Ian Hillis
Hey everyone, and welcome to PayFAQ: The Embedded Payments podcast brought to you by Payrix and Worldpay. I’m your host, Ian Hillis, and today I’m talking with Matt Downs, President of Worldpay for Platforms about payment predictions for 2025.
Welcome to the show, Matt.
Matt Downs
Hey, Ian. It’s great to be back.
Ian Hillis
I appreciate you making the time, and this is going to be a fun one. Ladies and gentlemen, we’re in for a real treat today. Matt has been at the forefront of software-led payments, playing a significant role in its advent.
I want to take a minute to just introduce Matt’s background, so you understand the unique and storied perspective he’s going to be bringing to this conversation. Matt is a visionary leader, and he’s known for his strategic execution and has proven to see and set growth trends that have shaped transformative, innovative SaaS and FinTech companies for 25 years. As a pioneer in driving security and payments for SaaS companies, he has served in several executive leadership roles across his diverse payments, software, and platforms background, leading high-performing teams and businesses to exponential growth.
Matt has built and grown payment relationships with over 1,000 software companies over the years and is one of the OGs of integrated and embedded payments, where he’s played a significant role in creating this market. On a personal note, Matt’s been a personal mentor for the past 10 years, and you’re not going to find someone more attuned to this market than him. So, with that, let’s get this party started.
Matt, we are at the beginning of a new year, and I don’t think we’re allowed to claim expertise in payments and FinTech without taking time to make predictions for the year ahead. And in fact, we recently published the 2025 edition of our Software-led Payments Predictions eBook. We’re going to dive into the specific year ahead, but I think before we get there, I want to switch things up a bit, and I think it’d be helpful to actually set the stage at a higher level.
So, let’s take a step back, tell our audience what you think about the current trajectory of the market, perhaps beyond just 2025 and more in the medium and longer term. What should software companies consider and plan for? What should they be focused on and why?
Matt Downs
Yeah, I think, Ian, I think one of the great things about 2025 and out is I think much of the runway where we’ve seen software-led payments continue to be a huge growth opportunity and vector. I do think we’re going to see three or four changes here in 2025, and I think the first one is with the changing administration here in the United States, it being the largest interchange market and the largest software market in the globe, I think we’re going to see some pendulum swings.
The first one I would kind of point out would be, one, I think the regulatory environment is going to change and loosen, which is going to allow for new opportunities for really smart companies to take some of that regulatory change and create catalysts, right, for growth. And I think people want to be thoughtful about that because the pendulum usually swings back the other way. The administration kind of laid out its agenda, it’s been really public between the election and the inauguration. The expectation is that inflation will stay around where it is as well as interest rates, but that some of the tariffs that will come in may slow GDP. So that’s one thing I think for folks to kind of watch out on. In fact, just last month, our head of content, Leah, put out a piece for all our partners on kind of what we see on Capitol Hill. There’s lots of both macro and micro trends that we make available to Worldpay partners.
Trend number two is I think we’re going to see an opening of the market. I think the M&A piece of the market has actually started to fire back up. Lots and lots of opportunities. Worldpay is now in a buying position, but I think for our partners that are looking to consolidate, add on features, et cetera, I think it’s going to get pretty exciting because there’s going to be significant value creation for end users and clients through these cycles. So, I think we’re in the beginning of that cycle, including the IPO market also opening up.
And then I think maybe the third thing, just to be on the lookout is I think there’s been a lot of work laying foundation the last couple of years around changes around technology and platforms being able to extend, going on that regulatory trend around neobanks and kind of new market opportunities. I think there’s been a lot of things in the works that we’ll start to see come to fruition over the next two or three years and kind of roll that up. What that is, it’s a set of threats, opportunities, and challenges that will be in front of us, all with the opportunity to create value for our clients.
But I would stress, I think it comes as a pendulum, somebody that’s been in the space two plus decades, you see a common cycle. So, what you want to do is be really selective on those kind of three vectors and where you grab opportunity because the pendulum will swing back the other way, and you want to make sure you build a good, sustainable business. So, I’m very optimistic, is what I would tell you, on the changing market dynamics and opportunity for software companies as a whole.
