Show Notes
For years, payments have largely fallen into two camps: horizontal platforms built to serve a broad range of businesses, and vertical solutions designed around the specific needs of a particular industry.
But businesses increasingly need both. They want the flexibility and scale of a horizontal platform without giving up the specialized capabilities that come with a vertical solution.
That’s where diagonal thinking comes in. Rather than choosing between scale and specialization, diagonal thinking brings the two together. With a diagonal perspective, payments infrastructure can serve multiple use cases without sacrificing the depth required for each application.
Take healthcare, for example. A healthcare provider may need to manage patient payments, insurance transactions, payroll, benefits and other financial workflows, each with its own requirements. Historically, that could mean stitching together multiple solutions. A more diagonal approach can bring these capabilities together through a single platform while still accounting for the nuances of the healthcare industries.
In a recent PaymentsJournal podcast, Stephen Faust, CEO of Dash Solutions, and Jordan Hirschfield, Director of Prepaid at Javelin Strategy & Research, detailed the diagonal approach to payments and the use cases where it can make an impact.
While this perspective aims to bring the best of both vertical and horizontal worlds to organizations, the ultimate objective is to make transactions so unobtrusive and embedded that end users can focus on their business, not payments.
The Enablers for Change
One of the main drivers of more diagonal solutions has been the substantial rise of vertical software providers. According to McKinsey, vertical-specific software now accounts for more than half of payments-adjacent small- to medium-sized enterprise spend.
“One of the big things that was an accelerator for this was COVID,” Faust said. “I heard at a conference someone say, ‘There’s been more changes in payments in the last five years than in the 50 years before that,’ and it’s true. Things are rapidly changing.”
Three key factors are driving this shift. First, modern APIs allow organizations to overhaul their payments operations without rebuilding their core infrastructure. This flexibility, combined with today’s digital environment, means more companies are equipped to integrate APIs and work directly with payments providers.
The infrastructure supporting embedded finance is also rapidly maturing. McKinsey research forecasts that embedded payments will grow by more than 30% annually through 2034.
Artificial intelligence is another important factor. AI can now handle operational complexity that previously required custom builds or additional staff, making it increasingly feasible to tailor payments capabilities to specific organizational needs.
“AI is not only allowing payments companies to move faster and configure solutions more uniquely, but it’s also letting the payers eliminate manual processes on their end,” Faust said. “That’s providing more opportunity for them to look at modernization to drive efficiencies and cost savings, and in a greater user experience. The growth could be more than 30%, the payments industry is expected to continue to boom for many years, and it’s an exciting place to be.”
The Legacy Pain Points
Along with these technology-driven shifts, organizations are feeling the pain points associated with legacy payment methods.
“Where there are greenfield opportunities and where the APIs come in are in some of these spaces that have been difficult to conquer—the disbursements, the reimbursements, and the refunds,” Hirschfield said. “Now, when you add these APIs and new efficiency layers into it, it’s much easier versus going the old school way, like writing a check that no one really wants to do.”
“Having these opportunities to engage in technology makes all the smaller markets ready to grow and grow fast,” he said.
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