tag:omarqari.com,2014:/feedOmar Qari2014-02-09T16:15:50-08:00Omar Qarihttp://omarqari.comSvbtle.comtag:omarqari.com,2014:Post/how-were-killing-expense-reports2014-02-09T16:15:50-08:002014-02-09T16:15:50-08:00How We're Killing Expense Reports<p>The expense report is broken. The entire concept was a necessity of a previous era when it was simply more cost effective and efficient to process stacks of paper in batch. Today, the secular shift in customer expectations that has fueled market challengers in B2B services like accounting (Xero) and payroll (ZenPayroll) has put pressure on the rest of the back office to mirror the experience that customers have come to take for granted in their personal lives. It’s not enough anymore for a SaaS provider to just offer an online expense report - that’s essentially the digital equivalent of giving businesses a faster horse.</p>
<p>We’re building <a href="http://www.abacus.com">Abacus</a>. We intend to eliminate the need for expense reports altogether. <a href="https://twitter.com/tedp">Ted</a>, <a href="https://twitter.com/jhalickman">Josh</a> and I are reimagining the expense management workflow born mobile, from the ground up to mirror the speed and simplicity of sending a tweet. To understand the impact of this, we need to independently analyze the motivations of each of our 3 key stakeholders:</p>
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<p><strong>Employees</strong>: Extrapolating away the entire concept of the expense report from employees while rewarding them with next day payouts (<em>request access to our beta for next day payouts by emailing <a href="mailto:hi@abacus.com">hi@abacus.com</a></em>) encouraged submissions on-the-go, resulting in a 5x decrease in employee processing time compared to the nearest competing service. What… happier, more productive employees? Yes please.</p>
<p><strong>Managers</strong>: By building the entire manager experience right into the mobile app, managers are now able to review, seek clarification and approve expenses right from their phone for the first time. Our aim was to make it as easy as archiving your inbox - something most managers are more than familiar with :)</p>
<p><strong>Accountants</strong>: Somewhat counterintuitively, the increased velocity and fragmentation of expense submissions and payouts actually led to a significant decrease in the finance team’s work. By letting Abacus take care of the employee communications, payouts, manager reminders and accounting sync in real time, accountants have seen their roles shift from drivers to monitors. Without the need to follow-up with their co-workers, remit payments or manually push to accounting software, accountants are free to dynamically generate reports that are important to them when they need.</p>
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<p>What we’re not building is another expense tracker. Our thesis is that the crux of the problem is not in the tracking, but rather the back office workflow. What we’re aiming to solve is a team collaboration problem - help employees easily request and receive reimbursement for business expenses, while allowing managers to quickly seek clarification and make a decision, all the while giving accountants the peace of mind that approvals, payouts and bookkeeping are seamlessly happening in the background.</p>
<p>We believe that employees today expect more. The pandora’s box is open and employees know what their business tools should feel like because they experience it everyday with their consumer applications. We also feel that employers have the opportunity to truly differentiate themselves as a place that puts employee satisfaction high on its priority list. No one wants to be the company where employees are selling shoeboxes full of receipts to colleagues for $0.60 on the $1 just to avoid dealing with the frustration of submitting an expense report.</p>
<p>Learn more about <a href="http://www.abacus.com">Abacus</a>.</p>
tag:omarqari.com,2014:Post/response-to-matt-harris-square-puck2012-11-26T18:09:48-08:002012-11-26T18:09:48-08:00Response to Matt Harris' Square Puck<p>Matt Harris <a href="http://mattftw.com/financial-services/square-puck/">wrote a thought-provoking post</a> over the weekend, where he tries to break down how today’s offline payments landscape is reacting to Square and makes some bold predictions on where we’re headed.</p>
<p>I personally enjoyed reading it and wish more VCs were as thoughtful on the topic of financial technologies. That being said, I want to address a few key assertions Matt makes in the post where my view differs.</p>