Ian Hillis
That’s a lot to consider and a lot to keep track of. I think it is very insightful. One of the takeaways as you talk through that is that concept of a pendulum where we’re talking about if you spent every moment of 2025 trying to predict the future and weaving your way through that, that’s a short-term view of the market, that medium and longer term and the implications that are really resonating across that.
Focusing on 2025, in particular, one of the predictions that you’ve highlighted has been around vertical specific software adoption growth and really what that means for the platforms integrating solutions like payment processing, Embedded Finance. You also kind of referenced this in the concept of an extension of that platform-related regulation. Can you elaborate a little bit more on that insight?
Matt Downs
Yeah. I think the regulatory market can kind of constrict and then come back and I think there was a tone, I think the last four years under the current administration, it’s been kind of a moderate view with a little bit of pressure in some areas. And I think over the next four years, we’ll see a little bit of opening of that. So, areas where, whether from a payment policy perspective or an example of like neobanks and their ability to kind of compete and play in the market, I think we actually may see a little bit of opening there in some of those markets where there was some constriction and I think it’ll ease off.
And again, going back to that pendulum concept, if you lean too far in and larger significant policy change happens or an industry event, and I would point to that one because that’s happened a couple of times in my 20 years, you see it come back a little bit that way. But I think it’s going to create new vectors and one of the ones that I’m personally bullish on is I think we’re going to see Embedded Finance platforms be able to play in that space at scale where we’ve maybe only seen a dozen or so vertical or horizontal platforms really create outsourced opportunity there. I think we’re going to start to see that hit kind of mass scale over the next couple years is one example.
Ian Hillis
I think that segues well into what was prediction three on our list around this concept of Embedded Finance and the platforms and how they’re thinking about it. How important in your mind is that for software platform companies to be thinking about that? What are the implications now that the regulatory environment appears to be shifting a little bit just in that lens of a software platform? Where do you see that heading?
Matt Downs
Yeah, look, you know, not to go too far back as the integrated OG, but this market’s existed for 20 years and first it was integrating the payment, then it was focused on kind of back book. How do I help my clients do a payments attach? It’s gone so far beyond that, meaning the last three or four years is not just, do you have a good payments product? It’s how slick is your workflow? So, depending on, again, I’m walking in the shoes of a software company, depending on how you’ve actually integrated that payment workflow, specifically maybe thinking about that embedded experience, that’s now effectively table stakes.
So, if you’re out there trying to win a client, integrated or embedded payments is just not probably going to be enough to differentiate yourself in the market. I think you’re going to feel pressure, maybe not directly, but maybe from some of your competitors that start to make the move on going beyond payments to become something larger, really horizontally scaling and making that jump from a software company to a platform. I think that pressure is about to start to emerge, and I won’t name names, but there’s multiple cart present point of sale companies that at scale are starting to show that we’ve seen a number of marketplaces and other players start to bring that to fruition.
And I’m not sure that’s going to be an option, whether or not you go there. I think if you want to be competitive in the top quartile of the market that you serve, I think you’re going to have to go after that opportunity and candidly, I think boards of directors are coming around ownership groups, private equity, understanding the value of beyond the payment and what are those other services that you can actually render. I think we’re on the cusp of kind of Gen 4 of this journey that I’ve been on as far as going beyond integrated, beyond embedded payments into a myriad of other services.
Ian Hillis
What do you think the over under on number of software platform companies you’ve spoken to in 2024 is?
Matt Downs
Sorry, Ian, doing what specifically?
Ian Hillis
In your day to day, you speak to a lot of software companies on a wide variety of topics. How many software companies do you think you spoke to in 2024?
Matt Downs
I’d like to say all of them, but no, I would tell you that I talk to, on average, 20 to 25 software companies a week, whether they’re customers, whether they’re doing business with my competitors, Market Insights. But I think one of our values here at Worldpay is really think like a customer, be out there. And I think the only way to do that is to be out there. So if you do the quick math there, Ian, that’s a lot. That’s a big sample size.
