Fintech Series Part 2—Fintech for Retail€¦ · returns and fraud prevention. These startups...
Transcript of Fintech Series Part 2—Fintech for Retail€¦ · returns and fraud prevention. These startups...
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July4,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Fintech Series Part 2—Fintech for Retail
1) Justastheglobalfinancialcrisispromptedthelaunchofseveralthousandfintechcompanies,thecurrentturmoilintheretailindustryisresultinginthelaunchofahostofretail-relatedstartups,someofwhichareworkingspecificallyonfintechsolutions.
2) Therearehugemarketsinvolvedhere:theglobalfinancialservicesmarketisestimatedtobeworthabout$15.6trillion,andtheglobalretailindustryisestimatedtobeworthabout$14trillion.
3) Inthisreport,weprofilefourstartups—Affirm,Returnly,RiskifiedandSignifyd—whichaddressconsumerandretailerneedsintheareasofshort-termcredit,returnsandfraudprevention.Thesestartupsserveacombinedmarketthatisestimatedtobeworth$83.4billion.
4) Demandfortheseservicesisbeingdrivenbytherapidgrowthine-commerce.Thatgrowthisbeingaccompaniedbycommensurategrowthinthechannel’suniqueproblems,includingchargebackfraud,higherreturnratesandthefactthatasizablepercentageoftheconsumerpopulationhasnomodernmeansofpayment.
5) Theongoingturmoilinretailislikelytosparkthecreationofadditionalinnovativestartupsthatwillseektoaddressas-yet-unforeseenneeds.
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July4,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
ExecutiveSummaryTheglobalfinancialservicesindustryexperiencedaperiodofhugeturmoilasaconsequenceoftheglobalfinancialcrisis—andthatturbulenceledtothelaunchofanarmyofnimbler,competingstartups.Weseemanyparallelsbetweenthatperiodandthecurrentturmoilthattheglobalretailindustryisexperiencing.Inretail,too,turbulenceisleadingtothelaunchofanarmyofstartupsseekingtoprovidesolutions.
Somerecentlyfoundedretailstartupsareaddressingthefinancialaspectsofretailandcanbeconsideredfintechstartupsaswell.Boththeglobalfinancialservicesandretailmarketsarelargeandfragmented,totaling$15.6trillionand$14.0billion,respectively,andtheyofferampleroomforfast-moving,agilestartupstocreateapresencebeforetheincumbentseventakenotice.
Inthisreport,weprofilefourretail/fintechstartups—Affirm,Returnly,RiskifiedandSignifyd—whichrepresentthefirstwaveinthisnewbatchofstartups.Thesecompaniesareworkingtoaddressamarketwithacombinedestimatedvalueof$83.4billion,andareservingtheneedsofbothconsumersandretailersintheareasofshort-termcredit,fraudpreventionandprotection,andproductreturns.
MarketOverviewTheretailfintechmarketliesattheintersectionoftheglobalfinancialservicesmarket—whichdatafromtheOECD,McKinseyGlobalInstituteandtheWorldBankindicateisworth$15.6trillion—andtheglobalretailingmarket,whichEuromonitorInternationalestimatesisworth$14trillion.InformationcompiledbyventurecapitaldatabaseproviderCBInsightsillustratesthesheersizeofthefintechuniverse.Thefirmmaintainsadatabaseof6,203companies;6,274investors;1,938exits;and1,500acquirers.WebsiteFintechWeekly.comhascompiledalistof1,351companiesengagedinthespecificfintechcategoriesshowninthefigurebelow.
Figure1.WhatFintechCompaniesDo
Source:FintechWeekly.com
16.8%
11.7%
10.3%
8.6%7.2%
6.4%
5.6%
5.6%
5.3%
5.1%
17.4%
Payment
Data
Investment
Lending
FinancialPlanning
Crowdfunding
DigitalBanking
Security
Insurance
Blockchain/Bitcoin
Other
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Thefourcompanieshighlightedinthisreport—Affirm,Returnly,RiskifiedandSignifyd—servevarioussegmentswithintheretailfintechmarketthathaveacombinedestimatedvalueof$83.4billion.
Figure2.RetailFintechMarkets
Company Market Size(USDBil.)
Affirm Short-termcredit $62.7
Returnly Apparelreturns $14.0
RiskifiedFraudprevention/protectionandchargebacks $6.7
Signifyd
Total $83.4
Source:CenterforFinancialServicesInnovation/Chargeback.com/EuromonitorInternational/FungGlobalRetail&Technology
Thesefourcompaniesaddressvariousconsumerandretailerneeds—includingshort-termfinancing,theprocessingofreturnsandtheassociatedpayments,anddetectionoffraud—whileenablinglegitimatetransactions.Below,wehighlighteachofthesefourretailfintechstartups.