<h1>Are the payments incumbents actually heading in the wrong direction, wasting their resources and time?</h1>
<p>While I agree that the specific piece of the value chain (i.e. acquiring processing) that incumbents are targeting in Square’s backyard (i.e. the micro-merchant segment) is unprofitable, we cannot underestimate the intentions underlying this approach. Of course BofA and TSYS know it’s unprofitable – in the same way that Square clearly views the play as a loss leader to get merchants on the platform, the incumbents view it as a loss leader to maintaining market share in the face of a new model built around the disaggregated payments stack that threatens to undermine their vertically integrated approach. </p>
<p>Even though Square still processes 0.3% of US market throughput compared to BofA’s 18.3%, BofA had to retaliate because the cost to BofA of retaining existing or acquiring new merchants that would otherwise embrace Square’s new model that better caters to their needs is negligible compared to the lost revenue they would realize if Square’s disaggregated payments model took hold in the market and pigeonholed them along with the other incumbents as the transaction processing “dumb pipes” infrastructure providers in the value chain. In this way, we have to empathize with the fact that they don’t view these resources as wasted so much as a short to medium-term investment to prolong their antiquated vertically integrated payments stack from the impending threat of disaggregation. In fact, they may even argue that they have a fiduciary duty to their shareholders to not sit around quietly waiting for the new ecosystem to come turn them into utilities, as we saw in mobile telecom.</p>
<h1>Is Square more elegant than LevelUp because it controls its own payments infrastructure, while the latter outsources to Braintree?</h1>
<p>While I certainly agree that Square is more elegant than LevelUp, it’s hard to argue that it’s because Square controls its own payments infrastructure. In fact, Square itself outsources to Chase Paymentech and even used to leverage IP Commerce’s APIs to plug into Paymentech’s infrastructure. It’s not as if Square is now processing for Starbucks – the merchant acquiring processor just shifted from BofA / First Data to Paymentech, while retaining the existing IBM POS hardware. </p>
<p>This is by no means a criticism of Square’s model – in fact, I believe Square’s disaggregated payments stack will be the predominant model going forward (following the precedent of what we’ve seen in mobile telecom). In this scenario, each player focuses on what they’re good at, e.g. Square (user experience) and Paymentech (cost efficiency). Given that the majority of the pain today is felt by customers in the front-end user experience at the application layer (therefore resulting in the largest revenue opportunity), it’s no surprise that the vertically integrated incumbents are fighting hard to avoid being converted into utilities at the infrastructure layer while new entrants like Square are happy to pay a small toll to leverage the incumbents’ infrastructure rather than waste their own resources rebuilding the underlying rails.</p>
<h1>Is Verifone, as a hardware player, missing the point and should it do a comprehensive business development deal with Square?</h1>
<p>In my view, Verifone is not avoiding a deal out of pride – I believe this is Verifone’s play at becoming relevant again. Putting aside the fact that I believe they’ll be unsuccessful (too far out of its core competency to be a leader in user experience), the hardware business is not where you want to be in payments today – riding the dongle fad is just Verifone’s way of getting into the processing game and getting into the processing game is just a loss leading foot in the door (see: Square) to upselling other services to merchants. As long as Verifone believes it has a shot, no deal will get done because they’re head on competitors. Once we see a few more deals like Paymentech / Square and Wells Fargo / Stripe, where incumbents acknowledge their new role in the ecosystem and new entrants start capturing more significant market share, more incumbents will have to give serious thought to partnering. Before that however, you better believe they’re going to defend their market share and take the losses doing so. </p>
<h1>In 6-12 months, will conventional wisdom reflect that Square is primarily a consumer-facing mobile wallet provider like Google Wallet?</h1>
