There has never been a more exciting time to be in payments. The market is in transition, and with change comes opportunity. Companies with strong strategies are achieving explosive growth. Square stock now trades above $15 per share, after having traded at less than $9 per share about seven months ago. In November 2016, Stripe raised $150 million at a valuation of $9 billion, up from the $5 billion valuation it achieved 16 months prior. At the same time, companies that haven’t successfully altered their strategies to market trends are stagnating. What’s the secret to success? You must have a mature market strategy.
The cycle of payments electronification came to life in the early 1980s with the introduction of the magnetic stripe and the payment terminal. That kicked off a product growth phase that lasted for decades. Now, however, more than 30 years later, the electronic payments industry is mature. Due to the decades-long product growth phase, many payments companies continue to employ growth market strategies that focus on distribution scale. In mature markets, however, that is no longer a winning strategy. In mature markets, scaled distribution of mass market solutions doesn’t work; rather, differentiation is critical for success. The steps for achieving differentiation are as follows:
1. Select a growing target market in which you have core competencies.
2. Build your business strategy around the needs of that target market.
It is that simple. Some of the fastest growing companies in payments include Adyen, Braintree, PayPal, Square, and Stripe. Adyen focuses on large digital merchants expanding globally. Braintree achieved explosive growth by focusing on mobile app developers selling nondigital services. PayPal specialized in eBay microsellers before becoming a powerhouse across e-commerce. Square enabled micromerchants selling in-person. Stripe enables startup e-commerce companies needing to maximize speed-to-market.
Each of these companies provides high-quality products that are specifically tailored to the unique needs of a clearly defined, high-growth target segment. They also pursue their target segments in a highly specialized way, pointing distribution, product packaging, promotional, and pricing strategies all in the same direction. In so doing, they dominate their target markets with minimal competition, achieve premium pricing, and simultaneously gain from the outsized growth rates of their customers.
If your target market is vague, if your products are general purpose, if you are playing copycat with the competition, if your distribution channels are unfocused, if you’re feeling the effects of pricing compression, if you’re relying on network-driven initiatives such as EMV to drive your growth, or if your growth rate is at or below the market average, then your strategy is outdated. Payments is no longer a growth market, so you need to leave your growth market strategy behind and join the small group of high performers with mature-market strategies that segment the market and deliver segment-specific solutions.