Must a fintech be local?

Ryan Frere, VP of Global Payments, Flywire

Most successful tech companies, especially Silicon Valley tech-giants, seem to expand globally at a breakneck pace. With the majority of the western world connected to the internet, digital content and services appear to be scalable and distributed with little thought given to local needs and geographical differences.

Ryan Frere
Ryan Frere

In truth, expansion like this is far harder to pull off than it seems at first. It requires a deep awareness of local and often distinct, or even peculiar, behavioral specifics.

This is especially true if you are operating a fintech looking to expand into new markets. Newcomers are often subject to stringent domestic regulations and market idiosyncrasies. Regulation, exchange rates, and traditional institutions all stand in the way of a fintech entering a new market.

Not only is payment behaviour and payment infrastructure unique to each market, but the “middleware” -that is the bank rails, the card networks, the ACHs, and the central bank systems that connect consumers and businesses -shapes the payment landscape for whole vertical sectors or industries.

Money is personal

The first thing to remember is that personal finance is exactly that, personal. People are cautious about how they store and spend their hard-earned cash. It is always difficult to engage when you aren’t a trusted brand. People of a certain demographic are more likely to side with a trusted local financial institution than an unknown international fintech. The same goes for B2B firms, where enterprises feel safer using established financial institutions to process payments.

This trust is won gradually by solving the unique problems of a group of customers.

Paying lip-service to this issue is not an option. Payments while universal to an extent are unique to each domestic market. In that market, each vertical – hospitality, travel, manufacturing, education, etc. – will have specific requirements. Disbursements to suppliers within the large OTA value chain is a good example. Also, each enterprise – especially the larger players – will have particular proprietary software and workflows that support the business.

A personalised approach, native to that individual business is critical. And this is only understood with a clear focus and investment in that market.

While payments are often global by their very nature, they simply don’t work if your local differences are ignored.

Understanding local differences

Accepting payments from customers across Europe has traditionally been a confusing affair. While developed nations race toward a ‘cashless economy’ there are still social barriers for businesses trying to grow their customer base in less developed regions

Markets like Sweden are almost entirely cashless, while in Germany only 60% of businesses will accept card payments. Sweden sounds great for fintech’s but there is also greater competition in the digital finance space. Germany and Italy still use a lot of cash at the point of sale, making it harder for digital businesses to infiltrate the market. In the Netherlands, iDeal a new bank-led payment network is fast becoming dominant and now accounts for 60% of all online payments.

The popularity of this payment method is so high that card use is low compared to the rest of Europe. If nothing else, this proves the case for hyper localised approaches to fintech services.

Embracing geo-complexity

Cultural, political, and economic differences will also impact global expansion. Depending on the region that a company operates in, it will no doubt need to plan strategies to address these differences.

This can be witnessed when observing the growth of Airbnb and Uber. Global growth has been met by all kinds of resistance, ranging from political (are they paying tax?) to social (are they being fair and equitable?) and economic (are they creating wealth or destroying it?).

Uber has overcome specific payments challenges by partnering with the likes of Alipay in China to allow customers to use their preferred payment method. Whilst Airbnb had to tackle the social and political implications of introducing a new way for tourists to engage with local environments, which some communities rejected.

The iterative advancing method may be slower than one would expect for a digital company, but Uber has now accomplished expansion in more than 450 markets globally. Adapting business models and finding the right partnerships can improve the new market entry.

To take a Chinese example, Tencent, owner of WeChat, has capitalised on the unrivalled mobile device penetration in the market and provides a “super-app” that is a platform from which consumers can access a universe of services from messaging to social media and payments. WeChat has over 1 billion active users, yet it is still hyper-localised to China, due to a mixture of security concerns and regional-specific features such as its famous ‘red envelopes’.

The insight and data collected by the firm ensured that its WeChat Pay product was suited to the payment habits of its local financial environment. A fintech entering this market has to be prepared to overhaul their business model and make sure their approach fits with market ecosystems. Without this openness to change, becoming a global fintech is impossible.

Keep digging

Tech companies learn on the go and make iterative advances as they test new waters and ‘fail forward’.

While worldwide expansion is reliant on a keen understanding of market and often sub-market nuances, this doesn’t need to be a barrier. With the right focus, and critically, the right partnerships, a fintech can accelerate their global ambitions whilst flexing to meet local requirements.

A level of trust must be established before people engage with new financial services, this can be achieved by working with local banks and established financial institutions. A process of an iterative advances is the only way to succeed, testing new business models and not being afraid of experimentation when backed by local knowledge.

If that can be achieved then not only will a fintech be well positioned to enter a new market, they will almost certainly have an advantage over the competition.