Why the “little guys” are making big waves
Why do we so often use size and strength as indicators for success? Why is the “little guy” always considered the “underdog?” In the 10+ years I’ve been building companies in the payments space, I’ve seen the above statements challenged time and time again. Over the past decade, I’ve witnessed companies emerge on the scene and be propelled into rapid growth. How? By capitalizing on the growing rates of eCommerce and mCommerce in North America, understanding the needs of the increasingly connected customer and most importantly, through the ability to innovate and deliver.
Last year, Malcolm Gladwell’s David and Goliath: Underdogs, Misfits, and the Art of Battling Giants attempted to challenge our understanding of the power dynamic between the giant and the little shepherd boy. The general idea was that the very things that gave Goliath his apparent advantage — strength, size, power — were also what made him most vulnerable. Goliath was a giant, but very slow moving. He was outfitted head to toe in bronze armour, which made him difficult to attack, but was extremely heavy. He was incredibly strong, but his vision was poor, so he could only engage in close-range, one-on-one combat. Gladwell argued David’s victory is not as impossible as we once believed, and that our assumptions about size and power are what make the little guy seem like an underdog.
So how does this resonate in the world of payments; a sector that’s been around since humans have traded salt for silver? My initial research into the payments industry back in the early 2000s revealed an ecosystem dominated by huge banks that had introduced little to no innovation over the past few decades. Even payment technology had remained almost dormant in terms of development. These banks were built on legacy systems that were difficult to iterate and improve and yet these same banks seemed to hold all the power in the industry. I instantly recognized payments as a sector brimming with opportunity and set about launching the first of my two payment startups — which went on to become the fastest growing company in Canada in 2009.
When you are a giant in your industry you may be powerful, but you may also be slow moving, and short sighted. You have less incentive to change when your current system is working well and you’ve invested in it significantly. Startups on the other hand, have the advantage of being nimble and responsive organizations. Instead of saying, “well, this is how we’ve always done it,” startups say, “what’s missing from this system?” or, “how can we make it better?”
Over the last decade, developments in mobile technology have been rapidly changing the way we do business, and this is where things get exciting for the Davids of the world. The exchange of capital for goods and services is a constant and lends the payments industry its relative stability, even during fluctuations in the global economy. However, innovative products like mobile points-of-sale and near field communication are changing how these exchanges get done. These are just some of the developments creating a dramatic power shift from the traditional bank incumbents towards the agile payment startups, who now occupy the sweet spot in between the consumer and merchants, banks and credit card companies. It’s no wonder we’ve seen such a heavy influx of VC funding into payments startup (59 payments-related companies have received over $492 million dollars in Q1 of 2014 alone).
These startups are swiftly carving out a whole new segment of the payments playing field, creating space for new transactions as well as more transactions in general. Do they actually pose a threat to the industry hegemony of banks and merchant service providers? Absolutely! This is due in part to the fact these startups touch both sides of the transaction and create direct relationships with consumers. With very little barrier to entry, products like mobile POS (point-of-sale) put payment processing power into the phones (aka hands) of the smallest of merchants, while delighting the consumer with the efficacy and convenience they provide.
Payments startups have now correctly shifted their focus to creating products that allow customers pay when, where and how they want. Those with origins in one specific channel are now rapidly rolling out new product offerings to meet the needs of that same integrated, multi-channel consumer. At my own company, we’ve managed to develop and launch a full multi-channel product matrix in three years that includes mobile, online and in-store payments, all under a single account. Because stagnation and complacency are the murderers of innovation, we’re still continually looking to new payments offerings, be it Bitcoin to mobile wallets.
Anybody in this industry has heard the statement “the payments space is ripe for disruption.” It’s a PR buzz phrase that is as true as it is overused. Thanks to factors such as mobile, open-source databases and cloud computing, the barriers to entry for getting into payments technologies have dramatically lessened. As a result the industry has seen many new players (sometimes run by 5 employees or less) bringing tremendous efficiency and utility with payment products and services. These little guys, who have the freedom and flexibility to innovate rapidly, are able to live out a their own David and Goliath tale: taking out large incumbents who are bogged down by process and bureaucracy and beating them to the punch by both predicting and delivering to consumers what they need and want.
About the author:
Michael Gokturk is the Founder and CEO of Payfirma, a multichannel payment processing company and cloud-based payment platform. A thought leader and relentless entrepreneur, Michael has grown Payfirma from the first company to deploy mobile payments in Canada into a scalable solution for debit and credit card payments online, in-store and mobile. Prior to Payfirma, Michael founded VersaPay, one of Canada’s fastest growing companies which he took public on the TSX. With over a decade of experience as a game changer in payments, Michael has appeared on the cover of Profit Magazine and been honored with numerous awards including Best Business Person of 2012 and membership in the Top 40 under 40. Michael is also an active angel investor, mentor and advisor in the startup community.