68 Part One Organizations Management, and the Networked Enterprise Changes in the Financial Industry: Adyen and Fintech CASE STUDY was an especially successful 2018 for Adyen, payments increase exponentially, there is huge room a Dutch company that mostly focuses on pro- for improvement here. Adyen is reducing this per- cessing Internet payments. In February, Adyen formance sap by integrating several components of announced that it would become the primary pay the payment chain (such as the gateway, tisk assess ments provider of American Internet giant Bay ment, and processing into one platform. It has thus This was a big success for two reasons. Fint, eBay been successful in ensuring a higher success rate in is, of course, a huge company with a large rev: its payments chain than other facilitators. It also in 2017, the value of goods sold on the platform provides the company with a wealth of data on cus amounted to a staggering $36.28 billion. For Adyen, tomer behavior) this meant a huge increase of its business. Second, A second advantage of the Adyen business model and perhaps more importantly, eBay gave preference is that its payments platform is connected to most to Adyen over PayPal, which is very often the first payment systems being used in the world Payment choice of online companies. For a startup like Adyen systems can differ greatly from country to country to beat a market leader like PayPal was remarkable. In the Netherlands, for instance, most online pay Ax if that was not enough Adyen also had a very a ments are done through the iDEAL system, which successful initial public offering (IPO) at the stock links payments to checking accountsIn other coun exchange. Its shares, which were priced at C240, tries, most payments are done through credit cards nearly doubled in value during the first trading day or debit cards like Visa or Mastercard. When it comes Some conservative commentators stated that this to processing payments, this variety of methods com- was the outcome of overhype, emphasizing that the plicates things enormously as the payment proces price of the shares clid not reflect the profits the sors need to have several platforms. Adyen, however, company was making. However, at least for the first has one integrated platform that can link with most few months after the IPO, the optimism seemed well payment methods being used all over the world. This founded for in December 2018, Adyen shares were is, of course, an attractive option for merchants or still priced around 6430. Adyen, a company with online companies that sell their goods worldwide around 750 employees, was at one point more valu- When eBay decided to work with Adyen, it gave two able than Deutsche Bank, a traditional financial insti- reasons for its decision: Adyen processes payments tution that employs more than 100,000 people more cheaply and gives more control to merchants What explains Adyen success? The answer to that is the platform that lies in the data technology it uses. To put it Adiyen is a good example of a company that works simply, Adyen make payment transactions easier in the field of fintech (financial technology). Comp Making payments on the Internet is a much more nies that use technology to facilitate financial trans complicated business than many people think it is actions have been highly successful over the last ten In many payment cycles, several companies work years. Founded in 2006, Adyen is relatively old for a together to ensure that the payment is successful fintech company, but it has grown enormously-in To start with, there is, of course, the merchant, but 2017, as its website proudly boasts it had hos billion there are also companies providing a gateway for the in processed volume. Remarkable as Adyen's case payments, assessing the risk, and so on. Because of is, it is definitely not unique other firms have used this crowded field of facilitators, many things can go technology to find a new niche in the international wrong. For instance, software may be outdated, or payments universe. The company TransferWise programs used by one provider may be incompatible (which was founded in Estonia but now mostly oper with those of another. Because of this, many paye ates from the United Kingdom) is another example it ments fail for technical reasons even when the client facilitates money transfers from Country to coun has enough funds to make the transaction. try B while avoiding currency conversion According to Forrester, a consultancy firm that Initially traditional banks find it hard to com focuses on financial data, around 10 percent of all pete with companies like Adyen. It is in the DNA payments fail for such technical reasons. As online offintech companies to develop and focus on Chapter 1 information Systems in Global Business Today 69 state-of-the-art information systems. Traditional how fintech is changing the banking Industry. This hanks are very different they work in buildings, company provides payment services just like a nor value direct, physical contact with the customer, and mal bank does, but it does not have buildings where often have branches in various countries that are Customer agents sive advice to the customers every more or less independent. Their IT staff often has thing is online. In 2013, N25 was attracting 2.000 DOW a supporting role and not, as in the case of Adyen, customers every day and had secured 5160 million a guiding one. Traditional banks IT systems to from private investors to expand. One of the found facilitate business operations, not to compete with ens, Maximilian Thyenthal, remarked that traditional other financial providers. Their IT systems are usu banks had not taken N25 seriously when the com ally at the national level and may differ from coun pany was launched try to country. The heart of Adyen is the financial Companies like Adyen and N26, which make platform, and the IT staff works continuously to online banking so much easier, have already had make it cheaper and more user-friendly. The data a huge impact on the physical presence of banks that come in on this platform are analyzed and used in many countries. In the United Kingdom, for to upgrade and update it. The data that Adyen gets instance, there were 18,000 branches in 1990, at the are global (the platform processes payments from end of 2017 there were only 3,000 left in the Neth all over the world) and highly diverse from pays erlands the digital banking caperience progresses ment transactions on the Internet as well as transac rapidly that the Dutch government felt it necessary tions performed in physical shops). This wealth of to make it clear that it would not allow the loss of data ensures that Adyen has better opportunities to cash payments from