[MUSIC] Welcome to Payments on Fire, podcast from Glenbrook Partners about the payment industry, how it works, and turns in its evolution. At Glenbrook Partners, we work with great organizations to improve the way they operate and use payment systems around the world. Our services range from commercial management consulting to educational programming and publishing to financial inclusion advisory services for NGOs and philanthropies. If you'd like to discuss an issue in payments, please just reach out to us at
[email protected]. [MUSIC] Welcome to Payments on Fire, I'm Chris Heary, already a partner at Glenbrook, and it is great to have you with us today. In the early days of payments, the business of payments was just about pretty much processing the payment. There was very little specialization of payment services in the industry took somewhat of a one size fits all approach to servicing the market. That, of course, evolved over the years. Providers started focusing on specialized channels like Moto or Mel or Telephone order. Those listeners of a certain age like me might remember that acronym. Providers started focusing more on the needs of subscription merchants. Then e-commerce came into play, which was a shock to the system due to the explosive growth of cardinal present payments. We've evolved substantially from there. In parallel to what we're doing in the payments industry, the software world also matured substantially, locally installed software footprints moved to the cloud, and vendors realized that they could service all aspects of commerce from a single place. Auto management, inventory management, financial reporting, reconciliation, and pretty much everything in between. And eventually payments. These types of platforms are once only accessible to the largest enterprises. The term ERP may mean something to many of you. But that has changed substantially over the years. Specialized software payments now exist for pretty much every vertical ranging from traditional physical goods e-commerce, the home services, the auto dealerships, to beauty shops, and pretty much everything in between. And these platforms are available to even the smallest merchants at a relatively low cost. Payments has become a critical part of these software platforms' functionality, offering a fully integrated user experience, coupled with seamless auto management, reporting and reconciliation. And these platforms eventually found a way to monetize the flow of payments that they're facilitating. This has led to one of the hottest growth areas in payments. Embedded platform payments now not only serves as a staple embedded within software as a service functionality, but many platforms are seeing payments as the primary growth engine with revenues outpacing their core SaaS licensing fees. This is attracted interest from PSPs, software developers, and members of the investment community alike. As a result, payment service providers have stepped up to offer these platforms specialized payment services that address their unique needs. On today's episode of Payments on Fire, we speak with Blake Bretted from Adian about the nature of this interesting segment of the industry, the nuance behind platform payments, and just what's driving this platform payment phenomenon. And joining me for today's discussion is Blake Bretted, the Senior Vice President of Platforms and Financial Services at Adian Bretted. Welcome to Payments on Fire. How are you today? Doing well, Chris. Thanks for having me. It's a pleasure to be here. It's great to have you. And before we really get into the thick of things here on our topic of the day, let's talk a little bit about Adian. I think that anyone who has been in the payment sphere for probably the last decade or so is probably well aware of who Adian is. But why don't you take a few minutes to kind of give us the elevator pitch about the company? What's up with the company these days? And I'm sure we have a few folks that maybe are familiar with that. Sure, sure. So, Adian, we've been to Payments game since 2006. We started as a gateway originally and evolved to a full stack payment processor or require. And now to a regard today, which is this global financial technology platform that unifies that entire value chain. So acquiring, processing, risk management, and banking, all in one single tech stack powered by our own banking licenses. And that full stack global platform architecture that really resonates most with enterprise businesses in the enterprise space. So, for example, we are the financial technology platform for massive enterprises and customers like light speed and eBay and Spotify and McDonald's and Uber and Meta. And many more. This one platform set up paired with our extensive global icing. What Bernard says are really unique differentiator. We're not this unified veneer built on old legacy traffic. And third parties, we've built that entire stack from scratch on our own banking licenses. We run our own data centers. We've never made an acquisition. That's quite interesting. Yeah. If you're in the M&A department at Adian, it's a slow day. Right. And like, when you say that out loud, right? What does that mean? And that really shows its value in so many different ways. We keep all that data in one platform. So that results in the best possible authorization rates. We have full control and security over said data. And with this data, we're able to make incredibly informed decisions. So for instance, last year in test 25, we processed just over $1.6 trillion. What that means is for any transaction on our platform, there's a 95% chance. We've seen this shopper in some way, shape or form before. And it allows us to truly understand that shopper. And with the data we get there, we can make decisions so much quicker and more fishling on how risky a transaction is. Most importantly, managing a single platform, Chris, it just keeps us extremely agile to navigate through the complexities of this constantly evolving market and allows us to quickly and better respond to our customers needs. So there's a few keywords that I think are really important. I think a big thing about today's episode is we really want to try to educate our listeners today on our core topic, platforms, which we'll get to. But I think maybe it's good to take a step back, maybe a reset. You talk about first of all, the concept of full stack. And maybe it just worth explaining what you mean by that. Because I think that's an important distinction, right? Yeah, yeah, absolutely. So what you've seen over history and payments is sometimes, oftentimes, what you'll see is a underlying bank, an acquiring bank, another processing platform. Perhaps a gateway to get to set processing platform, a connector, if you will, maybe a third party risk vendor. And that has proven to work, but we see just incredible advantages in the industry shifting to doing all that in-house. Data is not lost along the way, passing it from party to party. And when you can spread that sort of unified experience to customers, the results are quite tangible. That makes a lot of sense. And the other thing that I really wanted to point out, what you've mentioned is about Adian's actual banking licenses. Adian, is a bank in a number of your core geographies, right? They have a full banking license. And for those of our listeners, maybe that have been through some of our education programs, our payment bootcams, for example, we do a lot of work in trying to make the distinction between different players in the industry, the roles that they play and the different licensing schemes that support that. Very often, we just use this generic term PSP, but we often warn our students, if you will, that you really have to start peeling back the