Compliance Will Define Future of Payments

Whenever you see a successful business, someone once made a courageous decision.

That quote, by management consultant Peter F. Drucker, holds more true today than ever before — particularly given the shifting dynamics and challenges of the contemporary macro operating environment, where courageous and agile decisions are the life blood of business success.

“The FinTech space is in choppy waters, at least compared to a couple years ago, where it was nothing but wind at your back,” Jim McCarthy, CEO at Thredd, told PYMNTS for the series “What’s Next in Payments: Quarterly Scorecard.”

And that only makes courageous decisions even more important.

That’s why, as McCarthy explained, Thredd made headlines in Q1 with its strategic entry into the United States market.

“You can’t consider yourself credibly an enterprise or large scale FinTech if you’re not in the U.S. It’s still the largest total addressable market in the FinTech landscape, it’s an important market,” McCarthy said.

Within the U.S. particularly, businesses are faced with several high-level trends shaping the business landscape, including inflation, interest rates and regulatory scrutiny.

Looking back at Q1, McCarthy stressed the importance of risk management and compliance in an environment marked by heightened regulatory oversight, particularly in areas like anti-money laundering and know your customer/know your business (KYC/KYB) protocols.

“There’s a real focus on risk and compliance, and that is necessary. It’s hygiene. But there was a lot of fast growth across banking and FinTech without a focus on that,” he said.

Navigating Macro Trends, Market Dynamics

An ongoing contraction in the banking-as-a-service (BaaS) sector has presented challenges for FinTech clients in finding willing and able partners.

Despite the regulatory complexities and shifting sands of the industry, McCarthy noted that Thredd’s early success in the U.S. market reflects its commitment to growth and innovation.

The rise of embedded finance and the resurgence of cross-border transactions, notably in the travel sector, he added, present both challenges and opportunities for businesses navigating the global market.

“We’ve got a number of big enterprise clients that are looking to embed payments and be more fully functional in terms of a full payment stack,” McCarthy said.

And with corporate travel coming back online, virtual cards have emerged as a key tool for managing risk and controlling payments in the B2B travel space.

“Virtual cards are at the heart of a lot of travel growth. … They can be effectively used to manage risk and manage card controls around spend,” McCarthy said, flagging virtual cards as a significant opportunity area.

When asked about Thredd’s approach to customer acquisition and retention, McCarthy shared that reliability and performance are foundational.

“Being reliable isn’t something you get a lot of high-fives for, but it is crucial, and expected,” he said.

Beyond reliability, staying abreast of marketplace changes and innovations from network partners like Visa and MasterCard is key. Thredd’s ability to quickly integrate and offer innovations to their clients is a key differentiator in a competitive market.

McCarthy also touched on the global mindset of internet-era companies, emphasizing the importance of supporting clients’ international ambitions.

“Internet companies don’t think about, you know, oh, I’m a U.S. company, or a U.K. company; they want to move around the world,” he explained. “We spend a lot of time helping our clients enter those markets in a way that’s compliant.”

This perspective is integral to Thredd’s approach to customer growth and retention.

Combating Fraud in Commercial Payments

While consumer-facing fraud gets more headlines, fraud remains a persistent threat across B2B payments and within commercial environments — a reality that increasingly necessitates robust fraud prevention measures.

“Commercial cards have oftentimes led the way from an innovation agenda,” McCarthy said, highlighting the proactive approach of commercial card networks in pioneering innovative fraud detection and prevention technologies, and underscoring the importance of continuous vigilance in safeguarding financial transactions.

Elsewhere, McCarthy noted the growing acceptance of ePayments across industries, particularly in business-to-business (B2B) transactions, which are driven by the efficiency and cost-effectiveness of digital payment solutions.

The widespread adoption of electronic payments has transformed the financial landscape, with cash gradually becoming obsolete in many sectors.

“Where the big pockets still exist tend to be in the B2B realm. … But I don’t think it’s a hard sell to anybody at this point, the benefits of going electronic,” McCarthy said.

Looking ahead, McCarthy emphasized the importance of monitoring economic trends, innovation in the payments space, and the growing significance of embedded finance. He urged finance leaders to embrace payments as a central component of business strategy, emphasizing the need to adapt to evolving consumer preferences and market dynamics.

“People are rewiring their businesses around payments. The winners in the future truly will understand that payments is at the middle of everything they do,” McCarthy said.