Introduction to PUSH Payments

Focusing on Revenue Centers When Commercializing a New Product

For the last decade I’ve been investing in small companies that have been commercializing some pretty cool new technology. Much has been written about why some products succeed and some do not. There is, however, one very simple aspect to successful commercialization not often discussed: focusing on products that generate revenues or gain market share rather than cost savings.

To illustrate, let me tell you the story of Mitek Systems which a year or so after the iPhone, introduced a nifty and timely new product, mobile check deposit. The company believed that a significant share of check deposits would migrate to mobile. I agreed. My fund made a direct investment in Mitek in late 2009 to fund the commercialization of mobile check deposit. In just several years there were hundreds of millions of mobile deposits and for a time Mitek enjoyed 99% market share.

The success of mobile check deposit was astounding and surprising given my history with the company. I first bought stock in Mitek personally fifteen years ago. At the time it was selling signature verification software to banks to prevent check fraud. My reference calls with customers confirmed an easy implementation process and 100+% ROI using the software. Yet for some reason the company couldn’t sell it or at least enough of it to make much of a difference to their stock price. I had lunch with an acquaintance at a local community bank to ask why. He told me that at the end of the day, he just wanted to go home in time for dinner. Buying a new piece of software would mean late nights and worry. He said the bank already reserved for fraud losses from bad checks and so saving some money by buying Mitek’s software would get him a week’s worth of kudos but no bonus and no real impact on his career. Yet the downside of spending money to buy Mitek and seeing it fail would really hurt him. In other words, for a back office person the incentives were skewed towards not taking risk even if the reward was pretty certain.

New products tend to succeed quickly if they can grow or protect revenue, while products that are marketed to a cost center (cost savings products) are slow to commercialize. Banking consumers liked mobile check deposit enough that they’d download the bank’s mobile banking app to get it. At the time, banks were in a frenzy to get their proprietary app on people’s phones. Most importantly consumers were willing to switch banks for access to mobile check deposit, because it meant no drive to the branch. At the same time, banks were reducing branches, which made driving to a branch even more painful. Once the early adopters offered mobile deposit and started taking market share, it forced all the other banks and credit unions to follow to stay competitive. Now articles state “once-novel mobile features such as photo check deposit and bill pay are now table stakes”. Mobile deposit had successfully commercialized!

The table below outlines the different characteristics of revenue focused rather than cost savings products:

The smartphone itself has only strengthened the importance of focusing on revenue rather than cost centers. The world has become transparent for the consumer. There are whole websites and blogs that compare pricing and features in easy to understand tables. Not only are there literally millions of reviews, but great or bad service will light up social media accounts in a heartbeat. Once consumers reach a consensus that they want a product, distribution is nearly immediate as millions of people use their phones to access it. In other words, if the product is in an app or available on a smartphone and it’s a good one, then the adoption curves are literally a straight line up.

In the next series of articles, I’ll look at the payments industry and focus on one product, PUSH Payments, which is in the process of successfully commercializing precisely because of consumer demand. Where once a consumer had to deposit a check or give banking information to get a delayed ACH payment, now all it takes is clicking a link in a text and entering your debit, prepaid or credit card information to get instant funds.

I make a living investing in cool, new products. I spend my free time reading poetry, writing my first novel & coaching lacrosse.