Payments

Trends to
Watch

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s s
ABOUT THE ANALYST

Arieh Levi

Senior Intelligence Analyst

@arieh313 | alevi@cbinsights.com

Arieh Levi is a senior intelligence analyst at CB Insights, where he produces

data-driven analysis and research reports on private company financing,
exit and performance trends across emerging industries, geographies, and
investors.

Prior to joining CB Insights, Arieh held roles in healthcare and financial services.
Arieh is a summa cum laude graduate of Yeshiva University.

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Contents
11 Defining the payments landscape

15 Trends to watch in 2019

16 Peer-to-peer (P2P) payments
32 Income and payroll
43 Point-of-sale

57 To recap

9
Defining the
payments
landscape
10
Payments landscape: defined by user/ use case

11
Payments landscape: defined by value chains
E.g. credit and debit card
value chain in the US

Acquiring Card Issuing

Merchant Cardholder
Functions Network Bank

P2P
Bank Top up
transfer,
account, Paytm
shop online,
debit, cash account
offline

12
Payments landscape: defined by payment domains
Income
payment

Point of B2B
sale payment
Payment
domains

Bill P2P
payment payment

13
Where are different P2P Income Point-of-sale
payment verticals Better UX, tech debt Payday The PoS is static
today?

Today
Where will they be
tomorrow?
Payments End-of-shift The PoS is fluid
Where will they be

Tomorrow
ecosystems payments

in the future?

Future New infrastructure A single account There is no PoS

14
 P2P

1
Better UX, tech debt

Today
P2P networks are Payments
leading toward

Tomorrow
ecosystems

closed-loop payments
ecosystems
Future New infrastructure

15
Today: US merchants pay high fees to participate
in bank-backed, open-loop card networks

Acquiring Issuing Functions

Merchant Functions (incl. Card Network (incl. Issuing Cardholder
Acquiring Bank) Bank)

Banks – not merchants – are a card

network’s primary customers

16
Alipay and WeChat have built closed-loop
ecosystems in China, and merchants benefit

Transfer into
Shop online and
Bank mobile wallet
offline
(Alipay, WeChat)

Consumers and merchants are Alipay’s and

WeChat’s primary customers

17
In a standard $100 credit card purchase in the US,
$97.30 might go to the merchant.

In a standard ¥100 purchase via Alipay/ WeChat

Pay (non-bank), ¥99.30 might go to the merchant.

18
Tomorrow: P2P might be the tip of the spear
in sidestepping banks, card networks

First P2P, then

Transfer into
Bank shop online and
mobile wallet
offline

*
*Zelle is bank-backed, and looks markedly different from Venmo, Cash, and other peer-to-peer mobile payments platforms. 19
Venmo volume is small, but growing quickly
PayPal’s total, mobile, and Venmo payments volume ($B). Q1’17 – Q4’18.

$164
PayPal TPV

$67
PayPal mobile TPV

$19
Venmo TPV
Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18
Source: cbinsights.com 20
As liquidity increases in Venmo, ‘Pay with Venmo’
now sits alongside PayPal, Credit at checkout

Source: cbinsights.com 21
Venmo is getting lots of attention on earnings calls
Mentions of Venmo on earnings calls. Q2’14 – Q1’19

Venmo

Source: cbinsights.com 22
Cash App: Mobile P2P payments are mainstream
2018 PEAK:
#1 OVERALL

23
Square Cash and Venmo offer debit cards,
allowing consumers to spend funds at merchants

Source: cbinsights.com 24
Debit cards encourage active users,
increase liquidity in mobile wallets

Dec 2017
Cash App had 7M MAU

Dec 2018
Cash App had 15M MAU

25
For now, new platforms still partner with legacy
players – like Visa (Direct) and Mastercard (Send)
Fiserv YellowPepper
Early partners; Zelle
Ingo Money Postmates
Fiserv the first to Vantiv*
Square use Direct for P2P MoneyGram
Cambia Health Solutions OnDeck PayActiv
Levvel
Worldpay* Valitor
PayPal

Standard Chartered Care.com

Dream Payments Faster Payments (UK)

American Red Cross
Western Union Florida Capital Bank

May-16 Aug-16 Nov-16 Mar-17 Jun-17 Sep-17 Dec-17 Apr-18 Jul-18 Oct-18

Partnerships data extracted from news mentions, press releases, and announcements, through 10/21/2018. *Note that Vantiv and Worldpay are the same company – 26
denote partnership expansion.
Venmo’s Instant Transfer uses push-to-debit

