In the age of the connected economy, streamlined experiences — less time spent in store aisles, ride-hailing for just-in-time transportation, food on demand — translate into outsized savings of time and money.
As part of the continuing ConnectedEconomy series, Mike Packer, partner at QED Investors, told PYMNTS that investors looking to fund the FinTechs and digital-first firms that make it all possible need to take a long-term view, but the changes wrought by backing the right firms can be seismic.
“If you think about just extending that to something like IoT and being able to take more and more friction out of daily transactions, commerce and payments … it’s really incredible to think about ‘if we unlock another a hundred billion or a trillion dollars of opportunity cost value, what are we going to do with that time as a society?’”
Delivering a continuum of offerings to end users requires the integration of new technologies to make integrations smart, relevant and real-time, using advanced technologies and networks such as 5G and artificial intelligence (AI).
To that end, the word disruptive gets bandied about a fair amount.
Disrupting With FinTech
“It’s hard to define disruptive,” explained Packer, “and different people use it in different ways.” But to his mind, finding disruptive companies and technologies lies with building out FinTech — a market that is still in its early innings of creation. At a high level, he said, that involves selecting smaller, fast-growing firms with strong management teams and talent. But it also means finding entrepreneurs with vision, who are anticipating where the puck is going, so to speak, in financial services.
There’s at least some commonality across the payments space, noted Packer, at least in terms of technology.
“If you look back over the past five years — maybe even 10 — it’s shown us that APIs and their use cases are more powerful than anyone would have imagined,” he said. APIs (application programming interfaces), he said, are akin to the tools that go into firms’ “laboratories” that allow companies to start to test, tinker, and learn about new ways to bring payments and commerce, in connected form, to broad new swaths of the population.
It’s no easy task to design APIs that are simple to use (Packer said Stripe, among others, has done it right), but building the complexity out of the process is critical, especially as emerging economies embrace digital-first financial services.
In many of those countries, he said — especially in Latin America, where QED focuses efforts with investments in firms like Nuvocargo, but also has been active with players in the traditional banking space — companies have to choose whether they’re willing to accept the current infrastructure, whether they’re going to wait for new infrastructure or they’re going to build it themselves.
“If you’re a company like Nuvocargo, looking to create more services and value-add in your platform for helping improve cross-border commerce between the U.S. and Mexico, there are a lot of things, in terms of infrastructure, that are just not there,” he said. In the build versus buy debate, then, the decision comes down to: build. Doing so, he said, shapes competitive advantages, because the infrastructure, the products, the services, can all be tailored to a key, core audience.
“If you’re an infrastructure creator right now in Latin America, you should be in high demand,” he said. “And if you can create some really beautiful simple APIs — taking friction out of what’s most likely a very complicated process — you’ve got a product that’s going to have some legs.”
That doesn’t mean that the FinTechs will kill the banks. Legacy banks will continue to exist, in Latin America and elsewhere, said Packer. “They’re going to evolve and maybe they all won’t exist or, or maybe the sizing will be a little different. But there’s going to be a place for them even as FinTechs continue to take market share.” Value can be created through partnerships, he said, now and in the future.
Looking ahead at the overall investment landscape, he told PYMNTS that — in a world dominated by headlines tied to IPOs and SPACs — the amount of capital and activity that is waiting in the wings is as big as it’s been in a long, long while. Some target firms have found their markets, with a strong sight line to growth and to profitability.
“They feel like they can tap the public markets maybe a little bit earlier than they had otherwise planned,” said Packer. Other firms are more firmly entrenched in the planning and testing phases of their evolutions and may not want to take some of that trial and error to the public markets.
Of QED’s efforts, he said, “What we’ve been trying to advise is ‘don’t sacrifice your long-term vision just for a short-term opportunity.’”