layers of the onion and looking into an organization as to what type of institution they are. We know we have PSPs that are sort of unlicensed institutions and some geographies are just for lack of a better term, a gateway or a switch where they don't recall there in the US. For example, you don't need a license to do that. We know in some geographies like Europe or the UK, you might need a license. You might need to be a PISP, a payment institution service provider. You might need to have money license to do some of this stuff. You could be a traditional bank that has an acquiring license in some geographies. That term bank runs the gamut from the big traditional mega banks like JP Morgan, Bank of America, etc. That happened to be in the cards game as well in the payments game. Two more specialized banks like Gadi and who you're using your banking license to help facilitate your payments business, your financial services business, etc. Most notably, you have banking licenses in the US, in the EU, in the UK. Is that right? That's correct. That's correct. That's an interesting distinction in helping drive your payments business. No retail bank, but I can't go down the street. Open up a account and get a free toaster down at the Addian bank branch. No, I'll tell you anytime soon. We didn't seek out to be a bank. A consumer bank, especially. Essentially, it complements our offering. When you become the bank, you are no longer dependent on a third-party bank to understand where your deposits are. A lot of processors will process the payments, rely on a third-party bank to send those deposits out and say, "We're waiting on the third-party bank for those funds to get there." That's not the case for us. That is the reason we sought out to own more of that stack that these enterprise businesses come to rely on. If you do have any Addian branded free toasters, I will take one after the podcast. He can send that my way. For sure. How about your role? What's your specific role with the business? For most of my nine years here, I've been exclusively focused on building our platform's business. Recently, we've taken on a more broader scope where I'm co-head of our global commercial strategy. And my focus there is
helping our direct enterprise customers and our platforms really scale without complexity through our payments and financial solutions. And maybe jumping to going a bit for this topic today, but also helping platforms become fentechs themselves provide as much value as possible to their customers. - Very interesting. And you know, we kind of have this tradition here on payments on fire since you're a new guest. We've had some ad in folks on here before, but you're new to payments on fire. How did you wind up getting into this industry? - So for me, maybe this is a bit sad, Chris, but payments that's been my entire professional life. Right out of college, I joined at the time it was called fifth-year processing solutions. - Yeah. - I was working in their inside sales team. There, I was really calling on small businesses that either had or were opening up business bank accounts with their local fifth-year branch. And I would call on them to see if they had any sort of payment processing needs. Yeah, funny. Little did I know that this would soon be the exact segment of market that platforms would serve so well. But I eventually joined at the time a small but incredibly fast growing team there called the PayFack team. It was right on this point where we were also changing our name from fifth-year processing to Vantiv. And this is where payments becomes a very small world for me. This is where I got my first introduction to Adyen because around 2013ish, I'd say, this small little Dutch company, they wanted to expand their offering into the US. And Adyen was nowhere near the size of where they are today or the sophistication they have today. So they couldn't be their own choir, let alone their own bank. So they needed a US choir to support their business in the US. And so Adyen actually became a customer of mine. I got to see how impressive the team and the culture there was. And at the time, they were, you know, they were really e-commerce only. They started dabbling in person. But over the years, they started to, they wanted to build a marketplace solution for their biggest marketplace customers. And they asked me to join to help with that. And in my mind at time, Chris, I already saw that they were just so well positioned in the payment space. And, you know, their growth was on me. So I saw firsthand how fast they were growing. So I don't even think I'd let them finish their sentence before I said yes to the opportunity. And so I joined Adyen in early 2017, again, where I've been focused and working mainly on marketplaces and platforms. Yeah. Well, there is a long and deep history there in that FTPS lineage. You know, we saw that go from fifth-per-processing solutions to Ventiv to World Pay, to World Pay at FIS, to World Pay, independent to World Pay again. Now we've got this global payments, World Pay, Conglomerate that has come together. There's been a few other sprinkled in there. I think Lightall was in that mix as well. Hold the Ventiv. So there's probably whole history book that could be written just on sort of processing through those historic entities, but it's still going there. Well, let's get right into our core topic of today's episode, which is platform payments. And I have to admit that we always try to keep our listeners up on the hottest topics and payments. But we've been really neglectful of this topic over the course of the last few years. Even though I think personally, it's really one of the biggest trends in growth factors in the industry. Somehow we haven't done an episode on this. So I feel like we've been derelict in our responsibilities to our listeners. But here we are. You're going to help us fix that today because there's a lot to talk about here. And as I said earlier, I feel like just based on my experience and speaking to folks about platform payments, there's a lot of education that needs to be done for on this. So I apologize to our listeners who might be familiar. We're going to spend the first 10 minutes or so just kind of going through the basics here. But I think it's really important that we ground ourselves first sense of it as basic. So Blake, let's start with kind of the most basic question altogether. What exactly are platform payments? Yeah. And look, we need to start by saying, there's so many different terms for this. Platform payments and bedded payments, integrated payments, a ton of different terms. So I always think it's the best explain the story, the history, and sort of what problem they're solving. And the only way to do this is at the beginning by way of an example. So if I were to start a small business, like a boutique fitness studio, Chris, I'd have to buy software to manage those classes. Then I'd have to go to a local bank, maybe a fit there bank, to set up a business bank account. And maybe either that same bank or a separate one, I would need to establish a connection to be able to accept payments. I'd have to go buy a term for in-person payments. And ultimately, I ended up with multiple contracts, multiple different support lines, and then also multiple invoices that it was really-- would be a nightmare for someone like me to handle. So these same platforms saw the headache the users were going through and how they can play a part in sort of better serving these customers and turning into a massive opportunity. So platform payments helped put an end to that sort of fragmentation. Those same software providers that were managing the scheduling or the booking management software in this example, they realized they could