27
In the future: Square could build a full-fledged
closed-loop ecosystem with its SMB debit card

SMBs who spend with the Square

card at a Square merchant receive
2.75% off the purchase – the typical
merchant discount rate in the US

28
FAMGA could also create closed-loop ecosystems

Not yet, but Apple could

eventually build out a robust
closed-loop ecosystem

29
Amazon has merchants and consumers – and
now, a growing financial services ecosystem
Wallet and payments Amazon Pay is a wallet for users and a payments network for both online and brick-and-
network mortar merchants. The mobile wallet has 33M+ users.
Amazon Cash connects offline and online commerce by allowing users to top up digital
Cash deposits
accounts (with cash) at partnering retailers.
Amazon Lending offers loans to Amazon sellers, ranging from $1K to $750K (for one year).
SMB lending
The program has lent $3B+ since 2011.
To minimize Amazon’s interchange fees, Amazon Reload incentivizes Prime users with 2%
Member rewards
cash back when they use a digital Amazon debit card.
Amazon Protect offers accidental and theft insurance in select EU countries, partnering with
Insurance
the Warranty Group’s London General Insurance Company.
Amazon offers the Store Card and Prime Store Card in partnership with Synchrony Bank. The
card can be used at select websites and retailers.
Credit cards
A consumer credit card offered via Chase offers 3% back on Amazon.com and at Whole
Foods. Chase and Amazon are reportedly in talks to offer an SMB commercial card as well.

30
 Income

2
Payday

Today
Technology could End-of-shift
make payroll faster,

Tomorrow
payments

giving employees
more freedom with
their money
Future A single account

31
Today: salaried employees are paid every
other week via legacy rails

82%+ of US Other methods of

workers are payroll are check,
paid by Direct cash, and
Deposit via payroll cards
ACH

Source: NACHA. 32
BI-MONTHLY PAY CYCLES LEAD MANY AMERICANS TO TURN TO CREDIT CARD DEBT,
RISKY LOANS, AND OVERDRAFT FEES TO BRIDGE THE GAP

US consumers paid $34B

in overdraft fees in 2017.

Source: Moebs Services.

33
Tomorrow: a slew of companies are
fronting pay at low or no cost to workers

Total Funding: $193M Total Funding: $17M Total Funding: $52M

Business model: Earnin is a
free service – tip-only model
– that lets consumers get
paid for the hours they work.
Earnin’s service is D2C.
Business model: Dave connects
to employees’ bank accounts
and charges them $1 per month
to advance quick cash from an
upcoming paycheck.
Business model: Even
partners with big employers
(most notably, Walmart) to
offer on-demand income
payments as a benefit.

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EARLY ACCESS TO PAYCHECKS

Funding: Valuation: How Earnin works:

$125M $120M
1. Share bank detail
Select Investors: Andreessen
2. Tell Earnin where you work
Horowitz, Ribbit Capital, Felicis Ventures
3. Earnin uses your location to note how long you’re at work

Earnin lets employees track and get paid 4. When you tap ‘Cash Out’, Earnin sends your earnings to your bank account
for the hours they work. When
5. Your job pays you as usual, and Earnin deducts the amount cashed out
employees “cash out,” Earnin sends the
money directly to their designated bank
account. That money is deducted from
their next paycheck. Earnin makes
money off of voluntary tips, which
employees can leave at every cash-out.

35
 Startups are enabling companies to pay
workers instantly for completed work

Marketplaces using Stripe

(acquired by SQ in 2014)
Caviar couriers using Cash App
are able to access funds
immediately after completing a
delivery.
Connect can send Instant
Payouts to sellers or service
providers on their platform.
Uber and GoBank partnered to
provide Uber drivers a GoBank
Select partners: checking account and debit
card, which gives drivers instant
access to accrued funds. This
debit card also has rewards.
Gusto, a payroll and HR benefits
provider lets employers pay
employees after work in
complete. The solution called
Flexible Pay, must be switched
on by an employer, and is free.

