Stripe swings to a profit as business rebounds; Major fintech trends in Uzbekistan; Finding value in generative AI for financial services;
In this edition:
1️⃣ Stripe Swings to a Profit as Business Rebounds
2️⃣ Banks shed 60,000 jobs in one of worst years for cuts since financial crisis
3️⃣ ‘Revenge Spending’ Drives Ballooning US Credit Card Balances
4️⃣ How BaaS enables fintechs to monetize on the back-end like Robinhood ($38B)
5️⃣ Profit hacking — tangible ways to monetize neobanking clients
6️⃣ Major Fintech Trends in Uzbekistan
7️⃣ Finding value in generative AI for financial services
News
Stripe Swings to a Profit as Business Rebounds
Payments giant Stripe, a bellwether of the startup world, kept a lid on spending for engineers and salespeople this year after business slowed in 2022. Now it’s reaping the benefits: as revenue growth has re-accelerated, it’s making money again.
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Banks shed 60,000 jobs in one of worst years for cuts since financial crisis
Global banks eliminated more than 60,000 jobs in 2023, marking one of the heaviest years for cuts since the financial crisis and reversing much of their hiring as they emerged from the Covid-19 pandemic.
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‘Revenge Spending’ Drives Ballooning US Credit Card Balances
American consumers continued to splurge in 2023, boosting the economy with revenge travel, Taylor Swift tickets and expensive restaurant meals. But a lot of it was funded with debt.
Insights
How BaaS enables fintechs to monetize on the back-end like Robinhood ($38B)
Square and Klarna are two fintech companies that have had dramatic growth stories over the last decade. Cash App went from $100M to $1B in annualized revenue in 2.5 years, while Klarna has grown to $53B+ GMV from just $15B in 2016. Ramp, while much newer, has also grown extremely fast, crossing $1B in transaction volume in around a year after launching.
There’s a kind of parallel here to Robinhood, the $38B trading platform that brought the idea of zero-commission trades (easily available through mobile app) to the public.
Robinhood could fund all that zero-commission trading because of their backend business model of selling their customer’s orders to third parties, or accepting payment for order flow.
In that case, the third-party market maker paying Robinhood to execute its orders is generating the revenue — in the case of card issuing, it is the merchants paying the interchange fees who are generating the revenue. In each, the burden of paying for the service rendered is moved off of the customer, creating the appearance of ‘free’.
Similarly, a company like Ramp, instead of charging corporate customers a fee for using their card and attached expense management platform, can monetize the transactions and get paid alongside the card network and issuing bank. That allows them to use the very enticing value proposition of free to gain more customers, which generates more transaction volume and more interchange revenue.
This business model innovation was massive for Robinhood’s business, and the ability to monetize on interchange is central not just to Marqeta’s business but to the businesses of their customers.
As Pry’s co-founder and CEO told us, “interchange pricing is great. The end-user has no idea about pricing, so they feel like it’s cheap. But you’re making a lot on the backend.”
This innovation has also helped usher in the rise of BaaS. The difference is that with banking-as-a-service, companies can look to monetize not just on card issuing but on other banking functions like lending. It’s the same kind of shift in business model, only widened.
With BaaS, the number of potential business models for fintechs and brands expands again — not only can they collect their revenue on the interchange from cards, but they can execute on crypto arbitrage or, as in the above diagram, lend out user account balances to other financial institutions and collect interest.
Source Sacra
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Profit hacking — tangible ways to monetize neobanking clients
Forget product-market fit, aim for a product-market-pricing fit
No doubt that the core principles of product-market fit are well understood in the industry. Most banks have designed their value proposition around clearly visible pain points and are using customer insights to fine-tune their offerings. However, they forget to answer an important question: are clients willing to pay for these improved services?
Productize to segments
In neobanking, many still cluster clients by size, e.g., “Mass Retail,” “Affluents,” “Wealthy,” and “Corporate.” But neobanks face the same challenges as any other digital startup. Targeting large and diverse segments like “Digital Natives” is difficult when you have a limited marketing budget.
A prime illustration is Uber. In March 2009, Uber (then known as UberCab) launched its pioneering “black car” ride service model, primarily catering to those in search of convenient, on-the-spot transportation. Uber initially honed in on one clearly defined segment before expanding its horizons to e.g. UberX, offering a more budget-friendly alternative to the upscale black car service, and UberEats, capturing the attention of busy millennials seeking convenient dinner options.
Leverage the power of bundling
What could neobanks learn from the sale of Big Macs or Whoppers? The answer: bundling.
Fast-food chains exemplify the concept of bundling perfectly by creating enticing value meals from burgers, fries, and drinks, raising the perceived value for their clients while provenly growing revenues for the restaurants. However, bundling can apply to almost any industry — and neobanks are no exception. Smartly packaging products into wellcrafted bundles can enable neobanks to add more value compared to standalone offerings.
The current environment provides several opportunities where bundling could be a part of the solution:
How can neobanks combine accounts with high-yield deposits, harnessing the pull effect of deposits while carefully sidestepping the potential for cannibalizing low-rate funding?
What’s the ideal nexus between crypto trading and brokerage accounts — a unified package or two distinct offerings with separate pricing?
