Fintech startups have has been hugely successful in recent years. The largest consumer startups have managed to attract millions – sometimes tens of millions – of users and have raised some of the largest late-stage venture capital funding rounds. That is why they have achieved incredible ratings.
After some wild years of growth, fintech startups are behaving more like traditional financial firms.
Still, the economic downturn this year has been challenging for the current class of fintech startups: some have grown well while others have struggled, but the vast majority of them have changed their focus.
Instead of focusing on growth at all costs, fintech startups have embarked on a path to profitability. This does not mean that they will get a positive result by the end of 2020. However, you have identified the core products that will secure these startups in the long term.
Consumer fintech startups focus on product first, then growth
The use of consumer goods varies greatly with users. And when you are growing fast, supporting that growth and entering new markets takes a lot of effort. You have to constantly hire new employees and concentrate on product and company organization.
Lydia is the leading peer-to-peer payment app in France. It has four million users in Europe, most of them in its home country. The startup has grown rapidly in recent years. Engagement drives user logins, which drives engagement.
But what do you do when users stop using your product? "In April the number of transactions fell by 70%," said Lydia Co-founder and CEO Cyril Chiche in a telephone interview.
"The usage was obviously very quiet in some months and euphoric in other months," he said. Overall, Lydia increased its user base by 50% in 2020 compared to 2019. When there was neither a lockdown nor a curfew in France, the company was able to exceed its record values in all areas.
“In 2019 we grew all year round. Overall, we had very good growth numbers in 2020 – but in a normal year without March, April, May and November it should have been amazingly good. "Said Chiche.
In March and early April, Chiche didn't know if users would come back with Lydia and send money. Back in January, the company raised money from Tencent, the company behind WeChat Pay. "Tencent was ahead of us in China when it comes to the lockdown," said Chiche.
On April 30, during a board meeting, Tencent listed Lydia's priorities for the rest of the year: send out as many product updates as possible, keep an eye on the burn rate without laying off people, and prioritize product updates to suit user preferences To take into account.
“We worked hard and shipped everything related to card payments, contactless mobile payments and virtual cards. This reflected the huge increase in contactless and e-commerce transactions, ”said Chiche.
In addition, the company's development has been repositioned to reach profitability faster. "The next step is to bring Lydia to profitability and that has always been important to us," said Chiche.
Let's list the most common sources of income for fintech startups like challenger banks, peer-to-peer payment apps, and stock trading apps, which can be broken down into three cohorts:
First, many companies give customers a debit card when they create an account. Sometimes it's just a virtual card that you can use with Apple Pay or Google Pay. While there are some fees associated with issuing cards, they are also a source of income.
When people pay with their card, Visa or Mastercard cuts off every transaction. You return a part to the financial company that issued the card. These exchange fees are ridiculously low and often turn out to be pennies. However, they can add up with millions of users actively using your cards to transfer funds from their accounts.
Paid financial products
Many fintech companies like Ant Group's Revolut and Alipay are developing superapps that serve as financial centers and cover all of your needs. Popular super apps are Grab, Gojek and WeChat.
In some cases, they have their own paid products. In most cases, however, they work with specialized fintech companies to provide additional services. Sometimes they are perfectly integrated into the app. For example, this year PayPal partnered with Paxos so that you can buy and sell cryptocurrencies through their apps. PayPal does not do a cryptocurrency exchange, but rather lowers the fees.