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.
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>I find this puzzling because surely fintech applications should work like a social network, i.e. it makes sense for everyone to be on the same application, in the same way Twitter works because lots of people are on Twitter.
Yes, and no. Lending does not have strong inherent network effects, and payment network effects are significantly lower (vs. social networks), because of regulations forcing interoperability, and the general need for inter-network payments (either via some platform providers, or just strong standards & protocols)
Given startup A’s users can pay money to Startup B, based on simple shareable identity markers like phone number, or a QR code, there’s no inherent reason why both cannot exist and compete for users.
China is interesting because large parts of the stack exist on Alipay and Wechatpay, but you should think of many of start-ups which are coming up, as equivalent to the startups/ financial players in china which build their offering on top of WeChatpay.
India has done it differently, and better I think. The central bank (Reserve Bank of India) forced every payment provider to support a “Uniform Payment Interface”, which means it doesn’t matter which app you have .. the underlying payments transfer is routed through a common network. This network doesn’t just handle person to person payments (from as small as 1 rupee, roughly 1 cent) to millions in inter-bank transfers, and also person to bank transfers such as while using wallets or toll booths. The service is free for 80% of person to person transactions because they are quite small.
It has been a game changer for the economy.
The Chinese ones are medium terrifying, because they’re also pretty certainly a tracking tool for the government to see… everything? Your spending habits, income, outputs, geolocation, and who you interacted with are all there.
If you’re not in China, you basically should not be using WeChat.
What do they do, lose money?
Simple. Everyone is trying to hit the jackpot of becoming the WeChat pay of the US. Or at least get bought out at some point down the line by the biggest players.
So there are 2 sides of having one big player in any market. It’s very convenient. But competition breeds innovation and prevents monopolistic behaviors. Imagine if WeChat start taking on fees every year. You’re just going to have to o take it in thr ass, cuz there’s no alternatives
Because
* payments processing is worth tens of billions as an industry
* it’s mostly being sat on by a handful of complacent megabanks
* take a peek at how the banks do things… it’s all decades old garbage- batch processing on mainframes, communication by copying flat files. That sort of shit. That’s why bank wires still process overnight. They’re trying to modernize but (as always) they are trying to thread the needle- they don’t want to spend a penny beyond what is absolutely necessary to bring a barely viable product to market just in time to avoid bleeding too many customers to fintechs that have basically implemented their infrastructure with modern technologies.
* so VCs are like “one of these firms will figure it out and take off, we want a piece of whichever one that is”
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