By Bernard Lunn
It is worth looking at Y Combinator batches because it is such a Darwinian process that it reveals underlying trends.
Last week I looked the most recent Y Combinator batch and found that 26% were Fintech, more than 2x any other batch. Apart from more confirmation that Fintech is a hot market (hardly needed), I noted that four of these ventures can be categorized as the Underbanked sector within the Fintech market.
The Underbanked is one of those blue ocean market windows “so big you can drive a truck through it”. You can see our coverage of the Underbanked here. Most Banks ignore the Underbanked; so this is a perfect market for startups. This is a “first the Rest then the West” story that we found in the Fintech Unicorn from India (Paytm), driven by mobile adoption. So it makes sense that Y Combinator should select so many startups in this sector of the market.
I found 4 vezntures in the latest Y Combinator batch that I would categorize as serving the Underbanked. I categorized them based on the Techcrunch coverage as they heard the pitches live. New ventures like this often change their pitch and even their name and I have noted that below.
GetSaida (fka Greenshoe)
What Techcrunch wrote: “Loans for the mobile age. Greenshoe is trying to reinvent the mobile banking sector in developing countries by analyzing SMS spending and receipts to underwrite small consumer loans. To date, they’ve given out 8,100 loans and grown at 47% week-over-week with an 84% retention rate. They say that their default rate so far on their 30 to 60-day long loans is about 8.5%.”
Changed their name but the pitch remains the same.
What Techcrunch wrote: “Xendit is building Venmo for Southeast Asia with instantaneous peer-to-peer mobile payments. This is key in the region because only 15% of the region’s consumers have debit or credit cards and the vast majority of transactions happen in cash. Meanwhile, mobile phone penetration has grown to about 120% penetration (as many consumers have more than one phone). That presents an enormous opportunity for mobile commerce. Since launch, Xendit has acquired 13,000 users and is growing 50% week over week. They’ve handled 1.5 billion rupiah in Indonesia, or about $110,000.”
The pitch on their site is no longer Asian specific. However the Venmo for Southeast Asia tag will probably remain and with Venmo now owned by PayPal and PayPal in the Daily Fintech Index of publicly traded Fintech companies, an exit to PayPal seems pretty likely.
What Techcrunch wrote: Let merchants in developing nations accept credit card payments.
Buying things while on vacation can be tough. Merchants often lack credit card machines. Those that have them are often gouged for 7% by local providers, and tourists still have to pay a 4% fee. Tab. has created an app that lets merchants accept payments with just a smartphone. They’re charged only 1%, and tourists pay less too as transactions happen in their home currency. With 40% week over week growth thanks to word of mouth amongst merchants, Tab. is rapidly growing to take a chunk of the $40 billion in transaction fees paid on tourism payments in emerging markets. Soon you won’t need cash anywhere.
This is a great early adopter market to go for. In the developing world, tourism is a big business for the micro entrepreneur and I believe that the micro entrepreneur is key to the Underbanked market.
What Techcrunch wrote: PayPal for Southeast Asia
Most of Southeast Asia has less than a 5% credit card penetration rate, leading to low usage of PayPal and most ecommerce purchases being paid for with cash on demand. Xfers has erected a payment network on top of the existing online bank accounts most people have, and APIs it built for the local banks. With a growing middle class, the region could be spending $350 billion on ecommerce just 5 years from now. Just a 1% fee could earn Xfers $3.5 billion in this rapidly evolving market.
Sounds very like Xendit and it sounds like PayPal will be taking a look at both. In fact, TabMoney looks to be in the same space. I have seen others in this space. I like the TabMoney focus on the micro entrepreneur in the tourism business.
The Y Combinator stage is the “bleeding edge” stage. It is a huge achievement to get to graduate as one of the Y Combinator batch. They are the most watched of all the Accelerators, with some big wins already on the scorecard. Yet this is still a really risky stage and many will fail. I think all 4 could be winners although I think that Xendit, Xfers and TabMoney are more likely to be trade sales. The one with a unique value proposition (as far as I know) is GetSaida. Analyzing SMS spending in the Rest is like analyzing credit card spending in the West; it is a genius idea and it will be interesting to see how they execute on it.
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