How should neobanks sell value-added features that would perform better outside of a bundle?
Master the art and science of pricing
Pricing is much more than deciding whether to offer a basic account or card for 3.99 or 4.99. You need to delve deeper, not just considering what you charge, but more importantly, how. It’s about the metrics that underpin pricing decisions — spanning transaction-based calculations, volume-driven models, and loyalty rewards.
These businesses witnessed exponential growth by taking one-off movie rentals and transforming the idea into seamless, all-inclusive experiences via subscription models.
Source Simon Kucher
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Major Fintech Trends in Uzbekistan
Relatively slow bank digitalization spurred digital wallet growth, serving individuals and businesses
The country’s focus on digitalization is driving M&A activity. Several deals are worth noting, such as:
• Uzum’s agreement to acquire Click in 2023;
• TBC bank group’s consolidation of a 100% stake in Payme in 2023.
Click holds the preference of over 50% of merchants for payments, followed by Payme wallet at more than a third; notable interest for adoption centers around Uzum payments.
The e-commerce market in Uzbekistan has shown a consistent upward trend, with a penetration rate of 2.2% in 2022, a significant increase from 0.6% in 2018
International platforms like Wildberries and ZoodMall initially dominated Uzbekistan’s e-commerce scene. However, a shift is observed with local entrants, notably the fintech-backed Uzum in 2022, gaining market share.
Players offer diverse sets of services but all of them aim to become “superapps”
There is a significant growth of neobanks serving both individuals and the business sector, with a particular focus on micro, small, and medium-sized enterprises
The huge demand for Islamic finance will lead to a rapid growth of this segment in the coming years
For several years, the government of Uzbekistan has been working to increase the supply of halal financial instruments in the country’s economy. This initiative should make it possible to involve a huge number of individuals and SMEs in the financial sector, who are currently deprived of access to funding for religious reasons.
BNPL is emerging as a significant catalyst for the growth of e-commerce
BNPL (Buy Now, Pay Later) services are now highly popular in Uzbekistan and have already become a necessary tool for many marketplaces to stay afloat for the following reasons:
• Many BNPL services adhere to Sharia law, appealing to Uzbekistan’s predominantly Muslim population.
• Fintech companies offer swift online installment approvals, often in under three minutes.
• Given the country’s moderate average monthly salary of about $321, BNPL services make purchases more financially manageable.
Controlled development of the cryptoindustry as an alternative source of investment for households and businesses
Since 2018, the government has been working to formalize the crypto-industry, resulting in transactions involving crypto-assets by individuals and legal entities not being subject to taxation or currency regulations.
Source Mastercard
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Digital wallet geography: Where are your customers?
Global players with the highest possible brand awareness, like Apple Pay or Samsung Wallet, may have little to no penetration in countries with limited access to traditional financial systems.
Besides payment flow, the device running a wallet app also matters. Android grabs 73 percent of the mobile OS market share, with its penetration especially high in India, Brazil, and Mexico. In those countries, Android-centric tools beat Apple Pay. On the other hand, iOS leads in the US, Japan, Canada, Australia, and the UK .
With these considerations in mind, let’s take a broader look at the geography of wallet brands.
The above-mentioned GPR survey shows that North America has been mostly served by three large brands — PayPal, Google Wallet, and Apple Pay. But recently, two other players, Shopify’s Shop Pay and Cash App Pay (both are staged wallets), have joined the leaders club, so they are worth considering by any business betting on the US or Canadian markets.
In Europe, PayPal plays first fiddle in Belgium, France, Germany, Italy, Spain, and the UK, with a tangible presence across other European countries. Other common international brands are Google Wallet, Apple Pay, and Amazon Pay. Local apps like Lydia in France, and Vipps MobilePay in Denmark and Norway also mustn’t be written off by those targeting a particular territory.
People in Latin America largely rely on Mercado Pago Wallet from the LATAM’s biggest eCommerce marketplace, Mercado Libre. At the same time, the growing penetration of Android smartphones plays into the hands of global brands — Samsung Wallet and Google Wallet — that have a strong presence in Brazil and Mexico. Brazil is the only country where Google Wallet enabled QR-code payments. Still, many local wallets preserve leadership in the respective territories — like MACH Pay in Chile or PicPay in Brazil.
In Africa and the Middle East (MEA), the world’s most unbanked region, the adoption rate of m-wallets by far outpaces ownership of traditional bank accounts. In 2022, the region received around 68 percent of the global mobile transactions. Though not all of them were made via a wallet app, this statistic mirrors their significance and overall interest in alternative payment methods. Among the leading solutions are M-Pesa in Africa, MoMo from MTN, a major mobile network operator across the entire MEA, Etisalat Wallet in the UAE, and more.
Digital wallets became the leading eСommerce payment method in such countries of the Asia-Pacific (APAC) region as China, India, Indonesia, the Philippines, and Vietnam. The mainstream wallet in Southeast Asia is GrabPay, which covers the needs of unbanked and underbanked locals, amounting to 60 percent of the population. In China, around 90 percent of the online payment market belongs to Alipay and WeChat Pay.
Source Altex Soft
