- Byron Lichtenstein is a principal at Insight Partners, which invests in growth-stage software companies.
- “Where a lot of the innovation is occurring is this convergence between software and payments,” he told Business Insider.
- It’s not just about moving money from point A to point B, Lichtenstein said. There is opportunity in the analytics and data found in and around payments.
- “In terms of monetization, I think that people will continue to put more analytics and rules around the way that people actually spend their dollars,” Lichtenstein said.
- We spoke to investors at Andreessen Horowitz, Bain Capital Ventures, Citi Ventures, and Insight Partners about where they see the next innovations and opportunities in payments tech.
- Click here to see what other VCs are looking out for in the payments space.
Byron Lichtenstein is a principal at Insight Partners, and sees most opportunity in the convergence between software and payments.
Insight Partners focuses mainly on growth-stage software companies across verticals from education to social media to fintech, and it has invested in German neobank N26, business expense management startup Divvy, and payment fraud monitoring startup Sift.
Here are the ways he sees payments and software coming together to find value in a changing industry.
Opportunities in using data
“Historically, we’ve always been software investors,” Lichtenstein told Business Insider.
“What’s changed over the past two years that we found really interesting is that dumb payments don’t really —obviously, they exist —but they’re not really a thing anymore,” Lichtenstein said.
“Where a lot of the innovation is occurring is this convergence between software and payments,” said Lichtenstein. He’s focused on both on software companies enabling payments, and payments companies layering in software.
It’s not just about moving money from point A to point B, Lichtenstein said. There is opportunity in the using the data found in and around payments.
“When I think about payments, it’s putting a dollar amount on interactions,” said Lichtenstein. “By following that payments flow, you can understand how people are interacting, how their workflow should go, and where they’re spending their time and dollars.”
“I think people historically were always focused on the consumer aspect. In the business aspect, there are a lot of dollars flowing,” said Lichtenstein.
“Actually enabling companies to understand how they’re spending that money will be big.”
One of Insight’s investments, Divvy, offers an expense management software to businesses for free. Instead of charging for its software, Divvy takes a slice of interchange fees on transactions from Divvy’s corporate card, issued by Mastercard.
Divvy offers customers real-time insights into spending using transaction data, and also provides bill paying services.
“They actually layered in the expense management software on top. So that’s what got us really excited,” said Lichtenstein.
How payments will be monetized
“It does cost a little bit to move money. Obviously all of our companies are still having to pay Visa and Mastercard. Those businesses are doing well,” Lichtenstein said.
Incumbent payments giants like Visa and Mastercard charge fees to use their processing rails. Interchange fees, for example, are charged to merchants when customers pay using a credit card.
Fintech has put some pressure on the industry to reduce fees, but interchange fees remain a key part of the payments ecosystem. Retail giant Kroger banned Visa cards in 134 of its Smith’s grocery stores due to “excessive” interchange fees in May (though the ban was reversed in October.)
To be sure, Lichtenstein sees opportunities outside of charging fees.
“In terms of monetization, I think that people will continue to put more analytics and rules around the way that people actually spend their dollars,” Lichtenstein said.
Chargebee, one of Insight’s investments, is a billing platform for subscription-based businesses. The startup offers not only subscription management and billing services, it also provides reporting and analytics to help its customers scale.
Fraud monitoring is another area in which Lichtenstein is seeing growth. One of Insight’s investments, Sift, uses machine learning to provide data-driven fraud prevention software, which enables companies to accept more payments as they scale. Sift’s customers include Twitter and Airbnb, companies that don’t have their own payments infrastructure.
Payments companies like Stripe and Square also offer fraud monitoring on their platforms. Sift gives businesses the ability to run their own transaction fraud process, instead of relying on that provided by payments platforms.
Wells Fargo has inked an agreement with Plaid that is similar to the one JPMorgan signed last year, which signals the big banks acknowledging consumer demand for new fintechs. Plaid’s API software allows companies to connect to their customers’ bank accounts, and Plaid has a wide range of fintech clients including personal finance, lending, brokerage, and P2P payments apps.