Two levels of competition in the fintech market

How many FINTECh startups need to create one comprehensive payment solution?

It seems that the answer can be called a figure of approximately 1.5 thousand companies. So many FINTECH startups work in the payment segment - one of the most widely represented and well-funded areas of fintech. Let's see why this figure is so great.

The most significant competition in Fintech goes to a whole new level.

There are two main levels of competition in Fintech. Representatives of the first struggle for survival within the segment. At the second level, there is a struggle for cross-niche leadership in the “real world”, where such giants as Amazon and Apple operate.
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In the first case, everything is rather trivial. The lion's share of fintech startups worldwide compete for capital, popularity, and lengthening of the current rounds of funding. More importantly, at this level, the competition is fought with other such startups. Regardless of how many FINTECH startups specifically create these or other payment solutions, be it at least 1.5, at least 5 thousand, only a handful of them will get a ghostly chance to succeed in a highly competitive market.

The most interesting begins at the next level. Those few who managed to attract more funds, enter into the strongest alliances, present truly better solutions than their competitors, and at the same time go beyond state borders, are fighting for cross-niche domination. Here, a wide range of players with the most varied background, among which real heavyweights who have earned their fame long before the advent of fintech, such as IBM, Amazon and Alibaba, often come across for the championship.

All roads lead to lending

Let's look at some interesting examples, starting with Square, a well-known player who has gone from $ 9 per share in 2015 to the current $ 33. The company's revenue grew from $ 850 million in 2014 to 1.7 billion in 2016, including through cost-cutting work.

Square, however, did not stop at its original segment and expanded its lending activities by launching the corresponding service Square Capital in May 2014. By August 2015, a little more than a year later, Square gave out more than $ 1 million a day to its business customers, providing over 20 thousand small businesses with cash loans for a total of $ 225 million during this period. By November 2016, Square Capital issued cash advances and loans to more than 100 thousand companies for a total of $ 1 billion .

It is curious that representatives of the payments sphere more often than colleagues from other areas tend to strengthen themselves in other niches.

“We are witnessing certain tectonic shifts due to the advent of new technologies and the geopolitical movement,” said Jess Steel, head of Barclays, during a panel discussion at the annual meeting of the Institute of International Finance. - All banks are now seriously focused on the area of ​​payments. Perhaps this is the area that will become the battleground of financial companies in the next 15 years. ”

Moreover, companies that succeed in the payment segment are starting to create closed ecosystems, doing so by entering the human resources and accounting services, consumer and business lending, and others. As a natural continuation of this approach, one can consider the practice of applying for a banking license, or, for example, Square's cunning move, which applied for a license of a lender of industrial enterprises . Large commercial players follow the same path.

Two years ago, Ant Financial, the financial division of Alibaba, entered the Chinese banking market by launching Mybank , serving individuals and small businesses exclusively on the Internet. In 2015, Alibaba, through Lending Club, began offering loans to American businesses . US companies were able to apply for short-term loans of up to $ 300,000 to pay bills to buy goods from Chinese suppliers. The monthly interest rate ranged from 0.5% to 2.4%.

“We want to maximize funding efficiency for millions of US buyers doing business with Alibaba.com and are pleased to present simple, affordable and transparent financing from Lending Club,” said Michael Lee, global marketing and business director at Alibaba.com. -development.

Another giant, the Amazon, which celebrated its 22nd anniversary this year, also does not want to ignore any type of business. In addition to bringing the success of e-commerce to the company, the company also plans to crush the small business lending market. Some experts even suggest that Amazon’s entry into this segment could transform the banking industry just as the web retailer once revolutionized the retail industry.

According to reports , from June last year to June, the current Amazon issued loans totaling more than $ 1 billion, while from 2011 to 2015, the company issued a total of $ 1.5 billion. More than 20 thousand small businesses received funding from Amazon. More than half of them used the service again. Since the launch of Amazon Lending in 2011, the total amount of loans issued by the service has exceeded $ 3 billion.

Another interesting example is Stripe, a payment company from Silicon Valley, whose value is estimated at $ 9 billion. In August 2013, she entered into a partnership agreement with the online lender of Kabbage businesses, which allows him to analyze the solvency of borrowers on the basis of the Stripe exclusive data obtained on the basis of payments processed by her. This clever and calculating move provided Stripe with an opportunity to find out exactly how its data can be used in lending. Until that moment, this model remained unexplored and therefore was of great importance. Currently, Stripe already has several similar partnership agreements with iwoca , Gane Loans , Socket , Crowd Valley , Clearbanc and Funding Circle . Each of them gives both parties certain privileges, and potential borrowers using Stripe services, in turn, receive certain advantageous benefits.

At the end of the summer, international payment operator PayPal announced the acquisition of Swift Financial , an American small business lending platform. The company expects that this acquisition will strengthen its competitive advantages in the segment where it has gained quite a few rivals in recent years. The activity in this direction began with the launch in 2013 of the Working Capital product intended for businesses. With its help, small businesses from 2013 to 2016 were granted loans totaling 690 million pounds . But the market situation has changed with the appearance of competitors like Square and Kabbage, offering their own lines of credit to small businesses. To increase the level of expertise in underwriting and expand the database, which PayPal can use to assess the creditworthiness of customers, the company acquired Swift. This step is designed to increase the amount of capital available for financing.

“We know and appreciate the Swift technology platform and its employees, and we believe that their professionalism and skills will increase the value of the services we offer to merchants,” commented Darral Ersh, head of international lending for PayPal. “The acquisition of Swift Financial based on existing commercial relations will allow us to increase the level of services for small businesses by increasing the efficiency of our underwriting, which in turn will allow us to make capital more accessible to a wider range of companies and ensure their growth and prosperity.”

Conclusion

Fintech companies in every way crave cross-niche expansion, wanting to create closed ecosystems protected by their partnership agreements. Leadership in any one segment is no longer seen as a viable strategy for long-term growth. Companies able to satisfy a wide range of needs of their customers will have an advantage in winning and strengthening market leadership. The experience of recent years has shown that the most greedy in terms of expanding the portfolio of financial products - players in the payment and commercial fields - are likely to retain this status in the coming years.