Startups vs. Incumbents. Is there a better way to describe the state of the payments business?
At the Money 2020 Conference in Las Vegas last week, this David vs. Goliath theme could be found in every topic covered:
- Processing (First Data vs. Square)
- Money Transfer (Western Union vs. Pangea)
- Mobile Wallets (ISIS vs. Google)
- Ecommerce (Visa vs. Amazon)
- Credit/Debit Cards (American Express vs. FinanceIt)
Even our traditional dollar bill that’s been around since 1880is under fire from alternative currencies such as Bitcoin.
The battle in the underserved segment is particularly acute. Startups (along with their investors) and incumbents alike now see huge opportunities here. According to the CFPB, there are over 80 Mn U.S. adults who are considered underbanked.
Providing any kind of credit in this space is tricky. In the old days (e.g. 2002), there were players like CompuCredit, First Premier, NextCard, Capital One, Providian and others who would underwrite these consumers for a credit card. When the subprime crisis and subsequent regulation was imposed in 2009, all left the space or moved up market.
That left the underbanked truly underserved and reliant on the remaining check cashers and payday lenders – at least those who remained.
In 2013, both incumbent and startup are finding ways in this new regulatory environment to provide credit to this large customer base. At the Money 2020 Conference, American Express Group President opened his keynote by stating, “We’re on a new mission at American Express….our mission is to use emerging technology to breathe life into financial inclusion…2.5BB worldwide are underserved by the traditional financial system.” This 150 year old institution that traditionally gives $50,000 credit lines only to the most affluent customers is now setting its sights on the over 50% of U.S. consumers who live paycheck to paycheck. They partnered with Walmart last year to launch Bluebird, a checking and debit alternative for the nonprime space. Now, they are re-launching Serve, a reloadable prepaid account for the underbanked. It enables many free services including direct deposit, bill pay and money withdrawal. And, they’ve partnered with money management startup, LearnVest to help educate customers. Every time consumers put money into a Reserve account linked to Serve, they are sent relevant content and advice from LearnVest to keep saving or manage a budget.
Even with American Express focusing on this space, there are a slew of startups and a lot of VC money supporting them. They’re offering anything from instant credit at POS to installment loans to analytic services to identify and underwrite the underbanked and related services. Here’s just a few:
- BillFloat (backed by PayPal, Venrock, First Found Capital)
- FairFinTech (Insikt Ventures)
- Lendup (Andreessen Horowitz, Kleiner Perkins, Google Ventures and many more)
- FinanceIt (FIS)
Given the size of the opportunity here, this is one of the few areas in financial services where both incumbent and startup can thrive.