A model of return on investment to follow in the event of an economic storm

Routable co-founder and CTO Tom Harel writes in the PYMNTS e-book “Baseline 2022: What the Next Six Months Holds” that payment companies can weather the tough economy if they become more efficient, focus on creating attractive products, watch inflation closely and keep in mind that cyclical resets are a necessary evil.

As for the rest of 2022, it’s time to pull back and prepare to weather turbulent market conditions. Payments companies will need to be vigilant in dealing with a tough economy. But there are key ways businesses can prepare.

The biggest change for businesses will be to become more efficient. They will have to do more with less. In times of uncertainty, investors and markets reward tangible profits, rather than high growth numbers that may not be sustainable. A good example is neobanks that have shown growth — sometimes at a cost that doesn’t make sense (see Varo bank news and its $45 acquisition cost for a gain of $24 a year , i.e. an ROI of almost two years). The easiest way to increase financial efficiency is to cut costs, which unfortunately can mean more layoffs. It might not be possible to get a good ROI model for some of these companies, which could cause them to fold.

Another key to success in a turbulent economy is to build something people want. This is the motto of the YC that I have adopted. If you build something that people want and need, there will be opportunities to gain market share, regardless of economic conditions. Payment technology is still needed. We depend on it every day and just because the valuation bubble has burst doesn’t mean what we’re building isn’t necessary. Venmo and PayPal have not seen a significant drop in usage because their services are needed. The key to ensuring longevity is to deliver technology that delivers tangible benefits to consumers and businesses.

Businesses will need to closely monitor the rate of inflation for the rest of the year. As long as inflation is perceived as high, the Federal Reserve will step on the brakes. The higher the inflation, the more brutal the slowdown will be. Although the labor market appears healthy, data on it lags other more fluid market indicators, and many jobs were created when cash and financing were cheap. Many of those jobs may not stay under the new high-cost capital standard.

Finally, it is important to remember that resetting asset prices is good for the economy. We managed an inflated market (no pun intended) in which asset valuations were far from the established norm. Valuations for startups in particular were at an all-time high, creating bizarre incentives that rewarded growth at all costs, rather than a healthier focus on revenue and profits. Now is the time to run the marathon rather than the sprint. Vigilance, efficiency and an increased focus on return on investment can help foster a more stable economic environment for the digital and payment economy in the future.

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About: Results from PYMNTS’ new study, “The Super App Shift: How Consumers Want To Save, Shop And Spend In The Connected Economy,” a collaboration with PayPal, analyzed responses from 9,904 consumers in Australia, Germany, UK and USA. and showed strong demand for one super multi-functional app rather than using dozens of individual apps.