Sponsor Interview: Eric Queathem, EVP, Global Head of Strategy and Emerging Businesses Worldpay from FIS

Ahead of FinTech Connect 2022 taking place on 30th November - 1st December, we shined the spotlight on Eric Queathem EVP, Global Head of Strategy and Emerging Businesses Worldpay from FIS, who are one of the leading sponsors at this years conference. Eric gives us an insight into his role at FIS, his biggest achievement within the role and his thoughts on open banking.

Please give us a little introduction on your current role and what you do.

As the EVP of Global Strategy and Emerging Businesses for the Worldpay division at FIS, I am responsible for strategic direction, vertical growth, strategic alliances, and managing the emerging businesses of the Worldpay division globally (including Crypto and Web3). Since joining FIS in 2016, I have held numerous roles, including leading Corporate Strategy, M&A integration, and the operations of the Worldpay’s eCommerce division. I joined FIS (Vantiv at the time) from McKinsey and Company where I led Payment, Retail and Consumer, and Private Equity firms across Strategy, Operations, and Sales issues.

What do you consider your biggest professional achievement to date?

I think my biggest professional achievement was to bring together Vantiv and Worldpay in 2018. At the time, it was one of the largest payment deals of all times and created the most comprehensive enterprise commerce assets in the world.

Eric Queathem EVP, Global Head of Strategy and Emerging Businesses Worldpay from FIS will be participating on the PayTech Connect track on day 1 - 30th November at 10:30am looking at exploring 'How do you keep up with the digital transformation in payments?'

What do you see as the main challenges which have prevented the full success of Open Banking? Are we moving towards a more open economy?

Main challenges:

• Integration: bank API performance can be at times weak and unreliable.
• Security: there is no universal identity management framework for open banking, making it difficult to determine which accounts belong to customers in a specific bank. It also becomes difficult to safeguard user data when banks share sensitive customer information with third party applications that they cannot vet or control.
• Lack of global compliance standards: while the UK and EU have led the way in developing comprehensive rules and regulations in this space with PSD2 and the Open Banking Initiative respectively, other developed markets like the US lag behind with no government-led standard on open banking regulation.
• Consumer demand: more often than not, changes in payment preferences are driven by consumer demand, and these preferences change over the decades and not years. Consumers still prefer cards, which is why they dominate the industry.

Are we moving towards an open economy?

If we define an open economy as one that is inclusive, borderless and fast, then yes - innovation, investment and steady change in consumer demand toward more convenient and secure forms of payment and commerce support a more open economy. Open banking will continue to see more user uptick globally and is already mainstream in Europe and the UK. With banks mandated to share APIs publicly, disrupters can create more fit-for-purpose, customer-centric solutions that benefit the masses and create convenient and seamless fund flows. You have to remember, though, that balancing Cost, Speed and Security always comes with trade-offs.

How do you perceive the opportunity of the metaverse in payments?

• Currently, most payments in the metaverse are made with cryptocurrencies and each metaverse has its own set of digital currencies that are accepted, meaning that payments are inaccessible to all but the most tech-savvy consumers.
• There is an opportunity for existing payment providers to develop solutions that integrate traditional payment methods with the metaverse so that non-Web3- savvy consumers and merchants can participate and merchants can align their Web3 revenue with their real-world revenue.
• In the same way that NFT marketplaces are moving toward accepting card payments, Worldpay believes that the metaverse will also make a shift to traditional payment methods to accelerate consumer adoption and win as a platform. As well as offering a wide range of traditional pay-in and pay-out products for the Web3 space, Worldpay will have a pay-by-crypto offering which will enable consumers to purchase goods and services in a cryptocurrency of their choice.
• McKinsey predicts that spending in the metaverse will total $5 trillion in 2030 with eCommerce driving $2.6 trillion of this and so the reward for a payment provider that can successfully enable this solution is significant.
• However, the user experience surrounding exchanging fiat to cryptocurrency will need to be seamless to encourage widespread adoption from consumers.