just offer the payments themselves, providing a better payment experience, tailored to that vertical or that customer specific needs. So they really solved for the customer experience first. The focus wasn't initially sold the economics. The software platform, what they became is the operating system for that business. Instead of a separate contract with multiple providers, there's only one, the platform. One platform, one partner you work with for support for payments and an ultimately one source of truth. Yeah, that's a very elegant explanation there, for sure. And I think real world examples often helps with this. And we do a lot of work in this space. And it's really incredible the variety of different platforms that we see out there. But let's give our listeners a few examples. You know, maybe some examples that they really regularly interact with on a regular basis. So for example, you might have platforms that serve doctors offices, which help manage appointments, maybe patient records, and of course, billing as well. Unfortunately, I had to get a root canal on Tuesday so that the dentist is like-- Go to still with us, Chris. And I'm still with you. I'm still in my mouth is functioning. I think I'm speaking OK today. But that particular dentist used a platform called Athena Health, for example. And Athena Health serves-- they serve medical groups. They serve doctors. They serve dentists. And they're managing sort of everything into ended. I'm sure a lot of folks that are listening to us today probably use the platform similar to that. We've done some work with platforms that are geared toward home services, professionals, folks that cut your lawn, handy man contractors, things along those lines. And those platforms allow them to generate quotes, manage jobs, things like that. We've done some work for platforms that serve auto dealerships and repair shops. So they help them create quotes, manage work orders, procure parts, and then facilitate the billing between parties. And we could go on and on and on for all these different examples. But I think the one thing that they typically-- today, I'll have in comment back to your point-- is they have some type of embedded payment functionality that's included in that platform. So let's dig a little deeper into that embedded payment aspect first. Really, why is this so important, sort of, from a service offering perspective to offer these embedded payments to their customers on their-- what's really the value proposition there? Yeah, you're right. I mean, platforms are becoming ubiquitous, right? They're all ubiquitous. And the real magic isn't just accepting payments. It's the entire unified experience. So for the sub-march, and you're example, the doctor, the contractor, with their platform, they're able to get payments in a consolidated reporting and a single portal for everything. They don't have to jump between scheduling tool and insurance tool, a bank portal to see if they get paid. They really don't want to have to think about payments at all. And they really shouldn't. If I'm a plumber, that's who's your service contractor platform. I'm a plumber who uses, let's say, a service tighten. I use them to manage my scheduling, my dispatch software, et cetera. I don't also want to go work with a bank or a processor as well to set up an account for invoicing impayments. I don't want to reconcile two different systems and mainly compare the jobs that service tighten has said I've done versus what my banks tell me I've gotten paid on. I want that to be fully embedded in my software, so I have one place to get paid and reconcile. And for the platform itself, right? In this case, like a service tighten or the Athena, it just makes their software so sticky, right? You aren't just a subscription vendor anymore, but you have quickly become their operating system, their OS, their financial infrastructure. Once a business is managing its cash flow through your software platform, the cost of switching to a computer just becomes so much higher is that user would essentially have to re-architect that entire infrastructure. Furthermore, it gives you the license to do even more, right? So offer more tangential financial services, faster payouts or business accounts or capital. And these are all massive value bets for small businesses in that world because they usually struggle with acquiring these type of services through additional banking channels. And there's a benefit to the consumer experience here as well, right? The consumer isn't being switched off to some third party site to complete their payment. They maybe don't see their payment reflected in the core platform if they're using a third party. So bringing all this together also benefits the consumer, right? Oh, absolutely. And look, in fact, it matters, these software platforms move faster than banks, right? So it's unbelievable to me when I go to the most simplest of the small business. They have Apple Pay and all these incredible payment tools and their online payment experience is more elegant than I've seen from large retailers who use a traditional bank. So it's.
It allows these SMBs to keep up with enterprise, but to the user, I've got a seamless checkout flow, a seamless payment flow wherever I go now. Yeah, that makes a lot of sense. And the other thing I was thinking about this weekend, so I was preparing for this episode, probably on Thursday and Friday. And I was up in Northern Florida this weekend. I live in Miami Beach. And one of my big hobbies here is I'm a scuba diver down here in South Florida. Nice blue waters, always warm, very easy diving. But I was up in North Florida doing some diving in the caves. And there was a dive shop up there that I've been ordering online for many, many years from I've never been to that dive shop. And I was just thinking about, okay, well, here's now the Omni Channel experience associated with these payments. I went in that dive shop. I bought a couple of parts I was looking for. And they're like, well, have you ever ordered from us before? I said, well, online I have. And they're like, no problem. So right there in the POS, they pull up my profile. They have all my orders in the past. They have my address, all my contact information. Click on me. They ring it up right there in the system. Right on the POS, it says, do you want me to text you the receipt, email the receipt? Of course, I never had to give them any information because they already had it from my previous orders. So there's this great Omni Channel aspect to it as well, right? And in a lot of those situations, I think in all those examples that I just gave you, right, a doctor's office, you're getting your car service, et cetera. You can see sort of an online aspect to it as well as an in person aspect, right? Oh, absolutely. And that's the platform doing all that work. Right. To make that business owner that much more focused on the business itself. 20 years ago, Chris, that same business was taken cash only and look where the platform has allowed that business operator to work in today's models. Shout out to the folks at a cave country dive shop up in ice, Florida. To your point is this is a small little business, but the payments experience is in some case vastly superior to some of these major merchants. And that's all enabled by the platform that they're using. Right. 