The Business of Payments Isn’t Technology – Digital Transactions
It’s easy enough to be wowed by new technologies, especially those that may appear to promise new revenue for payments companies. The real value of the technology is in the business models that form around it, says James Wester, director of cryptocurrency and co-head of payments at Javelin Strategy & Research.
Wester, speaking this week at the Western States Acquirers Association annual conference in Palm Desert, Calif., says every technology in payments follows the same arc. At first, it is unfamiliar and needs to be explained, then it catches the eyes of early adopters, spreads until it’s expected, and finally turns into another cost of doing business.
Whether it’s artificial intelligence, stablecoins, tokenization, or real-time payment rails, the early phases of awareness usually focus on the tech itself.
“This industry is particularly susceptible to this,” Wester said, “because every year we have seen so many things come out.” But those technologies that endure usually eventually become ordinary features.
“Many of the services now that we build businesses around, all had to be explained at one point,” Wester says. “Every successful technology goes through a very familiar pattern. It begins with something new, it requires explanation. It becomes a slight advantage for some companies. [To reach] network effects, and we are a network industry, requires wide adoption before it really succeeds. Eventually, it’s something that every provider has to include. And at that point, while the technology still matters, it stopped being the reason that your customer comes to you.”
Wester says while new technologies may be enthralling, their true usefulness is on the business side. “Technology is here, but the business is on the other side. And that’s ultimately what matters,” he says.
Payments companies evaluating technologies, such as AI or stablecoin acceptance, should ask questions like: What problem does the technology really solve? Whose behavior has to change? “And again, the really important one, who’s going to pay us for it?” he says.
Having a slick presentation deck and an interesting product may have appeal, but without supporting answers to those questions, a business doesn’t exist, Wester says.
His analysis is affected by the economic backdrop merchants face. Consumer spending is holding up in terms of dollar value, but real spending has barely moved from inflation and businesses face rising costs. In this environment, a sales pitch built on saving a few basis points in processing costs likely isn’t enough to sway a merchant to pick a payment provider.
If technology can provide a value beyond that, if it can remedy a problem the merchant needs to solve it can be useful.
Wester’s advice to acquirers and processors is to resist the urge to build a strategy around a technology’s name. Instead, he suggests, find a merchant’s actual costly problem, whether it’s lost sales, slow settlement, or chargebacks, and work backward to the tools that solve it. Vertical expertise is harder for competitors to replicate than access to any given technology.
“Don’t build where there aren’t economics,” Wester says. “You don’t get paid to be innovative. That’s not what companies are paying you for.”