Ian Hillis
And where we’re going with that, Matt, is if we go quickly back to that Gen 4 of all of this, as the software companies that you’re speaking to at a high sample size are contemplating this next generation, what’s top of mind for them? What are they thinking about as they make this next big leap? Any high-level tidbits you can share with the audience on things they should be questioning, concerned about, excited about?
Matt Downs
It gets described in different ways, but you don’t leave a conversation about this concept of experience. Whether it’s the sales experience, whether it’s a service experience, whether it’s adding on new product, every dialogue I leave with a customer, someone that’s maybe not doing business with that I would love to win, in some cases we can’t always win, it’s always about experience. And I think that’s really around the way the technology is deployed, used, educated, and points are made aware of the technology.
I think continuing to evolve towards digital, digital delivery and embedded experiences across both payments and some of these other horizons is thematic in almost every conversation I have. I love this topic of experience. It comes up time and time again from software platforms, from the industry.
Ian Hillis
And I think experience can mean different things to different people. When you have these conversations with the software platform companies, in their words, what do they mean by experience? And some might say, quote, unquote, controlling the experience. That could be brand, that could be how the SMB interacts with the consumer. When you hear experience, what are the different flavors of that? And what should a software company be thinking about when it comes to experience in particular?
Matt Downs
You nailed it, right? We were the original author of the PayFac model on the trademark. Plug, plug, plug. In the early days, the word would be used in the market around control. I think it’s evolved.
I think when you really think about experiences, when that user is actually in that business software management system and they’re interacting with it, they need to be able to provide something that they can’t buy anywhere else. And by the way, that right to win, that right to deliver, right, and that key word, right to deliver is there. It’s how do you integrate the technology in a way that makes it superior with that client? It just doesn’t have to think about payments, right? And I’d sum it up on two things.
One, the end user never has to think about payments, whether it’s acceptance, reporting, portal fees, the whole end to end. And I won’t use the word experience because that’s what we’re talking about. And then the second thing is, how does that software company create new experiences through new products in a way that just feels natural, right? I’d point to fundamentally Apple and the way iOS and its App Store and the way it delivers experience and that’s, you just don’t think about it, right? They’ll drop a new software version.
There’s things in the App Store, they make it really easy for us as consumers to learn experience and pick up and integrate and use in a way and you can use the word frictionless, you can use lots of words, but you want to delight those clients in a way that they didn’t have to think about it. That’s how I would explain experience. You can do it through technology, you can do it through your service experience, but if you think back 15 years ago, if you were one of these SMB clients, you had to go get a merchant account, but end of the month you’re logging into a portal to look at your fees, you’re looking over here to see where are your funds and it was a lot of work.
I mean, software companies that get this right, end to end, walk in their customer’s shoes and think about how do I get ahead of any issues or opportunities or problems for them and how do I solve opportunities that they haven’t even started to think about? That’s how I’d sum up experience again. It’s really interesting in relation to this conversation around 2025 and beyond and going back to your comment on the extension of the platform. If you think about the movement towards an everything platform, the more what have been traditionally horizontal products coming into that ecosystem, the ability for software platforms to continue to maintain that focus on experience, I think becomes more complex and so who they’re doing that with, how they’re thinking about it really matters.
Ian Hillis
It’s just a really fascinating topic. Matt, shifting gears a little bit, I don’t think we can talk about predictions without AI. AI certainly made the list this year. Any anecdotes you can share with us to demonstrate how we’re thinking about AI as a focus or how encouraging software platforms to do the same just in general on AI, where might that intersect in the world of payments here?
Matt Downs
A couple of things. I think, as the new Worldpay, we’ve thought a lot about how do we bring AI into our stack and have done a lot of market research and insight and we’re deploying it in a number of different ways. I think, fundamentally, companies are using it, in my view, in two primary ways.