100%. Yeah. Great. So let's start bringing this down for our users a little bit more. And maybe the best way to start is to talk a little bit about the value chain here. So, you know, typically when we talk about value chains, we're asking our users to think about kind of the flow of funds from left to right, kind of the payment being accepted on the left and then being processed through everybody on the right. But maybe today we'll start a little differently and we'll start right in the middle. If we could kind of envision the platform itself sitting right in the middle there. Right. So as we described, we have this platform, maybe in our medical industry example, that services these doctors offices. And in the platforms world, we have this term and you used it before, right, is sort of the customer of the platform, the customer that the platform serves. We often refer to that as the sub merchant, right? There's probably other names, as you have said. Correct. Sub merchant user that there's many, many different terms. Okay. So the platform is trying to sign up many of these sub merchants, many doctors offices, many card dealerships, many whatever the case is as we've good for. All right. So the sub merchant then has a customer who's responsible for making the payment. And our doctor's office example, that's the patient, right? The patient consumer, that's me. So the patient pays the doctor's office who's the sub merchant and really now we're really starting to build out the value chain. The consumer pays the sub merchant via the platform, right? Am I kind of describing that right? No, you nailed it. And this is an easy one, right? Like the beauty of the platform model is the only thing in between the card holder, in this case you at the doctor's office and the merchant in this case, the sub merchant is only the platform. The platform does that all the underlying work, working with the necessary vendors they need to to make that a unified experience for both you, the shopper, and then this is the sub merchant, in this case, the doctor's office. So he heard me talk about like a legacy payments world you had, a gateway, a risk vendor, an acquiring bank, right? Now the platform has simplified that to. It's just the platform. It's the only thing that's sitting in between Chris and his doctor. Okay. So this is where it gets interesting. So the platform itself needs to have a relationship with some type of, I'll just say payment service provider. We use that term generically back to what I said earlier. I think our listeners know that there's a lot of different types of PSP's, but we won't really get into that now, right? But the platform needs a relationship with the PSP and that's really where somebody like Adian fits in here, right? Yeah, exactly. Help describe for us a little bit is the type of services that Adian or other PSPs offer these platforms because through that face value folks might often think, oh, it's just that it's a payment service provider. It's how is this different from say a merchant that just signs up with a PSP to process payments. But in reality, there is actually a big distinction here from a service offering perspective. So maybe break that down for us. Yeah, exactly. So that software platform, they would work with somebody like an Adian, right? And there's many providers out there, of course, but just by way example, and Adian fits in as the underlying infrastructure and license platform, a licensed partner who these platforms will work with. And they truly white labor technology, meaning we're the back end tech and they're the front end with their brand staying consistent to the sub merchant. For our platforms, our focus, we are fully behind the scenes. We are exclusively focused on being the world's best financial infrastructure for these platforms, never being the consumer brand. And I always say we're doing our job, we're at our best when we are completely invisible to both the car, the shopper, but also the sub merchant. And so what our focus is is providing infrastructure and then you would say, what is the infrastructure? Well, we've extended our beyond payments to infrastructure to these platforms to be automated on-boarding KYC. So like, we'll help handle the regulatory heavy lifting of verifying sub merchants or who they said there. As you process the payments, we're able to provide the infrastructure for these platforms to move the funds around and split payments so that a sub merchant gets their payout and the platform itself gets their cut, right? And speaking of payouts, we of course can provide global payouts. So paying out sub merchants instantly in their own little currency, whether they are in New York, London or Singapore, we're doing that on our own banking licenses, then of course extending that infrastructure into other financial products beyond just payments. So what you see is a lot of the more advanced platforms not only are offering embedded payments, but they're getting into other embedded products like capital or business accounts or issuing. Okay, so there's so much to break down here that I think is really interesting. So the first thing is you mentioned onboarding KYC KYB. So you have the platform and you have that sub merchant. And as you said, essentially what the platform is doing is they have to board this sub merchant. The sub merchant is typically a business, right? And the platform wants to ensure that the business is who they say they are, right? It's really different than when an acquirer is onboarding a merchant, right? You have to go through some of due diligence and that requirement for due diligence, I think it's going to vary from jurisdiction to jurisdiction, right? But at the end of the day, you guys are providing the tools within your staff to allow the platform to perform that due diligence. Is that right? That's correct, Chris. Regardless of where you sit in the world, you need to validate your customers are who they said you are when you onboard them into the financial ecosystem. Now, what is unique or difficult is navigating through those jurisdictional differences that these geographies have. And we're able to provide sort of that global infrastructure to be able to onboard a sub merchant that's in Miami as a similar flow and feel as one that's based in London all while accommodating for those local jurisdictional nuances. And then the other thing that you mentioned, which is a huge aspect of this, is the payout aspect, right? Yeah. If you look at it this way, the platform is collecting all these payments from tens, hundreds, thousands of different sub merchants. And the platform needs to make a little money out of this, right? We'll talk about monetization. But you've got fees that need to be taken out, et cetera. And at the end of the day, these sub merchants need to be paid, right? So the management of that payout process is typically also managed in conjunction with you guys, the PSP, right? That's correct. So by leveraging our licenses, what we're able to do? So when you've paid for your scuba gear, Chris, let's just say you paid $100. Let's say your scuba, the sub merchant, is charged 3% by their platform. What we're able to do is not only process and authorize those funds, but then in our ecosystem, and by way of direction from this platform, we're able to send $97, you know, $100 less three to that scuba sub merchant and then $3 less fees to that underlying platform. And we're able to do that all completely white label and invisible on the scenes. And I think licensing is really important to talk about here because pretty much in every jurisdiction that I know of to handle funds and to move funds, you need some type of license to do that, even here in the United States where we have a sort of bizarre licensing structure to do this. This is the infamous MTL or Money Transmitter license from services businesses licensing structure in order to move that money, you would have to have those licenses to do that. So you are alleviating these businesses from having to get those licenses because you're essentially using your own licenses to move those funds. Is that right? Absolutely. Those licenses.
