The New Divine Comedy: FinTech’s Two Circles of Hell

October 17, 2017     By : Elena Mesropyan

How many FinTech startups does it take to create one comprehensive payment solution?

Apparently, close to 1.5K. That is how many FinTech startups are operating in the payments segment – one of the most represented and well-funded segments in FinTech (along with lending). Let’s see why.

The most meaningful competition in FinTech jumps to a whole new level

There are two main levels of competition in FinTech – the first one for survival (which happens within FinTech), and the next one for cross-niche leadership (in the ‘real world,’ where grownups like Amazon and Apple operate).

The first one is pretty trivial; the vast majority of FinTech startups around the world are competing for capital, traction, and an extended runway before the next round. More importantly, on that level, the only competition that matters is with fellow startups. Whether there are 1.5K FinTech startups building some sort of a payments solution, or there are 5K doing the same, only a handful have a resemblance of a chance in an intensely competitive market.

The next level is far more interesting. Few that scored the most funding, forged the most powerful alliances, and built truly superior to peers solutions, all the while crossing international borders, enter an aggressive race for cross-niche dominance. And in that game, survivors compete with a vast array of players coming from diverse backgrounds, often times with true heavyweights that existed before FinTech became a ‘thing,’ like IBM, Amazon, Alibaba, etc.

Commerce and payments will lead to lending

Let’s look at a few interesting examples starting with Square, a well-known player that went from trading for $9 a share in 2015 to $33 in 2017. The company has grown its revenue from $850 million in 2014 to $1.7 billion in 2016, considerably shrinking losses between 2014 and 2016.

Square, however, did not stop on its initial segment, expanding its business into lending with Square Capital in May 2014. By August 2015, in a little over than a year, Square was advancing $1 million per day to businesses and has disbursed a total of $225 million (up from $100 million early 2015) in cash advances to more than 20,000 small businesses. By November 2016, Square Capital has lent $1 billion in cash advances and loans to more than 100,000 businesses.

It’s curious that the payments space is the one often seen spreading hands into other niches. “There are some tectonic shifts going on, driven by tech and the geopolitical environment,” Barclays Chief Executive Officer Jes Staley said during a panel discussion at the annual meeting of the Institute of International Finance (IIF) in Washington. “All the banks are very focused on the payments space. That may be where the battleground of finance is fought over the next 15 years.”

Furthermore, companies succeeding in the payments segment start creating closed ecosystems through expansion into HR services, consumer and business lending, accounting, and more. The natural step then is to apply for a bank license, or, like in a sneaky case with Square, for an industrial loan company license. Large commerce players follow the same path.

Two years ago, Alibaba’s financial arm Ant Financial entered Chinese banking business with the launch of Mybank, an Internet-only bank for customers and small businesses. In 2015, Alibaba started offering loans to US businesses through Lending Club, allowing US-based businesses to apply for short-term credit of up to $300,000 to buy from China-based suppliers. Monthly interest rates ranged from 0.5% to 2.4%.

“We want to make financing as efficient as possible for the millions of US buyers that do business through and are pleased to bring Lending Club’s simple, low cost and transparent financing products to our US buyers,” Michael Lee said back then,’s global marketing and business development director.

The 22-year-old giant Amazon isn’t missing out on any sort of business either. E-commerce is far from being its most-known area of expertise – another industry Amazon plans to crush is small-business lending. Some even suggest that Amazon’s entry into small-business lending could transform the banking industry in the same way that the web-based retailer revolutionized retail.

Between June 2016 and June 2017, Amazon was reported to have lent out >$1 billion in small loans to sellers, compared with >$1.5 billion it lent in a four-year period from 2011 through 2015. More than 20,000 small businesses have received a loan from Amazon with >50% of the companies eventually taking a second loan from the company. Since Amazon Lending launched in 2011, it has surpassed $3 billion in loans to small businesses.

Silicon Valley payments company Stripe, valued at $9 billion, is another important and interesting example. Back in August 2013, Stripe got in bed with an online business lender Kabbage to allow Kabbage to underwrite loans based on exclusively Stripe payment processing data. In an outstandingly smart move, Stripe created an opportunity for itself to understand the use of its data for lending purposes. It’s a model that hasn’t been much explored before and a very important one. By 2017, Stripe forged a set of similar partnerships – with iwoca, Gane Loans, Socket, Crowd Valley, Clearbanc and Funding Circle – in which each partner gains ‘privileges’ and can offer benefits to potential borrowers who are on the hook with Stripe services. Stripe data is at the center of its outsourced lending business.

At the end of this summer, global payments processor PayPal announced it will acquire Swift Financial, a US-based small business lending platform. For PayPal, the acquisition is expected to bolster a portion of the company’s business that has seen increased competition over the years. It first launched a Working Capital product for businesses back in 2013 (which between 2013 and 2016 provided £690 million to small firms), and since then has seen competitors like Square and Kabbage emerge as offering their own credit lines to small business customers, TechCrunch reports. PayPal has acquired Swift to add to its own underwriting capabilities and expand the amount of data it can use to assess the creditworthiness of its customers. Doing so should expand the amount of capital it makes available.

“We know and value Swift’s technology platform and people, and we believe their talent and capabilities will further strengthen our overall merchant value proposition,” PayPal’s Darrell Esch wrote in announcing the deal. “Building upon an existing commercial relationship, the acquisition of Swift Financial will enable us to better serve small businesses by enhancing our most greedy underwriting capabilities to provide access to affordable business financing solutions to more businesses to help them grow and thrive.” PayPal’s Darrell Esch wrote in announcing the deal. “Building upon an existing commercial relationship, the acquisition of Swift Financial will enable us to better serve small businesses by enhancing our underwriting capabilities to provide access to affordable business financing solutions to more businesses to help them grow and thrive.”


Lust is in the second circle of hell indeed. For FinTech, it’s lust for cross-niche expansion and desire to create closed ecosystems behind the doors of their close partnerships. A single-segment leadership is no longer a viable strategy for sustainable growth. Companies that are able to address the needs of their customers comprehensively will have an upper hand in establishing market leadership. And it appears that payments and commerce players are the ones most greedy to expand their portfolio of financial products in the nearest future.

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Elena Mesropyan
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Elena Mesropyan

Global Head of Content at Let's Talk Payments
Elena is a research professional with a background in social sciences and extensive experience in consumer behavior studies and marketing analytics. She is passionate about technologies enabling financial inclusion for underprivileged and vulnerable groups of the population around the world.
Elena Mesropyan
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