It’s never easy building a startup, and that is currently more true than ever. A challenging economic environment over the past few years has squeezed up and comers to a new degree, though things are beginning to change with payments, fintech and tech firms, in particular, benefiting from new investment.
SMEs and startups make up the vast majority of companies active today, however, so standing out from the crowd and catching the investment you need is not an easy task. Finding the right niche is key – solving problems for companies in sectors like gambling, though high risk in nature, is one such niche.
“If you’re fixing a problem, a little niche of the gambling industry, this is a high margin product,” said Tom Waterhouse, Chief Investment Officer at Waterhouse VC, a gaming focused investment fund, at the Payment Expert Summit this week.
“Startups, if you have the ability to solve a niche and get payments through, will make a lot of money,” he added.
If there’s an industry which is not short of niches, its payments. This sector is highly diverse and full of unique areas – Open Banking, embedded finance, software as a service, banking as a service, instant payments, account-to-account (A2A) payments, crypto and blockchain, issuing and acquiring. The list is endless.
Knowing what niche to go for in what market is important, however. It may seem obvious to say, but each country is different, with its own unique regulations, technological foundations and consumer preferences and behaviours.
“For startups, it’s likely much easier to get your foot in with maybe a niche, a newer form of payment method,” said Peter Heneghan, Principal at Bettor Capital, a gaming payments-focused startup.
“In the US, account-to-account payments are a great example – very big in Europe, not big in the US today. There’s probably going to be some more Open Banking things coming to the US.”
Understanding local conditions is vital when pitching a new product, and searching for the investment and capital to support said pitches and products is in turn important to this. Tailoring a product or suite of products to meet local demands is often a sure fire way of ensuring success.
“If you’re going into localised markets you need a localised approach,” summarised Benjie Cherniak, Principal at Avenue H Capital. “Part of that is going through the local channels and local regulatory approach for the market you’re going for.”
Melissa Lamb, Director for Emerging Markets at Paybrokers, a Latin America-focused payments company, shared some insights into the firm’s region of expertise. Latin America is already a key region in the payments and gaming realms, and Brazil in particular has caught a lot of attention.
Pix, the central bank of Brazil’s A2A instant payments method, is one of the biggest success stories in today’s finance world. Just four years after its market launch it has become the dominant payment method in Brazil, accounting for around 90% of transactions in betting alone.
For companies interested in the Brazilian finance space, as well as the soon-to-be-regulated betting market, Pix is essential. Its importance will amplify after the betting market launches due to regulatory restrictions on payment methods.
“Over just three years that system has become the primary payments system, and when the market regulates in January they will not be accepting cash or crypto,” Lamb remarked. “If you are not connected to PIX in some way you will not survive in the Brazilian market.”
The main takeaway for attendees from this panel was that payments is a strong growth sector for startups, if they can get the strategy right and secure all important funding. By extension, gaming is a good target market for payments firms.
As panel moderator, Seth Schoor, CEO of Fifth Street Gaming, put it, when he ran a casino ‘If I couldn’t accept people’s money, it wouldn’t be much of a casino,’ whilst Vladimir Malakchi, CEO and Managing Partner at Xanada Investment, stated that ‘nothing is as important as payments in this industry’.
Reflecting on his experience of the market, Bettor Capital’s Heneghan stated that he seen payments providers working with tier two or tier three betting operators, gaining licences and entering talks with major tier one firms – showing that gaming payments remains a strong growth market.
“They might not be true disrupters but they’ve got their feet in the door and may be making life difficult for the big global players that service the gaming industry,” he concluded.