is a very degrees of difficulty depending on what geography. And you mentioned the US. The US is incredibly more complex because we have states. So you need to acquire licenses and money transmitter licenses by each state. Pay that with the global complexity of more countries. It can be quite a substantial lift for any technology company. Yeah, yeah, for sure. I think 40-something states require MTL licenses for this type of activity. So it's so much complexity here. All right, so let's keep building on this. We've talked a little bit about what the value chain looks like. We've talked about how these embedded payments create this superior experience for everybody. And also how you guys at adding another PSP support that. But other than optimized embedded payments within the platform, monetization is really a key part of this. So when we're talking about monetization, I think we're talking about the ability for platforms, not only to offer payments to their summer chains, but very importantly, that earns some revenue on every transaction, every payment. So what does kind of the platform monetization model actually look like here? Yeah, like I said earlier, reason platforms should go on this journey to embed payments should lead with customer experience. We still see that being the main reason. However, monetization is where the software to FinTech, the transition is really going to pay off. These platforms before they embed payments, they would usually monetize off of a SaaS fee or subscription fee, and as you go on the journey of embedded payments, your monetization strategy can be changed. You pivot from SaaS or subscription fee to monetizing off payments in and of itself. So you most typically see platforms start to then offer their software for free while charging in payments fee of let's say 2.9% and 30 cents or 3%. And there is margin that's going to be built into that fee for the platform, the largest platforms in the world. So platforms like Toast and Shopify, and we can share this because they've shared as much publicly. They earn as much as 50 basis points on every dollar, which doesn't sound like a lot until you realize those platforms process hundreds of billions of dollars for their customers. That's right. And again, I'm going to keep the labor and its point, but it's not just payments, right? We're now seeing platforms go even further on this embedded finance journey, and they are monetizing off of other embedded financial products like taking a small fee to be able to do an instant payout, right? Taking advantage of an interchange revenue from issuing cards. There's interest revenue that's generated from a business bank account or taking a share of a capital grant. The opportunities that embedded payments allows you is takes you into a new world of endless revenue streams through embedded finance. Yeah, I mean, like I said, we do a lot of work in this area and we have seen some platforms. Of course, this varies greatly on the market and the vertical and the offering, but we've seen some that have been taking as much as 90 basis points to 1% even on the actions. And a lot of that has to do with kind of the geography and what the underlying payment costs are and things along those lines. But I mean, there's huge opportunity here. And I think what's also interesting, which kind of viewpoint it to be for, is a lot of these platforms are seeing payments as kind of the primary growth and gin for that. Where exactly. As you had said, maybe 10 years ago, if they were going to do an investor pitch deck, it was about SaaS revenue and whether the model was around that. And now they're sort of like, here, you can have the software as long as we can process your payments. Right. Those same like light speed and Shopify until the start. Those public massive platforms, they report now that they're seeing over 50% of their total revenue come from these financial services. Papers, right? Yeah. Rather than just software subscription. And I always like to say that the goal for a platform should not just be the to tax that sort of payment experience. But to create this more efficient financial ecosystem, where the platform itself is able to participate in the growth that they're enabling, right? This becomes a much more interesting business model than just chasing the next subscription fee. Yeah. And the margins on this could be high, you know, mostly because we see that these platforms are typically charging a premium for payments. If we look at sort of the rates of what these platforms are charging for payments, it's typically much higher than if, let's say, the sub-merchant was to go directly to SP. And that's because it's that added value that we were talking about, right? It's that integrated experience. And, you know, we see the sub-merchant willing to pay back because they're getting the benefit from it. And then, of course, the platform, I think there's a, as you pointed out, there's a big story about scale here, right? Is the platforms are trying to sign up as many sub-merchants as possible. And platforms are benefiting from the growth of those sub-merchants. So it's really a great, it's a great business to be in. If you get scaled here, particularly if you have, I'll use a term you haven't used yet, Blake, but if you have a really good take grade, that's often a term that we use in these platforms, right? It's kind of what the net economics are on every transaction. You know, if you get a good take rate, 50 basis points to 1%. I mean, that's just a cherry on top of the Sunday compared to maybe your SaaS fees, right? I mean, you said it in beginning to, I always like to talk to platforms about this. The differences in the other services they're providing, right? Let's again, take your Scoob-A-Vender, I believe, of course, some bias, but I believe that he's the best payments provider in the world, right? If I were to go to that Scoob-A-Vender today, and say, I can offer you cheaper payments, I'm, I'm Blake from Adyen. We have global licensing and all this. I can do it cheaper than what you're paying today. Let's say it's 3%. They're gonna follow up that question, say, yeah, but can you handle my booking, my management software? Can you connect to the necessary state licensing and validation? I'm gonna say no, of course, and they're gonna say no, thank you. It's that extra value that payments are just built into that software that even the world's strongest payment companies just can't compete with. Yeah. So I know there's a few different ways that platform payments can be implemented. And we often hear this term payment facilitator. You mentioned payfac, which is short for payment facilitator earlier when we first started chatting. But let's kind of attack this term first. There's a little bit of kind of history and like you see here, but the term comes up again and again and again in this conversation. So let's start out by talking about like what exactly is a payment facilitator? And how does it do this conversation? The term payment facilitator is very often used in broad terms. How, for the, it was originally used by Visa Mastercard as to define a model by which they trust a facilitator to onboard and service payments on behalf of an acquiring bank. That's Visa and Mastercard use the term payment facilitator. It's a program they've defined, right? And when this really started taking off when a payment is really first started, that was the only option you had as a platform. Is I had to just go work with an acquire, like Adi did once upon a time and say, I need payments, right? At that point, I'm just a payments pipe. But as a platform, I had to build out and establish a customer diligence process, acquire the rest necessary licenses. I kind of find the right banking partners to payouts. Now what you're seeing, Chris is not only Adi, and of course, but