Source:iStockphoto
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July4,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Figure3.AffirmKeyData
Founded 2012
Headquarters SanFrancisco,CA
TotalFunding $420millioninthreerounds
Management MaxLevchin,Founder,ChairmanandCEO(CofounderofPayPal)
LiborMichalek,CTOHueyLin,COOBradSelby,ChiefDevelopmentOfficer
Employees 101–250
Website affirm.com
Source:Crunchbase.com
CompanyDescriptionAffirmoffersinstallmentloanstoconsumersatthepointofsaleinthephysicalstore.Loanvolumeattheendof2016amountedtohundredsofmillionsofdollars,andinApril2017,thecompanyannouncedthatithadserveditsonemillionthloan.Thecompanyhasmorethan900customers,includingExpedia,MotorolaandTradesy.
Product/ServiceDescriptionAffirmletsshopperspayforpurchasesacrossmultiplemonthswithtransparent,reasonably-pricedfeesbuiltintoeverypayment—whichincreasesconversionandbasketsizefore-tailersatalowercostthanthatofcreditcards.Thecompanyclaimsvendorsseea75%averageordervalueincrease.Affirmclaimsthatitssolutionreachesabroaderpopulationofconsumers,asitusesadvancedtechnologyandanalyticsthatlookbeyondtraditionalFICOscores.
MarketServedThenonprofitCenterforFinancialServicesInnovationestimatesthatunderservedconsumersspent$62.7billiononshort-termcredit(loanswithtermsoflessthantwoyears)andsingle-paymentcreditin2015.BesidesAffirm,otherBayAreamicroloanprovidersincludeJuvo(whichpartnerswithmobilenetworkoperators),LendUp(whichfocusesonsociallyresponsiblelending)andPayNearMe(whichenablesuserstopayrentandutilitybillsincashatnearly28,000locations).
Retail/FintechAngleThemarketforlower-incomeconsumersislikelyunderserved,andAffirmcanhelpnarrowthegap.Consumerswithincomesbelow$90,000spentanaverageof$79dailyinMay2017comparedwith$169forthosemakingmorethan$90,000annually,accordingtoGallup.Someretailersarealsolookingtobetteraddressthemarketforlower-incomeconsumers.Forexample,AmazonrecentlyofferedareducedPrimemembershipfeeforconsumersreceivinggovernmentbenefits.
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July4,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Figure4.ReturnlyKeyData
Founded 2014
Headquarters Larkspur,CA
TotalFunding $3.2million
Management EduardoVilar—FounderandCEO
Employees 11–50
Website returnly.com
Source:Crunchbase.com
CompanyDescriptionReturnlyisafintechplatformthatturnsproductreturnsintorepurchasesforonlineretailersandmarketplaces.Thecompany’sretailcustomersincludeFruitoftheLoom,Goop,Fanatics,CotopaxiandShopify.
Product/ServiceDescriptionReturnlyenablesmerchantstooffershoppersaseamlessonlineproductreturnexperience.Eligibleshoppersreceiveaninstantrefund,whichtheycanusetobuyagainatthestoreimmediately.Thisturnsproductreturnsintorepurchases.Theappaimstoreducefrictionintheproductreturnandrefundprocess,whichcansometimestakeupto21days.Thislongrefundperiodleads91%ofcustomerstoavoidmakingrepeatpurchases.Returnly’splatformintegrateswithavarietyofcarriersande-commerceplatforms.
MarketServedAccordingtoEuromonitor,theglobalonlineapparel,footwearandaccessoriesmarketwilltotal$70billionin2017,andthefirmestimatesthata20%returnrateforapparelpurchasedonlinewillresultin$14billioninannualreturns.Thereturnratesforsomeexpensiveitemsboughtonlinecanreach50%,whereasreturnratesforbrick-and-mortarstoresaremuchlower,usuallyaround10%,ascustomerscansee,touchandtryongoodsbeforebuyingtheminstores.
Retail/FintechAngleReturnsareagrowingissuease-commercecontinuestotakesharewithinretail.Otherstartupsthatfocusonhandlingreturns,albeitnotasfintechcompanies,includeHappyReturnsandSupplyAI(whichaimstopreventreturns).