<p>I would actually argue that Square’s game is genuinely a merchant play (though of course not acquiring processing), with the opportunity for a consumer flank. In 6-12 months, I predict that despite losing money hand over fist in the Squarebucks deal (at a 1.9% gross merchant service fee, I estimate the loss to be ~0.8% per coffee on Starbucks’ $6 billion in throughput), Square will have successfully gained a consumer foothold large enough to put the chicken / egg problem in Square’s merchant sales pitch to rest, thereby allowing the company to ramp up merchant acquisition and prepare to start upselling advanced analytics and better inventory management through Square Register. The consumer flank would be to push more loyalty and discovery offerings through Pay With Square, but this only highlights my subsequent advice. What I would advise them to do at that point (though I fear they wouldn’t, opting to justify controlling UX), would be to open up the platform to third party developers (platform on a platform), recognize that they’re not going to be the best service provider across the entire consumer retail experience to the myriad industries they’ll cater to and keep a significant cut for themselves (see: iOS). </p>
<p>And for what it’s worth, I would never wish the fate of becoming a “wallet provider” a la Google Wallet on any friend!</p>
tag:omarqari.com,2014:Post/why-facebook-really-axed-credits2012-06-29T18:06:48-07:002012-06-29T18:06:48-07:00Why Facebook Really Axed Credits<p>There was a lot of noise in the press last week about what <a href="https://developers.facebook.com/blog/post/2012/06/19/introducing-subscriptions-and-local-currency-pricing/">Facebook’s Developer Blog post</a> on the axing of Credits did or did not mean. Frankly, most of it missed the point. </p>
<p>In order to understand Facebook’s decision to wind down the virtual currency after dipping its toes into the space for the past 3 years, we first have to take a step back and look at what’s happening in the global payments industry. Driven mainly by the inability of financial services providers to differentiate themselves, historical integrated payments business models are being replaced by a disaggregated payments stack. </p>
<p>The base infrastructure layer makes up the industry’s rails, i.e. banks, schemes and processors. A critical component of the stack, the infrastructure layer acts as the basic toll road over which transactions travel, providing scale as the main benefit and presumably therefore cost efficiencies (cost leadership). In contrast with yesteryear’s integrated payments platforms, tomorrow’s highly specialized stack will be too competitive (on service leadership) for infrastructure players to properly cater to customer (merchant or consumer) needs downstream at the platform or application layers.</p>
<p>The application layer sits at the top of the stack, providing the differentiated touch points (service leadership) that customers demand, whether it be discovery, analytics or loyalty for an offline merchant or endless mind-numbing hours of FarmVille for a neglectful nanny. No one understands the consumer’s behaviors, habits or desires better than the specialized service providers at the application layer. These players have no business competing on cost leadership and frankly, that’s not where the margins are anyway, so eyes on the prize. Warning: many founders have been lured by the siren song of displacing an infrastructure player. The financial services market economics simply don’t support it – why waste resources rebuilding the rails? Look to the examples of Google and Apple in Mobile Telecom – go over the top. </p>
<p>Facebook’s decision to abruptly step back from Credits represented an acknowledgement of the above realities and the fact that its core strength (from a payments perspective) is at the platform layer. It cannot effectively be everything in the stack. Even ignoring the regulatory and political hurdles that would have arisen, why should Facebook have tried to be a bank – the rails already exist! Pay the toll and focus attention back on the key differentiating factor of any platform – distribution. </p>
<p>Don’t get me wrong – payments is still a massive opportunity for Facebook at the platform layer (as it has been for Apple’s iTunes store). I believe it will easily eclipse the company’s advertising revenue within 5 years. Facebook just needs to be prudent in where it focuses its energy because the payments game can be a slippery slope. Virtual goods (games and App Center applications) will still sell at 30% margins for now, but physical goods won’t return more than 3% when the company tries to convert the ubiquitous “Facebook Connect” button into “Pay with Facebook” (and that’s before the 1.8% owed to issuer banks for interchange fees and 0.2% collected by the card schemes). The margins will be no better if / when it attempts to follow PayPal Here into the O2O (online to offline) space, likely requiring the company to start collecting user bank account details to process using ACH and cut back on interchange fees to increase margins. </p>