many more have extended these services to provide more of the infrastructure than just payment processing to where a lot of the other stuff is no longer necessary. And for our platforms, right? Adi and takes on the bulk of that operation burden. We provide the banking licenses, the KYC, the onboarding, the fund movement, payouts, and really that compliance infrastructure while the platform keeps the benefits what people have previously are often called a payment facilitator, right? They control the branding, the entire use experience, they own the pricing and economics, but without that sort of mil-to-million dollar overhead of building all that out themselves. The simplest way you can say is, you can think of it as compliance as a service. - Yeah, I think what you said earlier is absolutely key. Sometimes this term is used just fairly generally and broadly, but there is actually in V.C. MasterCards eyes a formal definition of the payment facilitator, right? - Sometimes we say that you are a licensed or registered payment facilitator, which means that you kind of are complying by the V.C. MasterCard rules and you're registered with them as a payment facilitator and presumably behind the scenes, you need to be using a acquire or service provider that support payment facilitation functionality, right? - Correct, it actually does the payment registration. The registration of being a payment facilitator. - Yeah, yeah, so that's an important distinction. And I think folks really don't understand the nuance of that and really what it means is, we kind of have this inside joke, my colleague, Brian Dermann, I always talk about this, but it happens all the time is we'll get a call from somebody at a company that says, "A member of our board heard a podcast like this about this and said, 'You guys need to be a payment facilitator.'" - Yeah. - And they don't really know what that means, but people come to us and they say, "I want to be a payment facilitator." And the first question that we say is, "Whoa, take a step back, do you really know what that means?" - What do you mean? - Yeah, what do you mean by that? And then we kind of bring them through kind of this same conversation that we're having here which we're trying to get a little deeper into here. So, I mean, when we think about this here at Glenbrook, there's a few ways that platforms can implement payments and we usually start with this simple model where maybe platforms that we saw this for a year early on and the early platform days, maybe platforms just maybe have a referral arrangement with a PSP. Where perhaps they're still providing some sort of integrated payment services. maybe that's it.
they've got APIs that are connected to the PSP, but the PSP is just paying them a little bit off the top for referring to customer. And that maybe isn't the best model for an economics perspective, but typically what we've seen in those historic cases is they're also not using a PSP that has a full platform service. So there's perhaps some functionality challenges there as well. And then we see maybe a little bit more mature model, maybe where the platform is reselling payment services, maybe in an ISO-like model on behalf of the PSP or in a virus. Maybe they're getting a little bit more economics, maybe they're getting a little bit more involved in the servicing. And then we move on to kind of the more managed payback model, somewhere to what you've described, which you guys are doing at AdDion, where you're providing more of the full stack, the full functionality to them. And ultimately, there's this register payback model we've talked about where perhaps the platform is doing all of this themselves. And by the way, I don't want to infer to our listeners that this is a journey like you have to start there and you ultimately end at a payback. I think it's quite the opposite these days. We're seeing more organizations say, "I don't want to be a payback because of the complexities associated with it." But while the referral agreement model tends to be kind of simple to implement, it also has the lowest potential from a monetization perspective. Probably from a kind of integrated payments, like feature functionality perspective as well, where the payback on the other end, I would say, maybe gets you a little bit better economics, but also puts a lot more burden on you to do things around compliance and servicing and all sorts of other things. So I think where we're seeing the industry land is somewhere in the middle to what you guys are doing. We would call that the Goldilocks solution. It's sort of like the platform doesn't have to build all this stuff from scratch, similar to how they would have to do in a fully registered payback model, but at the same time, they're benefiting from this with all the economics that we talked about, all the economic benefit there. Are you seeing more companies move away from the full payback model? Have you actually seen companies that were fully registered payfacts come to you guys and say, listen, I'm kind of tired of this. I prefer you guys to manage this for me. What's kind of industry feel here? - Yeah, great question, Chris. And just to be directed honest, I am definitely seeing fewer and fewer companies each year who choose the route of a full-blown registered payback. - That's true, yeah, absolutely. - Yeah. Unless you have a very niche reddit or reason, or you're at a scale where you want to build out your own ledger and licensing infrastructure, there are plenty of options out there. Beyond just that, Ian, again, that give you nearly equal flexibility that cover most of your use cases. We still do see and support some of the world's largest platforms who have this type of massive scale, right? Think about the size of an eBay, where they have the capital to build out a global compliance and treasury infrastructure, right? For most other platforms that the Goldilocks Mall you talk about, it indeed makes most sense, especially ones that work with us, because we provide that infrastructure they need where we've already done the heavy lifting with utilization or banking licenses. And like I said, the platform still gets the entire branding experience, they own the customer, they monetize the flow, just as you wouldn't any other model. And so you tend to see less and less people going down the route of, hey, we just need you as a payments provider, we'll handle KYC and payouts ourselves. - Because in the case of those that choose to go the fully registered payback model, there's a lot of additional responsibility that comes with that, right? So you're talking about you're completely owning onboarding, underwriting, risk management, customer support, technical connectivity, dispute and refund handling, you have to kind of build those solutions yourself, right? So I'm assuming that there's a trade off, you have to look at the ROI on that to say, yeah, okay, maybe it is worth building all this stuff, but probably to support that ROI, you have to have, you use the term before scale, right? - Yeah. - You're not gonna see small and mid-size platforms doing this, is that right? - Yeah. - That complexity we're talking about, of owning everything yourself, it's not just the technical connectivity, it's the operational tail. You aren't just a software company anymore, you're now a regulated financial situation. That means you're responsible for your own customer intelligence process, KYC, you're doing AML, you're monitoring for money laundering and you also have the licenses that give you the ability to handle payouts yourselves, which is like I said, there are enterprise platforms out there, Chris, that we currently support that do a lot of that themselves because they do have that scale. But we are ultimately very focused on leveraging our licenses and infrastructure to take these