The payments sector - though not without its challenges - remains rife with opportunity for innovation and transformation. At Balderton, we have a rich history of investing in great payments companies (including Numeral, GoCardless, Primer, Revolut, Ramp and more), and we remain as excited as ever about the opportunities on the horizon.
It was our pleasure to welcome portfolio founders Paul Anthony, co-founder of Primer, Hiroki Takeuchi, co-founder and CEO of GoCardless, as well as Dora Ziambra, Head of Payments Operations at Papaya Global, for an evening of debate and networking hosted by Balderton Partners Rob Moffat and Rana Yared.
We dove deep into the current state of open banking, the pace of innovation, barriers to adoption, as well as what it means for founders looking to build long-term, global businesses. Read on below for the highlights.
In the UK, open banking has been around for five years. February 2023 saw 8 million successful open banking payments completed - double that of the previous year. While there is clear growth, the reality is that the market share is fractional. By comparison, card payments in February 2023 totalled 2 billion transactions - 250 times the number of open banking payments.
With open banking bringing many advantages for merchants - greater certainty, lower cost, and immediate cash availability - it’s a wonder they aren’t jumping at the opportunity. So why is adoption so slow, and what needs to happen for open banking to really take off?
The general pattern seems to be that people massively overestimate how quickly things happen in payments, but massively underestimate the magnitude of what happens in payments.
Our panel agreed that open banking is still very young, and it’s going to take a lot longer than people think for it to take off. But that doesn’t mean the technology isn’t hugely exciting.
A helpful comparison is credit cards, which were first created in the 1950s. As late as the 1990s, you still couldn’t use a credit card for many everyday purchases, including at supermarkets and petrol stations. It took almost fifty years for credit cards to truly come into their own. So we can imagine a similar trajectory with open banking: the potential for transformation is incredible, but it won’t happen overnight.
When it comes to merchants’ seemingly low appetite for open banking, our panellists cited three key issues:
Merchants are looking for payment methods that are easy to adopt, familiar to their customers and have the capability to cover a breadth of services such as refunds, subscriptions, and recurring payments. There’s a lot that needs to happen for open banking to safely succeed on all fronts, and regulation will play an integral role in future adoption and consumer protection.
There needs to be an effective distribution channel, and a little bit of rocket fuel to get it off the ground.
Our panellists shared one key piece of advice to help early stage startups navigate the continued innovation in payments: build for the long-term, and take ownership of your payments infrastructure in-house.
Any large ecommerce company is essentially a payments company, with a large payments team. That’s how important it becomes. You need the right technical infrastructure to harmonise everything. It’s not easy, so you have to think about it early enough and have a plan.
There are three key advantages to taking a unified, centralised approach:
Nothing in payments happens overnight. It takes a long time to build a great payments business.
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