The Fintech Unicorn and their Success Stories….
How Square Inc. and similar fintech companies differentiated their success
Approximately 70% of average Americans struggle with managing their everyday finances and a significant population has less than $1000 in our savings account or in any form of an investment portfolio.
The indefinite closure for small businesses and limited operations due to the pandemic had added to the anxiety of business owners and retail investors to secure their finances.
Emerging fintech companies had always been a lucrative opportunity to penetrate the market and there have been about 8775 fintech startups in North America alone as of February 2020. In 2019 fintech startups were able to raise $34.5 Billion in funding from investors. Fintech unicorns like Square and PayPal is a household name and have each valuation over $70 billion and $214 billion. Robinhood is another success story with a $12 billion valuations and is still a private company.
The different sectors of fintech companies include Personal finance, Wall Street, Investment, Lending, Real Estate, Crypto/blockchain, and Payment options.
The Different Categories of Fintech
From the above portfolio for Fintech industries, it is realized that the majority of the market share is preoccupied with Payment applications. Notable names include Affirm, PayPal, Venmo, and many others. The convenience of mobile apps to pay among peers or merchandise has accounted for its surge in demand. We all need to make transactions on a daily basis and the convenience offered with the click of a button from an everyday mobile device is the reason for its demand.
However, due to the increased competition in payment applications, it is important that each Fintech company offers a competitive advantage that helps them to strive and occupy a greater market share.
List of some competitive Payment App launched successfully by the Fintech Unicorns: Their competitive Advantage and Market Capital Analysis
Affirm is a fintech company that operates as a financial lender of installment loans to consumers. This advantage allows it to increase its consumer database as it has affiliations with retailers like Walmart and e-commerce websites such as Shopify. Recently the company listed itself on the stock market with an IPO of $49/share and is now trading at a little over $84. Its revenue in 2019 was over $510 million dollars.
Circle: Though Circle is a peer-peer mobile payment platform and is still a private company it received over US$135 million in venture capital from 4 rounds of investments. In 2018, the company was able to raise an extra US$110 million in venture capital to create an Ethereum coin backed by the USD. The competitive advantage is that the Circle platform allows exchanging in different currencies between peers thereby giving real-time instant exchange of currencies.
The Success Story of Square Explained……..
“We have a whole team that focuses on making sure that every pixel is implemented correctly. We have a great discipline in design and how we present ourselves.” — Jack Dorsey, Square
Square Inc. was founded back in 2009 and at present serves numerous areas in the USA, Canada, Australia, Japan, and the UK. Its annual revenue is over $4.7 billion (2019) and it's currently trading on the stock exchange at $200+ from its IPO ( Initial Public Offering) at $9 (2015). This means that an individual who invested back in Square back in 2015 will have an appreciation in value over approximately 22 times.
The inspiration to start the company is a classic example of tailoring a solution to a market problem.
James McKelvey (one of the co-founders of Square Inc.) was unable to process a sales transaction of $2000 because he did not accept credit card payments at the time (2009). Back in 2009, credit card processing was expensive and the transaction costs added made the system not lucrative for many small businesses. Mr. McKelvey saw it as a market opportunity and reached out to Jack Dorsey (the co-founder of Twitter and later Square Inc.). They were later able to build a hardware prototype which is a square card reader and allows it to connect to the audio jack of any mobile device. This created scope for retailers or individuals to easily accept payment at their convenience.
The distinctive business model of Square Inc.
The card reader is sent to its users for free but Square charges a fee of 2.6% plus an additional 10 cents for every electronic credit card transaction. The payments are automatically wired to the bank account of the user within 2 business days.
The lower transaction fees and $0 fixed cost on the purchase of the Square card reader can be attributed to the success of this model. However, Square decided to evolve more and started offering Square Payroll services.
The key ingredients for success:
- Seek market opportunity/demand: Most small retailers were not involved with credit card transactions because of the system setup and the associated cost.
- Offer Competitive advantage in terms of cost: The lower transaction fees and $0 fixed cost on the purchase of the Square card reader.
3. Create convenience for users: The accepted transactions were directly deposited to the user’s account at no further interference or cost involved.
4. Be ready to evolve and grow: Square Payroll Services and other services that grew with their client base and business model.
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