burdens off of our platforms play by handling the onboarding and the dine verification, using our global banking licenses to move the money and to leverage our data to help platforms mitigate their risk. - Again, essentially provide that compliance is a service. - And just to clarify an addy and specific point, if I was a legacy payfac, or if I was a really big platform that had this scale and said the case is there, I do wanna be a fully registered payfac. You guys could still support them in that traditional payment facilitator model as well. - Absolutely, and we do today. We have plenty of those kind of customers and we have plenty of registered payment facilitators. Absolutely. - Excellent, let's switch gears a little bit. I wanna talk about a few things that we often hear out there in the market. The first thing is, is maybe getting a little bit nuanced and the definition of platforms. So we've talked about these examples that we gave earlier, the healthcare, the auto dealer, my dive shop, for example. It seems the line between the concept of a platform and a marketplace is kind of getting a little bit more gray these days. And I'll even expand that out a little bit. You've got kind of the, I would say the concept of like multi-sided type providers or platforms, like Uber's and things along those lines where maybe it's a little bit different model there where you've got folks in the gig economy. I was even thinking about, you know, we're doing some work this past week for a very, very large hotel chain that is a franchise operation. And I think about that, you know, in some case, that's almost like a platform in itself that they're operating from a payments perspective is a marketplace that platform or vice versa can these traditional buyer-stellar type marketplaces and all these other things that are talking about also utilized platform payment services. What are kind of the nuances here? And who are you selling to? Yeah, brilliant question. The lines are definitely blurring. But we see it as just a spectrum of funds flow, right? A platform like a SaaS platform for hair salons. They're usually helping a business manage their own storefront and they themselves are invisible to the carval of the buyer. Think of a Zenote or Vigaro, massive platforms in this space, but us as consumers probably have never heard of them, right? Compare that to a marketplace like an Etsy eBay or Uber who are actively sort of connecting a buyer and seller and they sit in the middle of that trust gap, but they're quite known to that carval with the shopper, right? But they ultimately both need the same thing, embedded payments in that infrastructure, right? Yeah. Whether you're a SaaS platform for salons and spas or whether you're a marketplace, you need the ability to take payments from a carholder and manage those funds to get it out to the seller or to the sub-merchant. So our solution at ADN is it was built specifically to handle that multi-party settlement that you talk about and that's the case regardless of whether you call yourself a marketplace or vertical SaaS. And like I said, we tend to resonate best with these global enterprise marketplaces and platforms. So like I said, eBay, Etsy, and Uber, wonderful partners of ours as well as Zenote and Vigaro. So both business models are actively supported at the core because what they need is that embedded payments and infrastructure. Let's talk a little bit about growth. So I've read a few things about the general growth of platform payments for our listeners that the punchline here is they're growing substantially. And I think you can see that through some of the earnings reports that are out there here at Glenbrook, one of the ways that we measure growth in a particular sector is by the interest in the investment community. We do a lot of work for private equity firms and things along those lines. And it seems like we're consistently doing work for private equity firms that are interested in buying or investing in platform businesses or payments service provider businesses that service platforms. So we know that there's a lot of buzz in this industry. If I refer to some of Adians latest earnings calls at the end of last year and the ones recently your CEO and CFO have referred to platforms as sort of your strongest growth pillar outperforming a lot of different areas. I didn't see a number in the latest earnings calls but in Q4 of last year, which I think was the end of your second half. If or maybe the first half, I forget how you guys do it. Second half. Yeah, second half. So there was a quote saying that you guys were seeing 50% year over year growth in platforms, which I think is absolutely incredible. You guys have highlighted some pretty significant roll outs with top tier merchants and platforms like Starbucks and you mentioned Uber as well. So these are big names that you're dealing with. And it seems like you're experiencing kind of this impressive combination of organic growth through volume, through a new customer acclux.
and also through geographic expansion. So all that being said, I wanna lead up to very straightforward question. What's driving all this growth? What do you guys see within your business and maybe generally as a whole, why all of a sudden all this interest and all this growth in this particular area here? - Yeah, so you're right. Over the past few years, our platform's business has seen a significant growth. We've been very fortunate to have the wind at our back and we believe we have the best offering and martyred for the world's best global platforms. However, I really point to three specific reasons as to why we've seen this growth. One is just the maturation of the vertical SaaS platforms, right? Embedded payments in of itself is a massive tailwind in the payments world. And if you're a payments company, I'd be absolutely shocked if you don't have a strategy here to capitalize on this. We've moved past just general SaaS, right? Now, every niche vertical of Pizzerias, to doctors offices, they all have specialized software. And these software providers have realized that payments, they shouldn't be an ad, but should be at the core of the product they're providing. We've been very fortunate to be well positioned to take advantage of this tailwind. The second would be sort of consolidation. Large enterprises are tired of managing 15 different regional providers. So we do see our global reach resonate and they're coming to us to simplify their global footprint to one single stack, which naturally drives our organic volume growth. And we continue to see that per vertical, there tends to be a few winners that are outgrowing the market in each vertical. And we are very fortunate to be working with and partnered with most of these winners already. And then for platforms especially, the third would be our unified commerce of niche. This is a massive one for us. And in my belief, it's where we are at our best. Our ability to bridge online and in-person payments together globally into one dataset is just a massive advantage, Chris, for all of our customers. So we do this to date for the world's largest direct merchants. Major brands think about Lule and Creighton Barrow exporting goods, Gap, right? And we're able to tell our platforms that when you work with us, you have full access to the same infrastructure that we're offering to the world's largest customers. I say it turns our platforms into the world's best payment companies. It gives our platforms just a major competitive advantage in a real tangible revenue driver. So global platforms that have both in-person and online needs are where we're growing the most. We've talked about global capabilities a few times here. And it's clear that platforms is definitely a global concept that can be transplanted in many different geographies around the world. But