Convergence as a trend in the re-bundling phase of financial services

Power of 3_blog_images-01

There is ample evidence that 3 is a magic number. It dates back to the old times and is well captured in the Latin phrase[i]

Omne Trium Perfectum  – everything that comes in 3s is perfect.

I bring this up not only because I chose to provide three examples in my post today but also because the magic of number three is due to the pattern recognition process of our brain when processing language.

Payments, investment products and loans are bundled on e-commerce, telecom, and lifestyle platforms.

E-commerce & Lending

Amazon, the legendary e-commerce company of the West is into lending since 2011. It a business that is part of its ecosystem and supports its marketplace. Small and medium size digital entrepreneurs that use the Amazon marketplace to trade their goods, borrow from Amazon. Partly to fund their advertising budget on the Amazon marketplace and partly to grow their businesses generally. I have alluded to this `trick` in my article Advertising is the new high-priced tobacco and vendors are addicted to it. The significance of the growth in the Amazon advertising business has recently been emphasized by Business insider who put out a thorough report `In The Rise of Amazon Advertising: This is exactly what Amazon is doing to siphon billions of ad dollars from Google and Facebook and why brands love it`.

Amazon uses machine learning and all its proprietary data to offer small business loans to its customers. The program, however, is invitation only[ii]. The algorithm selects which small business could use a loan and proposes this. Amazon has been secretive about this part of their business (see details in this FT article). The latest numbers reported are a few years old  – 2016 are reported in the press – and they are around $1billion per annum in loans but declining.

Amazon may have to enrich the data it uses to train its ML algorithms with supplementary data from external sources. Basic credit history data seems to be necessary to manage properly a  loan book.

Telcos & Payments and Deposit accounts

 T-Modile announced in March an FDIC insured deposit account T-Mobile Money. It is interest earning with no overdraft or maintenance fees. No fees at Allpoint® ATMs. No minimum balance.

Orange Money, was launched in 2017 with a proper bank of its own, Orange Bank, which has been growing in Africa. It actually has eight million customers across 14 countries in Africa and the Middle East. They also teamed up in 2018 with MTN Money, Africa`s largest Telecom operator.

Lifestyle platforms & Payments or Money markets

Jumia is Africa`s Amazon[iii] with an outreach in 14 African countries and 450 Million internet users. They have their own payment system, JumiaPay.

Mercado Libre is the Latin American Alibaba. It not only has its own payment system, Mercato Pago but also a significant fund business. Mercado Pago Fondos[iv] was launched in September 2018 and in 8 months it accumulated 1.5 million accounts from Argentinian and Brazilian small savers. This is financial inclusion in practice. It has introduced a new investment option that was not available before to small savers.

With a return of 40.7% per annum, the fund can be launched from $ 2 that have the balance in Mercado Pago. Source

[i] Source of this and the image is here.

[ii]  Artificial Intelligence Applications for Lending and Loan Management

[iii] Jumia – Africa’s Alibaba and its IPO roller coaster

[iv] Mercado Libre shakes the board of common funds’ industry: companies can also invest

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019. 

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post. 

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