Failure to scale: avoiding a potential downfall for payments start-ups

Failure is often part of the process when scaling a business. But, how can payments start-ups increase their survival rate and buck the trend of collapsing once they reach a certain size? Currencycloud's Fiona Tee writes.

The payments industry continues to grow worldwide – investors are queueing up at the door for the next big thing and for many players, there is real opportunity to secure a share of gross transaction value. Yet, despite all of this, payment start-ups are highly susceptible to failure.  

We all know that innovation is risky and unfortunately, failure is often part of the process. But, how can payments start-ups increase their survival rate and buck the trend of collapsing once they reach a certain size?

Failure to scale

The Global Payments Innovation Jury 2017, comprising of 70 payments executives from 37 countries, found that 26 per cent of the Jury cited an unscalable business model as the key reason why payments start-ups fail. Many said that the business models of these start-ups simply aren’t built to be adaptable to higher volumes, proving their biggest barrier to success. This issue of scale trumped other reasons for start-up failure such as insufficient funding (14 per cent), unfair competition (13 per cent), and regulation (15 per cent).  

Reasons for failure

A suspected reason for this is that many new market entrants aren’t offering any significant advance on what is already available, instead offering ‘solutions in search of a problem.’ This generally takes the form of a business that works well with a limited group of customers, but cannot easily be expanded to a broader customer group – or a business that works well in one geography but cannot be expanded to other markets without being totally rebuilt. Instead of making it on their own, 42 per cent of the Jury believe that start-ups are most likely to  get acquired by an established payments player, or a technology giant (24 per cent).

The nature of the payments industry is another reason why start-ups fail to scale. The industry is continuously disrupted as new innovations emerge and updated regulation comes into force. This means that platform creators are required do more than just troubleshoot. They must now be able to predict the next wave and anticipate potential challenges, while finding a possible solution – no easy task.

Pushing past the scale barrier

To push past the scale barrier, start-ups should think about the following:

  • Plan for business growth. Sounds obvious but it is often overlooked – as volumes grow, payments start-ups should ensure that their processor has the capacity to accommodate the increased traffic . No matter how little or how much you are processing, your platform should not be disrupted.
  • Invest in your people. When it comes to recruitment, hire for skill and fit and not just because you have a vacancy to fill. Hire people who have a multifaceted skill set or skills that can be transferred from one task to another. This is key in a start-up environment where things change very quickly and you need to adapt to challenges as they come your way.
  • Consider growing outward, as well as upward. Creating a platform for one user base and finding out what works can allow you to replicate it for other groups of users when you’re ready. This will make it easier to customise your platform based on each new type of customer needs and gives you more control over the expansion process.
  • Ensure everything is automated including organisational processes like marketing, payroll and training. This will allow you to streamline operations for a fully scalable business.

Scalability is crucial in an industry that faces constant change and disruption. Payments start-ups should consider the potential for growth of their businesses to avoid putting themselves at risk of failure. By planning for business growth, avoiding a reactive approach to recruitment and growing outward as well as upward, payments start-ups are more likely to establish themselves as a long -term player in the market.

Fiona Tee is the CFO at Currencycloud, and a finalist of the Women in Finance Awards 2017.

Praseeda Nair

Praseeda Nair

Praseeda was Editor for from 2016 to 2018.

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