One, around creating this experience that we talked about and that’s how do you use AI through different means in order to create more of those digital-first experiences and intelligently serve and deliver for your customers. I think the second one is how do you use AI both to develop product and integrate into product which can create those opportunities or do the servicing end. I think market research tells us 85% of companies start with this concept of experience and leverage and I think you’ve got to find that balance between there and product.
Here inside of Worldpay, we are delivering some of our products here that will be forthcoming as well as we use it on the experience layer and how we actually serve our customers. I think if it’s not on your agenda, you’re in trouble because there’s a zero to one that’s entering your market that is going to use AI down deep in their base. While they don’t have scale and they may not have a brand, they may not have a mark, they’ve got an unfair advantage starting from scratch with it.
No matter what your size is, I think if AI is not within your strategy, you’re putting yourself in jeopardy and you may actually already be too late if you’ve not thought about it. What about the flip side of AI? Certainly the tooling and the efficiencies and sophistication that you can use with that from a payments lens is really exciting. One of the trends we saw, if we reflect on 2024, just an exponential increase in sophistication of fraud using AI.
Ian Hillis
What does that mean for the risk of payments and in turn, who software companies should be partnering with or what they should be asking of their payments partners in relation to this new generation of risk being thrown their way?
Matt Downs
Yeah, I think scale matters, to be self-promoting, I don’t mind doing that. Here at Worldpay, we’re using AI both in our risk engine models and we’ve been using it in our auth engine models. We’ve got some competitors who are putting out new articles around using AI to increase auth rates or drive arbitrage through financials.
These are not new things. We’ve been at these anywhere from two to four years in some parts of the market going back all the way 10, 12 years from a machine learning perspective on some of these capabilities. I think if you’re a software company, you should definitely be out there understanding what is your partner doing to protect you on some of these fronts or create opportunities.
I think asking questions, collecting information, et cetera, to make sure that if you’re looking to build a payments business, ultimately, you’re buying infrastructure from someone like Worldpay or one of our competitors. How are they investing in that infrastructure both today and tomorrow to stay out in front? I can tell you, I think we’ve all seen the fraud move around in pockets and the fraudsters are usually a couple of steps ahead. So I think having a partner that’s being very forward-looking on this front is really important. I can promise you Worldpay definitely is.
Ian Hillis
Really helpful. Matt, as we wrap up here, any final thoughts, recommendations, parting insights that you have for software platforms as we think about the year or years ahead in this industry?
Matt Downs
Yeah, I think it goes back to that earlier concept that some companies are still trying to master the payment attach or kind of on that journey.
I would stress to you, again, talking to lots and lots of software companies, it’s going beyond the payments attach. It’s going into how eloquent is the workflow on how you’ve delivered payments and really done value-add to your core software. And if you’re not thinking about that on a multi-year journey, I think you could find yourself waking up being at a disadvantage in your market and payments was your Achilles heel is the answer.
So, I think strategically finding that partner that can help you think about that and be having conversations around some of these emerging trends, AI, regulatory, what’s going on in the legislative market here in the United States. There’s lots of things sitting out there on the hill. And I think having that partner that’s got a little bit of that forward-looking view and not that the partner’s view matters, but are they giving you the insights and some of the insights and materials so that you can have an informed point of view.
I think if you’re looking down at your shoes, this could catch you here in the next couple years and look back 2008, we had a huge downturn, tons of winners were made out of that. Not that the last couple of years post-pandemic has been the same way. But I think we’re on the edge of a little bit of an economic tear here the next couple years.
And I think companies are being really forward-looking, they’ve got an opportunity to pull ahead of the competition.
Ian Hillis
Fantastic insights and appreciate the time, Matt. Thank you for being on the show.
Thanks again. I appreciate it. If you’re interested in reading our full report, you can download a copy at payrix.com or by clicking the link in the show notes.
We want to be a trusted resource for software providers who are out there trying to make sense of Embedded Payments and finance to help them get the education they need to make the business decisions their customers and investors will thank them for. Thank you to everyone joining us today and I look forward to continuing the conversation in our next episode.
