Will Hernandez, host of the Power of Payments Podcast, caught up with Bruce about what we’ve been up to a Modo, the role of fintechs, and what play bitcoin has (or doesn’t have) in payments. A excerpt from Episode 7 of the Power of Payments Podcast can be found above and an overview of the questions and answers is laid out below.
What does Modo do for the payments industry?
Modo helps to connect payments systems. We sometimes like to refer to ourselves as “payments plumbers” as we aren’t scared to get down and dirty with payment systems. Our payments utility solves for interoperability, security, and connecting systems to create new payments experiences.
There is a lot of specific data and infrastructure surrounding different payment systems whether they're older experiences like cards or newer ones like digital wallets. Modo connects these systems together and has solved for the exchange of payments data. We enable connections between PayPal and bank networks and card networks and Alipay and so on. Modo is removing the friction between payment systems that has been holding the industry back from creating cool, new experiences - experiences that consumers would expect to be very easy but aren’t. An example of this is being able to access loyalty points that are on a credit card while using that credit card at an in-store or online checkout.
Who is Modo currently connecting?
One of our clients, Bank of America Merrill Lynch, recently announced the project we’re working on to allow the Bank’s corporate clients to deliver funds using PayPal. An example of a corporate client who would need to deliver funds is YouTube. YouTube needs to send value to a whole bunch of different places, with only an email address or a phone number of the recipient of the funds. We’re helping Bank of America Merrill Lynch with connectivity so they can leverage their existing systems for their corporate clients, but enable payouts using PayPal. By using Modo, PayPal stays PayPal, the Bank stays the Bank, and YouTube can send value in the way they need to.
Where is fintech's place in the payments and banking industry?
Talking about banks and fintechs is like comparing apples and oranges. Banks talk and think in terms of trillions of dollars a year. Fintechs don’t. Most fintechs are focused on niche services that banks aren’t really interested in or it is only a tiny fraction of what they do. If the banks like what they see a fintech doing, the bank will likely acquire the fintech and add those services to their offerings. In the name of innovation, there is room for both fintechs and banks in the payments industry.
We don’t consider ourselves a fintech at Modo. We are a tech that serves fins (aka financial companies).
Who are going to be the big players in digital payments in 5 years?
The real answer is nobody knows. Right now, there is a crazy huge number of new forms of digital payments that have emerged over the last 10-15 years (around 250 of them to be more precise) and these various digital networks are getting consolidated on several dimensions. As a financial executive, how are you supposed to invest a ton of time and money in building and maintaining these connections to systems when you don’t even know if they’ll be around in 5 years? Integrations are expensive, take a long time, and you have to guess right. What we’re saying at Modo is that it’s hard to choose who will win, so don’t choose. We can help you achieve interoperability with whatever is out there and get you connected quickly once the market dictates who the winners and losers are.
What is one area that the payments industry isn’t getting right today?
The payments industry is waiting for someone to come along and give them all the answers. They are waiting for a standard to emerge above the rest; they want a winner for tokenization or verification. But the answer isn’t so simple. There is going to be even more complexity as new standards and processes are created to serve various markets and consumers. Even though there will be fewer winners in the future, there will continue to be fragmentation. And the infrastructure that the payments industry has been built upon for the last 20-30 years isn’t going anywhere. The problems and friction that come from the underlying infrastructure are going to continue to be problems.
What is the role of blockchain and bitcoin?
Bitcoin has a role in countries where people need to insulate themselves from unstable currencies. Bitcoin better explains that controls on currency really don’t work. Unfortunately, the things bought with bitcoin typically aren’t so great, and the likelihood that bitcoin will become general purpose for merchants is very low.
Blockchain is much more suited to be a ledger for asset tallying than it is about transactions. For banks, though, blockchain doesn’t make sense. Banks are in the business of selling trust, and blockchain is all about not trusting one another. There is a natural friction there.
What are banks interested in?
We’ve found banks to be excited about 3 different use cases:
Payouts - Banks want to offer services for large corporations to leverage the explosion of digital payment methods as a means by which corporations can send money out to individuals or small businesses.
Pay Ins - Banks want to allow corporations to send out a digital request for payment from individuals or small businesses. We can facilitate money out as well as money in.
Checkouts - There has been a lot of activity in the online/digital checkout market. Companies are adding new methods of payment (such as loyalty points and mobile money) at the in-store and online point of sale.
Reach out to Will Hernandez on Twitter at @w_hernandez16 and @powerofpayments.