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No More Payments (Only) Fintechs

By Adrián Fernández de Mendoza Ibarra - Multimoney México
CEO

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Adrián Fernandez de Mendoza By Adrián Fernandez de Mendoza | Co-Founder - Wed, 09/28/2022 - 16:00

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Wait, hold on. I’ve been an active participant and industry cheerleader for eight-plus years. Keep reading. To get you in the mood, picture the following statements in your head:

“Your transfer fee is 3 pesos.”

“If you pay with a credit card, we need to add 3 percent to the total amount.”

“There is a monthly fee to use our SaaS, which includes up to 50 transactions.”

Wait, what? There’s a payment cost? No way, Jose. I’m not paying to pay (pun intended).

In this new world of global and massive entitlement, we don’t want to pay for (almost) anything. Well, some people are willing to pay US$1,100 for a phone that does not have anything new (you know which one I’m talking about). But for frictionless, simple, digital payment products we don’t want to pay a single penny. 

Digital transactions save us from the burden of carrying cash, increase our accountability regarding where we spend our hard-earned money and half a dozen other benefits, yet WTP (Willingness To Pay — keep up with the acronyms) is close to zero. Who pays for payments then? 

Let’s step out of payments for a second. It was reported once that Google spent around $4 billion per year to maintain and enrich its Geo platform* (Maps, Earth, StreetView, etc). Just imagine adding up all the engineers, cars, analysts, planes, cameras, computing power and people on the ground needed for you to have phones updated with your favorite restaurants, those exquisite hi-res images of Iceland and New Zealand for free and hints to skip traffic through Waze at rush hour. Sounds expensive, right?

“Google announces their Maps products will start to charge (insert any value here) per month to their customers.” 

Imagine that headline on CNN. What do you think will happen? How many users would stop using the product immediately and look for other free, not-so-good options? And even though it is undeniable that the value of the user-enriched, ultra-popular navigation app is huge to drivers, why then would people not pay for it? You get the idea.

Let’s go back to fintech and payments. The big dilemma with new startups focused on digital payments is that the disparity between WTP and value added throws them off the board. Winding the clock back a few years into the past and payments infrastructure and products were limited to banking solutions with slim-to-no focus on the customer, zero innovation and poor security. 

The incursion of fintech startups into this segment has brought us better products, financial inclusion, speed and reliability. But that single-product company will struggle to create a sustainable business model or stickiness with their customer base.

So, what’s the way out? We need to evolve to conceive payments as an enabler more than a standalone (highly profitable) business unit. There are several cases where this is almost impossible to realize and to make a reality (founder egos and corporate structures). 

Payments is just one tentacle in the complex interaction with customers and perceived value from them. They also have the same fate as our beloved IT support colleagues: when everything works, no appreciation. When something breaks, run for the hills. 

But new players continue to build solutions for this segment: If you take the latest six batches of the ultra-famous, startup incubator/investor Y Combinator, almost 27 percent of all funded fintechs from Latin America were devoted to payments, while only 6 percent are trying to disrupt insurance, for example. 

And it gets even more challenging. A recent study from a high-profile consulting firm showed that only 3.4 percent of all revenue from Southeast Asia fintechs in 2023 will come from payments while 71.4 percent will come from credit-related products. That’s 21x in size. Ouch.

Google Maps needs a rich brother like the Ads business that brings in all (well most) of the cash. If you earn US$250 billion-plus in annual revenue on ads, you can easily pick up the US$4 billion tab of your spendy pal (that also helps to retain users in the platform and attract future “clickers” to the ads).

So, payments need credit? Not necessarily. But a more-comprehensive value proposition and offering beside “just a cool, easy payments app” will have more chances to succeed. Insurance, savings, investments, you name it. 

But usually payments people are hardcore about payments and believe their solution is unique and can survive on its own. The same happens with credit guys. And crypto well, don't go there. We tend to miss the forest for the trees.

Peter Thiel, in his masterpiece, From Zero to One book, wrote: “Monopoly is the condition of every successful business.” Payments are far from a monopoly. So is credit. But payments-only companies in the future will face a hard time paying the bills on their own due to close to zero WTP.

Are joint ventures, so-called neobanks, or multiple-product financial institutions the solution? We’ll see. 

Photo by:   Adrian Fernandez de Mendoza

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