

? Sales Effectiveness. Whereas standard practice has long involved sales representatives using client interactions to introduce new products and unlock cross-selling opportunities, GenAI will enable assisted next-best recommendations tied to live conversations, tailored product offerings through deeper personalization, and dynamic pricing. We estimate that sales reps could tap into productivity improvements ranging from 28% to 38% (lower for field sales compared with online sales), along with higher customer satisfaction.

? Customer Service. GenAI’s transformative impact will extend to customer service, enhancing activities such as claims handling, onboarding support, incident resolution, churn prevention, and service-level-agreement monitoring. We estimate that agents could post a 35% to 45% improvement in productivity by leveraging GenAI-powered tools such as smart agent assistants. In parallel, GenAI could help reduce incoming call volume. We project that an automated claims-handling bot could treat between 40% and 50% of incidents, including resolving 25% to 30% of claims without any human intervention.

? Risk and Compliance. The highest stakes in risk and compliance will involve detecting and preventing the next wave of GenAI-driven fraud. More broadly, GenAI is expected to foster efficiencies in monitoring and reporting (through automated report generation), as well as in trend prediction, real-time analysis, context awareness reporting, anomaly detection, and other areas resulting in cost savings, error reduction, and better resource allocation.

Product Development. The coding excellence side of product development—encompassing supportive programming, prototyping, code discovery, code testing, and code documentation—stands out in our analysis as one of the most prominent use cases in terms of business impact, with the potential for productivity improvement of 28% to 38%.

? Transverse Activities. The term transverse activities refers to tasks that all workers perform daily (such as writing emails) or at some point during their employee journey (such as attending onboarding trainings). Multiple use cases exist in this area. And Gen AI can supply intelligent search tools for in-company knowledge bases. Such tools can significantly reduce the time workers spend on redundant activities and can raise related productivity by up to 15%.

Source BCG

Goldman Sachs's Strategy Map

Founded in 1869, Goldman Sachs has established itself as one of the world’s largest investment banks and is a major force in the global financial markets.

But the firm is now looking to expand far beyond its traditional business lines, such as investment banking and asset management.

For example, it recently launched a digital consumer bank called Marcus and partnered with Apple to launch a credit card. Goldman is also building an embedded finance offering to allow its financial services — such as digital lending, escrow services, and payments processing — to be integrated with third-party platforms like e-commerce sites via APIs.

Source CB Insights

Reports

Instant Payments Fraud Mitigation

As North America starts to adopt instant payments*, fraud management needs to be top of mind. This report examines 15 years of experience dealing with instant payments fraud in the United Kingdom, Australia and other global jurisdictions. Illustrative examples highlight results, challenges and lessons learned in other markets. These global insights can serve as a springboard for helping North America accelerate its approaches and techniques to address instant payments fraud

Download Report