what is some of the complexities that are introduced here when we're talking about global implementation of platform services? I mean, does it neatly transplant from market to market? Are there complexities here as we move from market to market? Are there specific kind of, I don't know, geographies around the world that are tougher than others? What is some of the considerations we need to think about? Yeah, absolutely. We've touched on this a bit already. But for platforms, especially, you have to-- it's very difficult, at least, on your own, without a global partner that does this already to navigate through those geographical nuances. For instance, in the US, you oftentimes need to provide a social exist nowhere else in the world. So you've got to navigate through that. And again, we've focused on building that global infrastructure already. But beyond just platforms, this is adding sweet spot is where global complexities become a little bit easier. In many markets, global expansion isn't just about cars. It's about local payment methods. If you're a platform in the Netherlands, you absolutely need ideal. If you're a merchant, a customer in Brazil, you have to have picks. So we've built this single platform from scratch that this integration allows a platform or merchant, a customer, et cetera, just toggle these on globally without needing a new bank partner in every country. And that is valuable in and of itself. It always has been for us. But we're also seeing value in the data that we're able to lean on. So for instance, a lot of platforms that work with us, the impetus to work with that and begins that we've had other providers. But we're now starting to get a bigger scale. We want to go beyond just the US. So we could use your help. And so what we do is we oftentimes lean on data that we already have in these markets. And I'm able to tell our platforms, hey, if you're a food and bev platform, expanding into Belgium, here's the major payment that this you need to offer. Here are typical, here's a typical cost mix we're seeing. Here's where the payments mix excels skews. Here's what competitors in the region are charging. And that data is extremely valuable so that the platforms can establish themselves in this geographic expansion with the leg up. And I mean, I've seen some significant evolution in platform payments functionality over the course of the last five to 10 years. And greater global growth and support is one of them. But you guys have seen some pretty dramatic maturity and evolution in your own platform. Where do you go from here? You've built a pretty significant platform for the future perspective from a scale perspective. What's kind of top of mind from a roadmap in a future perspective for you? Yeah, so the ultimate destination and what we are obsessedly focused on here is gonna be helping every platform become this single financial operating hub or operating system for their sub-merchers, for the users. We just see so much opportunity here as most small businesses are underserved by traditional banks, you see traditional banks retreating from the space. And these businesses wanna manage their money where they manage their business. So our roadmap that we're gonna perpetually focus on making the embedded payments experience and have itself easier, easier to handle. Again, what we're seeing is the embedded payments journey is the gateway to becoming that financial operating hub. So beyond that, we're focused very heavily on building out business accounts. So where sub-merchants and users can store and manage their funds directly with the platform. Issuing where we provide branded cards for the platform so that the businesses can get issued funds on those cards and spend their earnings the second they hit their account. And capital, so using that data to provide instant capital and instant decision to help these businesses grow. It's plenty of data out there Chris that suggests that platforms who offer capital are not only growing faster, that's supplementing their payments growth and their payments is growing faster too. The most successful platforms, they're just, they're not gonna be software tools. They will be the primary fintech infrastructure for these customers' business. And there's a world where they replace the need for a traditional bank altogether. And our job is not to be that, that consumer bank or the traditional bank, right? Is to be the financial infrastructure so the platforms can do just that. Great. And to wrap things up, I think we would both get penalized if we didn't talk about agentic commerce. It's kind of requirement these days. Where does agentic commerce fit into all this? Thought we were gonna get away with it. I can't run it the last day. I haven't had a conversation the last 12 hours about it. So we need to talk about it today. Yeah, look, it's fun though, right? And we believe that agentic commerce, so where agents make purchases on behalf of humans is a next major shift in online purchasing. And many platforms are already set up all for this. Think about Shopify, for instance, and what they're doing with their agentic store funds. It's really, really cool. But we're also seeing retailers, but also marketplaces having a critical decision to make, right? So if they open up their product catalog to these agents or do they try to build their own, finally, like platforms that emergence with a significant amount or heavily in-person volume, they're just gonna see less disruption in the short term. I would absolutely love to have a robot to go pick up. My kids don't run. They send me on every weekend, but that's just not a world we live in just yet. So what Adian, our focus is being prepared for this shift. We're gonna be, it always have been customer first. And with this in mind, we were doing some things like we joined the agentic AI foundation to ensure agentic commerce scales with merchant control in mind, and without sort of any disarmiation that removes the merchant, right? We see our role as being the universal translation layer. So whether it's an open AI agent, a Google agent, et cetera, they need a secure way to prove user intent and a tokenized payment method that the merchant, so the platform system, contrasts. So our focus is really preparing for this world and building and have the rails ready so that when an agent buys something, the platform and merchant still completely retain and own that customer relationship and any data and don't become disintermediated from that. Well, I think I'll bite my tongue in while save our listeners from our two of this podcast and looking into an agentic commerce conversation, but certainly I would agree with you that we've got a wall, we hate to go there. So let's go about our days there. Anyway, Blake, great to have you on the show today. Blake breathed Senior Vice President of Global Platforms as Financial Services at Adian. Thanks for joining us into all our listeners. Thank you for joining us today. We'll see you on the next episode of Payments on Fire until then, do good work and have a great day. Thanks, Chris. If you enjoyed Payments on Fire, someone else might too. So please feel free to share in this podcast on your favorite social media outlet. Payments on Fire is a production of Glenbrook Partners. Lindbrook is a leading global consulting and education firm.
to the payments industry. Learn more and connect with us by visiting our website at glenbrook.com. All opinions expressed on our podcast are those of our hosts and guests. While companies featured or mentioned on our show may be clients of Glenbrook, Glenbrook receives no compensation for this podcast. No mention of any company or specific offering should be construed as an endorsement of that company's products or services. [MUSIC PLAYING]
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