the Dutch High Streets as this analyze the market of payment transactions and its would severely limit the participation in society of developments than traditional banks do vulnerable group such as the elderly Fintech is a good example of what economists call According to experts, the next wave of technol Creative destruction. This term, originally labelled ogy will be even more disruptive In 2013, Antony by the Austrian economist Joseph Schumpeter Jenkins, who ran Barclays from 2012 to 2015, told the describes the influence of technology on the econ BBC that in the coming years around 50 percent of omy. According to his theory, new technologies inev all jobs in banking (including those of middle manag itably result in winners and in losers. One famous ers and customer agents) would be replaced by some example of a disruption is the invention of the Spin- kind of artificial intelligence Andy Haldane, the ning Jenny, a device invented in Britain during the chief economist of the Bank of England, warned in eighteenth century. The Spinning Jenny made the the same year of a fourth industrial revolution that production of cloth more efficient, cheaper, and would cause severe disruptions in the market critically reduced the number of laborers needed and at the heart of it would be artificial intelligence- in the textiles industry. Over the last 30 years, the a modern counterpart to the Spinning Jenny Internet has had the same effect on society: some This does not mean that success is automatically Jobs have disappeared, and others have come into guaranteed for new companies like Adyen Transfer existence. A good example is travel agencies. Forty Wise and N25. A majority of these fintech startups years ago, there was a travel agency on every high go bankrupt, and many of these fintech companies street, but according to the official Dutch statistics need to make an investments before they can go agency, 67.2 percent of all holidays in 2017 were ctate profits. Even when they eat profits, these booked online. Likewise, traditional Hotels now have are often, for a time at least, rather small compared to compete with sites like Airbnb to the overall value of the company on the stock Creative destruction comes in waves, and the exchange. During the first six months of 2018, for banking industry is now in the frontline of change instance, Adyen increased its profits by 67 percent because of the emergence of fintech companies to 156,4 million. This may seem like a steering Adyen has incorporated many stages of the pays amount for a company that was only founded in ment chain, and traditional companies that used to 2006, but it is not a lot of money compared to the provide for instance, risk assessment now have to total amount of payments it processed (C70 billion) either make their business model more efficient or It pales even more if one take into account the total face the very real possibility of going out of busi- value of the company on the stock exchange (aros ness. The German firm N26 is also a good example of 616 billion FinTech companies are also being challenged by Adyen released in 2018 show that the company the major traditional banks who are rapidly develop may survive competitive challenges. Year-on-year, ing their own versions of online payment systems, Adyen reports, the processed volume of payments from peer-to-peer payments for retail customers, to has grown by 13.1 percent TransferWise has also highly automated online payment and billing sys- been growing rapidly; in 2018, it reported that 3.9 bit- tems for global businesses. As consumers and firms lion dollars is being sent through its network every have moved towards mobile and online payments month. Both firms illustrate how fintech startups are many traditional banks have invested heavily in changing the traditional bank and payment systems new technologies in part using the funds saved by using new technologies and business models closing down traditional physical bank branches, Where in-house innovation has not worked, the largest lan Hamster A clobal Socce din in Amate banks have purchased fintech firms and folded them into their existing business and technology plat- tura.com blog yachalecos bominamsterdam forms. Traditional banks have a decided advantage "The Forester Wall Merchant Payment Powden over fintech startups extraordinary cash flow and gibal/ festerport Duchen im Alyen tens of millions of loyal customers and firms in this Half Pro SNBC2.2013 scenario, fintech firms have been early to the party, cnbc.com/22/duschmeim-dyen-finals but typically do not survive to the end of the party po html ank Job Coin 10 Yan Barclays BC November 2015 at least not as independent firma www.tac.com Kamal Ahmed Bank of Like so many other companies in fintech, Adyens England Chief Eco As The News is still more of a financial promise than an immedi- A20, 2010, peces business-45240758 ate reality. Investors pay for profits that are still to Tomas Gryniewien hoe hok Their Seriously Thay Thanh 2.000 Customers Day come, as well as IPO exit strategies that promise Netgum, April 2 pers.com blog rich rewards even in the absence of profits CEOs disptits digitaalineam all accused of startup companies in the fintech sector need to have a keen marketing instinct, they must be able to explain why their idea will make money in the years CASE STUDY QUESTIONS to come. TransferWise, the company that facilitates money transfers without asking for huge fees for cur. 1-12 According to Adyen, the payments platform has two advantages compared to other pay rency conversion, was founded in 2011, but it only made its first profit in 2017. ment platforms. Describe these advantages in your own words Adyen's founders were very experienced entre preneurs when they started their company. They 1-13 Many fintech companies are very valuable on the stock exchange even though they make lit- had already created another company, Bibit, which tle or no profit. Explain this situation. Why do they sold to The Royal Bank of Scotland for CHOO investors pay so much for shares of companies million. Indeed, the word adyen means "again in a that hardly make any profits? language from Surinam, meaning that Adyen is their 1-14 Explain the term creative destruction." Is the second endeavor in the field of financial technol: German bank N25 destroying jobs or creating ogy. Many companies never get a second chance, new jobs? and research shows that around 90 percent of new 1-15 Explain why such a high percentage of fintech fintech companies go bankrupt without ever having startups go bankrupt before making any profits boen profitable But those that survive change the banking and payments industry. The first financial results that Case contributed by Berman Busan