Another week in November, another conference, or so it seems. This week’s travels took the Wellesley Hills Financial team to New York City for the ETA’s TRANSACT Tech conference, hosted at the Mastercard Tech Hub on 5th Avenue. The ETA’s CEO Jodi Kelley and SVP of Government Relations Scott Talbott assembled what turned out to be an allstar speaker line-up, that for the most part, nailed their stated target of covering the “intersection of capital markets and payments.” Unlike most other ETA sponsored events, which tend to skew merchant acquiring/ ISO-dominant, this one efforted to attract thought leadership on the implementation of new payments technologies, the current regulatory status of the same, and capital market perspectives from equity analysts and private market investors, both early and late stage. And it did just that.
The one-day event couldn’t have been more relevant in that it was held during the real-time unfurling of the FTX implosion and subsequent crypto crash, the confirmation of two years of divided government, Congress passing its first standalone cannabis bill, Global Payments adopting an open banking alternative, and Merchant eSolutions being acquired by Japanese payments conglomerate Opn.
That’s some pretty good timing!
But not to get lost in the setting, the substance of the event had value. It was rich in content and voices that many founders in the payments technology space don’t get to hear from often – card networks, lobbyists, and investors – whose outsize influence on the ecosystem often takes a back seat to flashier headlines. So, a tip of the cap to TRANSACT’s Scott and Jodi for scoring big in the Big Apple, and here are a few takeaways that make the cut for this week’s most interesting.
Regulatory front…
Regarding cryptographic asset oversight, Washington’s playing host to a WWE cage match, where different agencies – FTC and CFTC in particular – are battling over jurisdiction at the same time that both are waiting for the SEC to create definition around whether of not some or all of these assets are securities, commodities, or ‘other’.
Buy-now-pay-later has a regulatory target on its back from the CFPB – not for being unlawful, but for needing oversight and a regulatory framework to work within – at the same time that a case is headed to the Supreme Court to determine whether the CFPB has the constitutional authority to do anything.
Senator Dick Durbin is on the warpath – again – and in Scott’s words “hell bent” on getting his Credit Card Competition Act passed as an amendment to the fiscal 2023 NDAA, or any other major bill going forward.
And, though there’s markedly improved odds of getting some form of SAFE Banking through the lame duck session, the odds of the card networks changing their position on cannabis banking are still slim-to-none – they’re indicating they want cannabis descheduled first.
Technology
Many eyes are on the Federal Reserve’s launch of its real-time payments network FedNow, which will compete with The Clearing House’s RTP system for instant payments. Though the Fed’s launch will allow broader financial institution access to RTPs, the more interesting aspect of this will come further down the road – IMO – as the Fed continues to experiment with a digital dollar.
In terms of crypto, the card networks are signaling that beyond the ‘on and off ramps’ they continue to create for digital wallets that allow consumers to convert crypto tokens to fiat for payments, there’s little future for any crypto asset beyond one that is pegged to a stable currency i.e. stablecoins. Further, the crypto they’re contemplating won’t be blockchain based – they’re talking about tokenized dollars which will inevitably continue to solidify their position as financial intermediaries.
Lastly, the card networks seem to be saying – without saying it – that cash discount and surcharging are here to stay, but merchant acquirers would be remiss to think they won’t be ratcheting up compliance and oversight in the near future…very near future.
Investment
There are two words I could use to sum up the overarching sentiment among the active, private market investors in fintech, payments, and SaaS from Monday – slow and cautious. Whether in the private credit or private equity side, deal activity is slowing down as a function of two dynamics. One, the investment community working through the challenges of more expensive capital, jittery LPs, and valuations that are still seeking a stable range. And, two, that none of the players – private equity, strategics, venture capital or private credit – are clairvoyant. Though right now it seems as if the economy, and by extension, the consumer is strong, there’s a sense that the macro hasn’t trickled down to the micro yet. In other words, there’s a lag in the manifestation of the higher interest rate, inflationary environment at the consumer level which, if significant, could extend or deepen the current financial downturn. Takeaway? Most investor classes are cautious in the short term, bullish in the long term.
But…
That doesn’t mean there’s no deal activity, nor does it mean that valuations of certain assets have sustained, or will sustain, at 2021 levels. High growth, free cash-flowing assets are still trading at high multiples. Why? Because there are so few of them. There’s also been an uptick in activity among larger private equity players seeking value in the public markets. Across all three segments – fintech, payments and SaaS – there’s substantial ‘bubble carnage’, and at current multiples, there’s a lot of value in the public markets that can be to be absorbed by private capital.
Cheers!