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July4,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Figure5.RiskifiedKeyData
Founded 2012
Headquarters TelAviv,Israel
TotalFunding $30.7millioninthreerounds
Management EidoGal,CofounderandCEO
AssafFeldman,CofounderandCTO
Employees 101–250
Website riskified.com
Source:Crunchbase.com
CompanyDescription Riskifiedisanall-in-onee-commercefraud-preventionsolutionandchargeback-protectionserviceforhigh-volumeandenterprisemerchants.Itwasbuiltfromthegroundupasachargeback-guaranteesolutionandoffersa100%chargeback-protectionguaranteeoneveryapprovedorder,allowingmerchantstohaveagreaterdegreeofconfidenceinmakingsales.Thecompanywillclose2017with$12billioninapprovedtransactionvolume.MerchantsthatuseRiskified’ssolutionincludeBurberry,Wish,FootLockerandViagogo.
Product/ServiceDescription Riskifiedprovidesanend-to-endfraud-preventionsolutionthatgivesretailersadefinitive“approve”or“decline”recommendationforeveryordertheyreview.Theplatformusesdatafromthecustomer’sdeviceandbrowser,includingbehavioralanalyticsandinformationfromothersourcessuchassocialmedia.Thosedatapointsarepassedthroughadvancedmachine-learningalgorithmstodeterminelegitimacy.Theprocessisinvisibletothepurchaser,andRiskifiedclaimsthatitsplatformincreasessalesby30%byapprovingthosetransactionsthatareactuallyvalidalthoughtheymayappearrisky.Thecompany,whichguarantees100%protectionagainstchargebacks,saysthatthisresultsin66%fewerdeclinesintransactions.
MarketServed Chargeback.comestimatedthecostofe-commercefraudat1.16%ofrevenues,or$6.7billion,in2016,resultingfromacombinationoffriendlyfraud(fraudulentlyreportingthatacredit-cardchargeisnotgenuine),identifytheftandchargebackfraud.
Retail/FintechAngle Althoughfraudislikelytoincreasease-commercecontinuestogrow,channelsalesarealreadyhighenoughthatfocusingonfraudpreventioncanmakeasignificantimpact.Merchantscanincreaserevenuefromtransactionsthatmightotherwisebeneedlesslydeclined.Theycandrasticallylimittheirexposuretocostlychargebacksandcanreducetheiroverheadbymovingtheire-commercefraudpreventiontoanexternalvendor.
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Figure6.SignifydKeyData
Founded 2011
Headquarters SanJose,CA
TotalFunding $87millioninfiverounds
Management RajeshRamanand,CofounderandCEO
MichaelLiberty,CofounderandCOO
Employees 101–250
Website signifyd.com
Source:Crunchbase.com
CompanyDescriptionSignifydisasoftware-as-a-service(SaaS),enterprise-gradefraudtechnologysolutionfore-commercestores.TheplatformisusedbymultiplecompaniesontheFortune1,000andInternetRetailerTop500lists,includingBuild.com,Chegg,Jet.com,Lacoste,Peet’sCoffee&Tea,Samsung’sSmartThings,TradesyandWayfair.Thecompanyclaims5,000activeSignifydstores,withatotalof$437billionworthofproductprotected.
Product/ServiceDescriptionThecompany’ssolutionsimplifiesfrauddetectionthroughafinancialguarantee,whichincreasessaleswhilereducingfraudlosses.Signifydwasfoundedbasedonthebeliefthate-commercebusinessesshouldbeabletogrowwithoutfearoffraud.TheplatformhasAPIsthatlinktothemostcommone-commerceplatformsandautomateorderfulfillmentandcancellation,aswellashandleclaimsubmissionsandpayoutsforchargebacks.
MarketServedChargeback.comestimatedthecostofe-commercefraudat1.16%ofrevenues,or$6.7billionin2016,resultingfromacombinationoffriendlyfraud,identifytheftandchargebackfraud.
Retail/FintechAngleWithe-commerceapproaching10%ofUSretailsalesandstillgrowingatdouble-digitrates,theamountoffraudisalsogrowing,anditscostisreachinghigh-single-digitbillionsofdollars.
ConclusionThecurrentvolatilityintheretailindustryhasopenedthedoorforalargenumberofstartups,includingthosefocusedonfintechforretail.Thefourretail/fintechstartupswehighlightedabove,whichoffersolutionsforconsumersandretailersintheareasofshort-termcredit,returnsandfraudprevention,haveemergedearly.Together,thefourcompaniesaddressamarketthatisestimatedtobeworth$83.4billion.
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July4,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:[email protected],CFASeniorAnalyst
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