I work in PR and have represented quite a few startup fintech companies. What puzzles me is that there are masses of these companies all around the world, yet they all seem to do the exact same thing (p2p payments, digital wallet stuff, transfer money to a business via an app etc.) They also market themselves in exactly the same way. Yet every day I see yet another utterly generic fintech company raise tens of millions of dollars in a funding round to do what every other app does.
I find this puzzling because surely fintech applications should work like a social network, ie it makes sense for everyone to be on the same application, in the same way Twitter works because lots of people are on Twitter.
I used to live in China and everyone there uses either WeChat Pay or AliPay and that’s it, and it works beautifully because everyone in the entire country is plugged into the same system (in China I could literally text money to my friends to pay them back for getting drinks, as well as pay my electric bills in the same manner). I actually had this conversation with a startup founder (although he works in agritech) and he basically said this to me, so I think I’m onto something.
Any insights you have are appreciated.
In: 1421
Fintech is an easy market to make money in. Traditional financial institutions have high margins, so it’s easy to spin up a product with competitive offerings that still pays for itself. And the users are moving and storing money, which inherently makes more money. Unlike a social media app where you have to figure out a way to convert the input (data) into revenue, getting anybody to put money in your neo-bank automatically earns you revenue.
A social media app with 10,000 users probably couldn’t pay for the cloud servers it’s hosted on. But a neo-bank with 10,000 users could generate profit. Let’s say each user deposits $5000 in a savings account. If the neo-bank gives them 4.5% APY, they still get to keep 0.5-1% for themselves at current rates. That nets them up to $500k in revenue from savings accounts alone.
And the fixed costs for a new fintech are low. An actual bank handles all the back-end. The fintech only needs a handful of programmers, a barebones compliance/legal team, and marketing.
And Fintech plays are filling a void in the finance market. Since the crash in 2008, a lot of local/regional banks and credit unions have closed up or have been absorbed into the big banks. Fintechs fill the same niche as credit unions and local banks used to, the small size lets them offer slightly better service, better rates, and innovate faster than Chase and BofA.
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