The importance of having a payment strategy – An investor’s take
QED Investors actively supports high-growth businesses that use information to compete — and win. While our support is tailored to the specific needs of each portfolio company, we typically provide a combination of both capital and capability. With operationally-oriented skills that we believe are both fundamentally applicable and broadly transferable, we enjoy working closely with a small set of carefully selected companies that range in size and style.
Prior to QED, Matt has spent his career in fintech and payments in a variety of roles, including finance, marketing, product development, and risk management. He has experience in both the U.S and in Europe.
An investor’s view of a payment strategy
When looking to invest in a business, venture capitalists will look at it from all different angles. The idea itself is important enough, but perhaps more so are the people involved in the execution. And when it comes to the earning potential of your business, we’ll look at several typical dimensions (market size, defensibility or competitive advantage, the capital required to grow the business, etc.).
One thing that QED Investors considers as a prerequisite for any investment is whether greater customer value is truly being offered for a rational buyer of the product. In digital businesses, , the customer experience is often a key determinant in whether there is superior value, particularly for SaaS businesses. Today, payments can have a huge positive impact on the customer experience. Alternatively, without a sound payments strategy, the customer experience could really suffer, thus reducing growth potential.
Payments: a key component to part of the customer experience
When should a payment strategy be developed?
When product-market fit is defined. Payments is an important component of your value proposition because of the customer experience it creates within your offering.
For example, think about an invoicing platform for small businesses or an ecommerce platform. Those types of companies enable other companies to deliver products and services, but ultimately have to help them get paid as well. Payments can help to create more of a seamless experience by combining multiple functions into a single service, ultimately delivering enhanced value to customers. As an ecommerce platform, is you can assist your b2c sellers in increasing checkout conversion and thus topline revenue, you are adding to the value of your product.
Your value proposition may evolve over time. It typically goes through stages of development. But payments could be a crucial aspect of your value proposition to increase your customer’s value.
When you are approached to invest in a company, has the payment side of the strategy typically already been developed?
As a specialist fintech investor, companies many times are coming to us to help them strategize and solve for their payments needs, while others already have a solid payments strategy are coming to solve a problem. The company is focused on delivering their core product or service. We need to solve who they are in the marketplace, define their competitive advantage and get closer to the customers’ needs. This leads to a value proposition definition. Often this comes before having a developed payment strategy.
In the early stages of a company, we often see that payments are handled by a Stripe or Braintree with little customization to the platform. As the company matures and it gains confidence in serving its customers with its core saas components, then that company often turns its attention to payments and how it can serve its customers in a superior way to an out of the box solution.
Many founders and startup management teams do not have a lot of experience in optimizing payments and therefore look for advisors or investors to guide for assistance in developing their payment strategy.
Your value proposition may evolve over time. It typically goes through stages of development. But payments could be a crucial aspect of your value proposition to increase your value to customers.
How important is a payment strategy to investors?
There are two lenses through which to view this question:
First, consider a company with no payment strategy, a broken payments strategy, or one where payments could bolster the value proposition but are not being offered. Many times we view this as a potentially undervalued company, where there is an opportunity to inject better payments execution and boost revenues or growth.
By building and executing on a well-developed payments strategy the customer experience is improved and the company’s value increases. For example, consider an SaaS account payables automation company. By introducing a payment stream, its revenues could possibly double; quite a fast track. Not to mention the further value being provided to the customer.
The other lens considers companies with well-developed payment strategies as potentially having a competitive advantage over their competitors. Where payments are very important to the success of a business, a great payments strategy can give another aspect of defensibility and also a signal that the management team is executing well – which together make a positive impression on us as investors.
Either way it is important to consider how to make payments part of the value proposition because of its effects on the customer experience.