36
Marqeta enables gig economy employers to pay
workers over push-to-debit networks

Image source: Marqeta. 37

 LEGACY PAYMENTS PLAYERS PROVIDE KEY SERVICES HERE AS WELL

“I think you are going to see bill payment, payroll, peer-to-peer

payments, globally and faster payments where consumers are
pushing value to any number of third-parties. I think that’s going
to be the near-term opportunity for Visa Direct.”

William Sheedy
Visa, 2018 Wells Fargo Tech Summit Conference (December 2018)

38
In the future: faster income shifts how
consumers bank and pay for expenses

Peer-to-peer,
Transfer into remittances, bill
Bank
mobile wallet payment,
shopping (O2O)

If payroll is more liquid, then

employees might start treating mobile
wallets like de-facto bank accounts

39
Faster payroll means better cash management

40
Further out, better consumer cash flow could lead
to new markets around lending, bill payments

Real-time lending Reduced need for Micropayments

markets “bridge” financing

41
 Point-of-sale

3
The PoS is static

Today
Tomorrow’s point-of- The PoS is fluid
sale is ambient and

Tomorrow
omnichannel

Future There is no PoS

42
 Today: plastic cards reign supreme in the US.

According to a Federal Reserve poll, most US citizens

would pay for a $10 purchase at a local store with a debit
card (37%), followed by cash (36.8%) and then
a credit card (24.3%).

Source: Credit Karma.

43
The problem is that cards are slow and – for
e-commerce transactions – quite insecure

What retailers are

expected to lose by
2023 as a result of $130B
online “card-not-
present” fraud

Source: Juniper Research. 44

Tomorrow: US companies, consumers, and
merchants embrace QR codes
Mentions of QR Codes on earnings calls. Q2’14 – Q3’18

45
US retailers, from Target and Starbucks to Walmart
and Dunkin’, are using QR codes to facilitate mobile
payments and streamline the checkout process.

Coupons redeemed via QR codes on consumers’

mobile phones are expected to increase to 5.3B by
2022, up from approximately 1.3B in 2017.
Source: Juniper Research.
46
Mobile devices, payments platforms enable a
more dynamic point-of-sale experience
Mobile wallets digitize existing plastic cards and make them more secure by transacting at the point of
sale with “tokens” instead of actual primary account numbers (PANs). This means that a merchant never
knows a consumer’s credit card number or other sensitive information.

In 2019, Apple Pay hit

10B transactions

Google Pay has more

than 10M users in the US

47
NFC is currently used for mobile payments, and
could allow IoT machine payments in the future

Image source: Google Pay. 48

However, QR codes, NFC, and mobile wallets
don’t shift the value chain all that much

Acquiring Issuing Functions

Merchant Functions (incl. Card Network (incl. Issuing Cardholder
Acquiring Bank) Bank)

49
Mobile wallets also
have yet to see
widespread
adoption, with
Starbucks’ mobile
payments app still
in the lead

Source: eMarketer. 50
In the future: There is no point-of-sale, as biometrics
allow for secure, ambient payments
Ownership Knowledge Inherence
(e.g. of a physical card) (e.g. of a PIN, password) (e.g. biometric data; a
fingerprint or iris scan)

51
News coverage of ‘biometrics’ is on the rise
Media coverage of “biometrics.” 2014 – 2019 (01/28/2019)

“biometrics”

52
China is leading here, with self-service stores
using facial recognition to pay and checkout
From ordering at …to getting groceries delivered …to self-service WeChat and
Starbucks’ 2,800 China while you’re shopping at facial scan payments at
locations… Alibaba’s Hema supermarket… Carrefour “smart stores”

Sources: Alizila, Tencent, Drug Store News 53

On 2018’s Singles’ Day in China — the equivalent of
Cyber Monday and Black Friday in the US, combined
— 60% of shoppers paid by taking a selfie or with a
fingerprint scan.

Source: Alipay.
54
US companies are playing catch-up, as states
and regulators pump the brakes

55
To recap

56
Where are payment P2P Income Point-of-sale
domains today? Better UX, tech debt Payday The PoS is static

Where will they be

Today
tomorrow?
Where will they be
Payments End-of-shift The PoS is fluid
in the future?

Tomorrow
ecosystems payments

Future New infrastructure A single account There is no PoS

57
Questions?
Twitter: @arieh313
alevi@cbinsights.com

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The CB Insights platform

has the underlying data
included in this report

app.cbinsights.com/signup

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@cbinsights

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