International Payments Dilemma: Pursuing Expansion or Maximizing Financial Gains?
The international payments sector is divided into two main groups, each with distinct primary goals: growth and profit. This division significantly shapes the strategies, operations, and market positioning of companies within this sector.
Growth-focused companies prioritize rapid expansion of their market share, customer base, and geographical footprint. Their objective is to capture as much of the global payments market as possible, often sacrificing short-term profitability for growth. To achieve this, they invest heavily in sales, marketing, and technology to swiftly enter new markets and outpace competitors.
On the other hand, profit-focused companies aim to maximize profit margins and ensure each transaction or customer segment is economically viable. They are more cautious about international expansion, carefully balancing growth initiatives with cost controls to maintain or improve profitability.
In terms of international expansion, growth-focused companies adopt an aggressive and often global approach, accepting higher risks and costs associated with cross-border compliance, currency exchange, and localization. They may also absorb higher transaction fees or fraud risks to drive customer acquisition. Profit-focused companies, however, expand selectively, only entering markets where the path to profitability is clear and operational costs are manageable.
When it comes to payment infrastructure and customer experience, growth-focused companies invest in diverse payment methods (local and international), seamless currency conversion, and localized checkout experiences to reduce payment friction. Profit-focused companies, on the other hand, may standardize on a few profitable payment methods and geographies, optimizing backend processes to protect margins.
Capital efficiency is another area where these two groups differ. Growth-focused companies may tolerate higher "cash burn," reinvesting revenues into growth initiatives, customer acquisition, and market penetration. Profit-focused companies, however, prioritize capital efficiency, seeking to maximize return on investment (ROI) by carefully managing how capital is deployed.
Risk tolerance also varies between the two groups. Growth-focused companies exhibit a higher tolerance for the risks of international payments, including regulatory compliance, fraud, currency volatility, and the cost of localizing for diverse markets. Profit-focused companies, by contrast, are more risk-averse, prioritizing markets and payment methods that are proven, stable, and less likely to incur unexpected costs or compliance issues.
In conclusion, growth-focused companies aim to scale rapidly by entering new markets, supporting diverse payment options, and accepting higher costs and risks. Profit-focused companies, by contrast, carefully manage expansion, costs, and risks to ensure each initiative contributes directly to the bottom line. Both approaches have trade-offs, and the optimal strategy depends on the company’s stage, market conditions, and access to capital.
Daniel Webber, in a recent LinkedIn post, emphasized the need to be mindful of competitors and the strategies required to win in the international payments race, which is still in its early stages. As the sector continues to evolve, it will offer a diverse range of products, with pronounced differences between offerings from growth and profit-focused companies. Vetting customers is crucial in the international payments space, as companies face larger risks compared to participants in other industries. Companies focusing on delivering products without properly vetting customers are potentially compromising their success.
Lastly, it's important to note that the assumption that all payments companies should be forced to have the same pricing is incorrect. The behavior of a company is dependent on whether they have growth or profit as their primary goal.
In the international payments sector, growth-focused companies prioritize rapid expansion by investing in diverse payment methods, global marketing, and technology, accepting higher risks associated with cross-border compliance and accepting higher transaction fees to drive customer acquisition. On the other hand, profit-focused companies expand selectively, focusing on clear paths to profitability, optimizing backend processes to protect margins, and standardizing on profitable payment methods and geographies. The behavior of a company in terms of pricing is dependent on whether they have growth or profit as their primary goal.
