Download - Fintech Series Part 2—Fintech for Retail€¦ · returns and fraud prevention. These startups serve a combined market that is estimated to be worth $83.4 billion. 4) Demand for

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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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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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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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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.

http://www.affirm.com

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Figure4.ReturnlyKeyData

Founded 2014

Headquarters Larkspur,CA

TotalFunding $3.2million

Management EduardoVilar—FounderandCEO

Employees 11–50

Website returnly.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).

http://returnly.com

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Figure5.RiskifiedKeyData

Founded 2012

Headquarters TelAviv,Israel

TotalFunding $30.7millioninthreerounds

Management EidoGal,CofounderandCEO

AssafFeldman,CofounderandCTO

Employees 101–250

Website riskified.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.

http://www.riskified.com

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Figure6.SignifydKeyData

Founded 2011

Headquarters SanJose,CA

TotalFunding $87millioninfiverounds

Management RajeshRamanand,CofounderandCEO

MichaelLiberty,CofounderandCOO

Employees 101–250

Website signifyd.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.

http://www.signifyd.com

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DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:[email protected],CFASeniorAnalyst

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