<p>Suffices to say, before getting any further ahead of ourselves, there are potential opportunities and pitfalls for Facebook in the world of payments and axing Credits was a step in the right direction.</p>
tag:omarqari.com,2014:Post/the-epitome-of-lean-startup2012-06-22T17:38:13-07:002012-06-22T17:38:13-07:00The Epitome of Lean Startup<p><a href="https://svbtleusercontent.com/dworyn5urerj1q_small.jpg">This</a> is Emile’s motorcycle in the Sahara Desert - 12 days ago, it was a car.</p>
<p>Traveling across North Africa in his Citroen 2CV, Emile hit a roadblock in Morocco due to military conflicts in the area and decided to casually loop around through the desert. Eventually, he snapped a swing arm on his vehicle. Stranded and too far to safely travel by foot, Emile decided the best course of action was to disassemble his vehicle and construct a motorcycle from its parts. </p>
<p>12 days later (and seemingly less clothed than when he began), he managed to construct the above. Check out <a href="http://goo.gl/YDf9Q">the original article</a> (in french) along with shots of the stripped down Citroen.</p>
tag:omarqari.com,2014:Post/the-commodity-effect2012-05-24T16:57:04-07:002012-05-24T16:57:04-07:00The Commodity Effect<p>Everyday payments products (e.g. credit cards, checks, remittances, etc…) are becoming increasingly difficult to differentiate. In a free market, as the basic product in an industry becomes more commoditized, pressure from competition, regulators and technological advances will inevitably break apart the value chain. Each segment of the chain comes under attack by new market entrants leveraging disruptive new advantages. While the Energy industry is certainly the poster child for such a shift, Mobile Telecoms arguably experienced even more growing pains in their transition. </p>
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<p><strong>Energy</strong>: 15 years ago, under pressure from legislators and rapid technological innovation, new competitors forced apart the energy industry into 5 segments – extraction, processing, wholesale, delivery and retail. 5 years later, the gas sector further separated, followed by electricity as delivery split into transmission (big pipes / wires) and distribution (small pipes / wires), and Retail sub-divided by customer base (big business vs. mass market consumers).</p>
<p><strong>Mobile Telecom</strong>: More recently, new regulations, competition and technological advancements in the global mobile telecom industry led to standardized, interoperable and essentially commoditized pipes over which data could be transmitted. Unable to differentiate between basic mobile data / voice packages, new players like Apple and Google built over the top services, without having to make any investment in new infrastructure, thereby disaggregating the infrastructure layer from the application layer.</p>
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<p>The global payments industry is in the middle of a similar paradigm shift that will lead to a fundamental disaggregation of the payments stack (incumbents retaining the base infrastructure layer) and myriad opportunities for new market entrants to compete at the application and platform layers.</p>
tag:omarqari.com,2014:Post/payments-market-sizing2012-05-17T16:50:31-07:002012-05-17T16:50:31-07:00Payments: Market Sizing<p>To give you a sense of the market opportunity in electronic payments today, online transactions alone result in $63 billion in annual revenue for service providers (e.g. PayPal 1Q12 Revenue = $1.3 billion, 32% CAGR YoY). Revenue generated from offline electronic payments (e.g. credit card swiped at point-of-sale) amounted to 10x as much.</p>
<p>Just to clarify, this does not represent the amount of transaction throughput that is processed - that figure would be roughly 50x the revenue generated.</p>
<p>In terms of the opportunity for growth, 80% of global transactions today are still performed in cash (declining at 4% p.a.).</p>
<p>The key secular trends driving the electronification of payments (not profit, but rather the underlying transaction throughput) are increasing penetration (more consumers gaining access to electronic forms of payment), increasing acceptance (more merchants accepting electronic forms of payment) and decreasing average ticket size (electronic payments being used to purchase less expensive items).</p>