To what extent is crypto a focus for you and in what way? Where do you see this going for the payments industry

General comments / where we see this going:

• Crypto is a significant focus area for FIS across Banking, Capital Markets and Merchant Solutions o We are committed to being industry leaders in leveraging blockchain technology and building fit-for-purpose solutions to benefit our customers globally via existing product enablement, new product development, thought leadership and investment
• The number of crypto users around the globe reached ~295 million in December 2021
• Regulation, talent, and capital has supported this growth, resulting in increased retail and institutional investment and adoption that has made the sector all but mainstream. We expect this trend to continue.
• Payment service providers and technology firms can play a critical role in simplifying the transition to crypto payment acceptance at scale by offering embedded services with existing integrations. We intend to leverage our existing technology and scale to allow merchants to reap the benefits of crypto with as little friction as possible.

In what way is it a focus for Worldpay:

• Within merchant, we’ve built a 100+ team dedicated to the Crypto and Web3 vertical across commercial, strategy, partnerships, product, risk / compliance and government affairs
• We’ve enabled critical products to facilitate the flow of fiat funds in and out of the crypto ecosystem
• We’ve invested in building fit-for-purpose products for merchants in the crypto space including stablecoin settlement (USDC) in partnership with Circle. Crypto settlement may be one of the easiest ways for merchants to begin engaging with Crypto, as they need not worry about expensive conversions or volatility. We have also developed a ‘Pay-by-Crypto’ solution that enables merchants to accept payments in a range of cryptocurrencies while being settled in fiat against traditional payment rails.
• We power leading NFT and Web3 companies with payment infrastructure to accelerate consumer adoption.

What are the top 3 payments trends you are predicting for 2023? Where should FIs and merchants be focusing their efforts in the next few years?

• Real-Time payments will go mainstream – merchants are attracted to RTP because of low-cost transactions (they are now actively offering discounts to consumers to use it, for instance in Brazil to use PIX). Merchants also like the quick access to sales funds to help with their cash flow. Governments are encouraging it to increase financial inclusion (think PIX in Brazil, UPI in India). Over 70 countries have launched their own RTP schemes with another ~20-25 being expected in next few years. According to FIS/McKinsey analysis, the global real-time payments transaction volume has been growing at ~60% p.a. over last 5 years. The next wave of real-time payments growth is expected to come from multi-country harmonization (e.g., P27 in the Nordics), with increasingly cross-border and eventually global collaboration in the future
• Digital currencies will gain more momentum – by digital currencies, we are referring to cryptocurrencies as well CBDCs. Cryptocurrencies as a payment method is still in its infancy but will gather momentum next year and beyond as merchant acceptance increases. Acquirers, like FIS, have a big role to play in educating the market about managing risk. Governments keen to reduce cash and tax evasion are also developing digital versions of cash (CBDCs). There are currently many pilot programs in progress (eg. China, Sweden, Australia, S.Africa) and some have already been launched (eg. Nigeria, Bahamas). See this map Visualized: The State of Central Bank Digital Currencies
• Embedded payments – we will see an increase in demand for embedded payments because they offer a better customer experience (eg. streamline onboarding, reduce risk and fraud, reduce cost, etc). According to Bain & Co, consumer payments account for more than 60% of all embedded finance transactions. In 2021, US customers spent $1.7 trillion via embedded payments, generating $12 billion in net revenue. This is projected to reach $3.5 trillion by 2026, generating $21 billion in revenues for platforms and enablers.

What is the biggest challenge to merchants in 2022 and how can they prepare for 2023?

• Increased operating costs due to current macroeconomic situation – high inflation, high energy prices, higher employee wages. Therefore, they will need to plan their access to finance from a variety of sources (embedded finance again)
• Pressure on revenue due to lower forecasted consumer spending – they will need to invest in loyalty programs , for instance, to retain customers, expand into new markets, target new customer groups. Data analytics becomes an important tool in their arsenal
• Ability to meet and support their end customers in terms of the ways to pay. When you think about a global retailer operating in many geographies – the ways that people choose to pay are increasingly local. There is a wide range of local payment methods that merchants have to support. For instance, you can’t be relevant operating in the Netherlands without offering iDeal or within Southeast Asia without offering GrabPay. There is a great deal of payments localization happening; ironic against the overall backdrop of increased globalization. In more developed economies, you’re also seeing the modalities with which people pay increasingly changing. There is an increased need for the support of digital wallets at the point-of-sale, and going forward, there will be more adoption around Internet of Things (IoT), novel technologies like facial recognition, and stuff like that. The easiest thing that merchants can do today to be prepared for all the changes is to work with a payments provider who deals with the ongoing change on a regular basis, and who has a client profile who needs to be able to support these types of solutions. Merchants will want a provider who already has familiarity with serving those markets or those payment methods or modalities, so that they can lean on their provider to lessen the pain. This is why Worldpay from FIS invests heavily in building out our support for alternative payment methods and for supporting additional geographies and modalities. We are focused on how we can be there to help our clients with these challenges.

