Millennials and Emerging Payments: Exclusive Q&A With Tom Villante, Co-Founder and Chairman, YapStone

Payment Week’s Kevin Xu sat down with Yapstone Co-Found and Chairman, Tom Villante to discuss how emerging payment methods can reach tech-savvy millennials.

Q: How will millennials lead the way in payments? Millennials generally are not as invested in traditional payment methods (don’t cut checks, they carry less credit cards, though may have more debt).

Tom Villante:
Millennials have high expectations when it comes to ease of payments. They’ve been raised during a time when cash was readily available at convenient ATM locations and most large businesses accept payments of all types both over the phone and online. Making it easy for the younger generation to pay for goods or services by their preferred method of payment is now table stakes. It’s no longer realistic to wear “We accept Visa, MC, Discover, Amex, eCheck” as a badge of pride. Now, the question has become, “what else can you offer to bring me back a second time?”

Another striking trend of millennials is the move away from an ownership society, and how that impacts payment habits. Millennials are more comfortable paying for a good or service based strictly on usage, whether that be a short term apartment rental (Airbnb), a car (Uber), a movie (OnDemand) or music (iTunes). And it’s logical to assume that the easier these providers make it with a card on file, the more likely they are to spend again. A decade ago, my parents probably had 2-3 “payments” automatically drawn out of their account on a monthly basis. Today, I have at least 10-15, if not more. And specific to rent payment, 45% of our customers paying rent electronically are in this age range, and the trend is growing.

While some may balk at offering every possible method of payment, it’s something that increasingly cannot be dismissed, as the potential expected lifetime value of millennial customers is much higher than previous generations (due to this trend towards “set it and forget it” monthly payments). Ignore that opportunity at your peril.

Q: What are the efforts that financial institutions are currently taking to woo millennials, if any?

Tom Villante:
The “online billpay” push by big banks surely seems targeted at younger account holders, but banks miss the point by thinking that automatically cutting a check on behalf of the customer solves their core problem (esp. when consumers at times need to wait an estimated 5-7 days for the payment to post). Millennials aren’t content to let their bank billpay service withdraw funds from their account on the 24th to make a payment that doesn’t post until the 2nd - they want that payment to post overnight (or at least next day). That’s one reason why services like YapStone are so critical to marketplaces like multifamily. Renters can still pay with check or card, but the payment shows up as “paid” to the landlord almost instantly as opposed to 5 days later when they receive the check.

Q: Apps such as Venmo and Mint are popular with millennials. What do these apps do right, and what can other payment apps learn from them?

Tom Villante:
Venmo is a great example of a service that took a “seemingly trivial yet actually very complicated” process and actually made it easy. Its mobile-first design focuses on doing one thing very well - sending cash to your friends. Part of the likely reason it was scooped up by Braintree (and now PayPal) is that although it delivers a delightful customer experience, losing money on most transactions doesn’t exactly make for a delightful business. Venmo works well as a piece, rather than as a standalone business, for a variety of reasons.

Mint was one of the first financial services companies to pair 3rd party APIs and consumer logins with good design. The site’s modern look and simple interface was appealing to younger consumers who were just getting started/trying to be wiser about their finances. Mint customers no longer needed to visit multiple websites to check account data and then export it into a spreadsheet for analysis. The service automated that process and set a new standard for the industry. A different kind of value prop from Venmo to be sure, but equally appealing. Interestingly enough, Mint also appears to work better as a small piece of a larger business.

Q: What does YapStone foresee as “the next big thing” in payments for 2014?

Tom Villante:
First and foremost, the recent security breaches at major retailers are going to bring regulators and security oversight into the payments scene in a much greater way than they’ve ever been. Although this will ultimately benefit consumers and businesses, it will cause short-term pain and costs for many merchants and associated industry players as new requirements are imposed on the hardware AND software necessary to process payments. These requirements will delay planned releases, and force product lifecycle upgrades sooner than were expected. We are already hearing a lot more chatter about EMV/Chip and Pin in the U.S. market and expect to see some of the more well-known POS startups shift their models to accommodate these changes. Online payment security for card transactions will become a key determining factor in consumer choice. New security-focused companies will also start to emerge and security in general will be highlighted much more prevalently in both B2B and B2C marketing.

We’ll also see companies innovating in the micropayments space. Up until this point, it’s been pretty cost-prohibitive to enable multiple, ongoing micro payments (think 25-50 cents or less) between consumers and merchants, simply because of the costs associated with passing any amount of value across the networks. New technologies and business models may soon be changing that; look no further than the Bitcoin (the protocol, not the currency) for inspiration. We expect to see a great number of new companies springing up to address these long sought-after solutions using new innovative platforms and technology.

Another thing I think you’ll see this year is companies like Facebook, Google, Amazon and even Starbucks spending a lot more time on the payments space. In addition to the obvious revenue opportunities, companies like Facebook and Google would love to have additional insights into users’ shopping patterns as it would enable them to serve up more targeted ads.

About Tom Villante
Co-Founder & Chairman, YapStone
Tom Villante is Chairman of Villante Capital Partners, LLC (“VCP”), a Santa Monica, CA-based private equity and real estate investing firm he formed in 1997. Tom is responsible for managing more than $100 million in this role. He has also purchased several private companies and provided capital to YapStone’s first vertical payment product, RentPayment. Before YapStone, Tom was a Partner at The Seidler Company (“TSC”), a leveraged buyout firm in Los Angeles. He has invested in and led buyouts in several industries including manufacturing, retail, Internet consulting, and e- commerce. Prior to TSC, Tom was with S.G. Warburg’s Investment Banking Division, TLC Capital Partners, and William E. Simon & Sons. Tom is a graduate of Princeton University.