What do you see are the impacts and opportunities for companies with the rise of embedded finance?

Embedded finance opens a wealth of opportunity for companies who are aiming to deepen relationships with their customers. As software companies have increasingly offered expanded payments offerings, the next frontier of the growth of their relationship with their sub-merchants is going to be with embedded finance.

I think the biggest impact to software companies is that it forces them to get involved in bringing this solution to market. Gone are the days where they can only be a software company. Now, software companies have to think of themselves as business management and commerce solution providers. This means a seamless embedded experience in which the payments flows are tightly woven into the underlying software itself. When you layer in embedded finance, you open significant opportunity to enhance the user experience for SMBs. For instance, you can offer faster settlement solutions by pushing funds to card for same day settlement. Additionally, you can monitor cash flow and financial health for the SMB and present them with targeted card or lending offers. Over time you’ll also see additional products being presented to merchants as these relationships continue to deepen.

For the software company, that’s a huge impact to their business. They need to be set up with the infrastructure needed to deliver these solutions to their customers, which is why Worldpay has oriented itself as being an infrastructure-as-a-service provider who can help the many software companies who are too small to build this in-house. We build the foundational infrastructure that allows any software company to be able to deliver these types of solutions. In terms of opportunities, it allows software companies to build a much stickier customer relationship. It helps to reduce churn and increased switching costs within their client base. As these companies are increasingly capturing more and more share of wallet with their sub-merchants, this can help to drive massive gains in customer lifetime value as the software company is able to capture increased spend with their clients over time.

The payments industry has come a long way in the last 3 years – how have you adapted your business to keep up with the demands and new challenges of your clients?

The answer depends on which type of customer you are thinking about. Let me focus specifically on SMBs and Software Platforms. If you look at the evolution of payments over time for SMBs, you’d start out with this first generation – what I’d call payments 1.0. In the payments 1.0 model, everything was on a standalone terminal; it was unintegrated. Then, these guys at Mercury Payment Systems came along and said, “hey, what if we helped software companies to monetize their SMB relationships by leveraging them for payments referrals.” So, along came the payments 2.0 model. The hallmark of this 2.0 model was the concept of integrating payments into software. And Mercury, and by extension Worldpay since we acquired Mercury, were at the forefront of this push.

Now as we look at the landscape over the last couple years, it’s really shifted again into what I’d call payments 3.0. Payments 3.0 is defined by the idea of enabling software companies to become mini payments companies. So, to software companies, payments is no longer about slinging referrals over the fence to monetize them. Now, software companies are looking at payments as a core product of theirs, and one that they can differentiate on vs their competitors. So, they look for greater ownership over every element of that payments process. They want to take on a greater role in customer service and support, customer retention, payments pricing and everything else that you can think of. As we continue to move forward, you’ll increasingly see us move from this embedded payments model into one that is much more driven by embedded banking and embedded finance. Software companies are increasingly going to want to offer these products to drive greater customer monetization, improved stickiness, and deliver an overall better product to their SMBs. Now, the onus on the payments companies is “how can we help to deliver all of these additional pieces of value to SMBs so we can offer a better product but at the same time be generating a greater addressable market to the software companies that we work with.”

Worldpay saw this happening in the market and realized that we needed to be better positioned to address this trend. We went out and acquired an embedded payments solution provider, Payrix, in Q4 of 2021. This acquisition delivers that core foundational piece of technology – that payments infrastructure – to our software clients. We now see massive opportunities for leveraging embedded finance and embedded banking as we plug Payrix into the broader technology estate of FIS, which includes our banking solutions business that handles issuing, program management, and all of these other embedded finance technologies.

Want to hear more from Eric Queathem EVP, Global Head of Strategy and Emerging Businesses Worldpay on the PayTech Connect track looking at: 'How do you keep up with the digital transformation in payments?'