Final 17 startups - YC S20 fintech companies (thoughts and trends) - Part 3
I discuss trends and my thoughts on fintech companies from the current batch. These are the last 17 fintech companies from Y Combinator's most recent virtual demo day.
It’s been a few weeks since YC had its summer 2020 virtual demo day. I looked at 28 fintech companies that presented and wrote about the first 11 companies in:
Apologies for the delay on this one. I got busy with the upcoming Stilt bank account launch. We are building and testing some awesome features. I took a quick break over the long weekend to finish this final part.
Here is a quick overview of the remaining 17 startups, their markets, and business models:
1. Evergreen
One place for employees to request purchases in a company
Founders: Lu Cheng and Rujul Zaparde
Description: Evergreen is building an easy way for companies to manage purchases and track approvals. Building a new Coupa for organizations with decentralized purchases.
I love fintech ideas like Evergreen. They sound boring, require founder expertise, and are optimize processes for enterprise customers. Evergreen is solving the purchase problems for departments. In a way, this problem is currently solved by companies like Divvy, Brex, Emburse that offer virutal cards and software for managing purchase limits across multiple departments. Also competitors like Airbase and Teampay.
Evergreen is offering the simplest way for departments to approve and manage policies across all departments in the company. e.g. if IT wants to spend $5,000 on the technical set up for new employees or the legal department wants to spend on new compliance tools, Evergreen can help set up these policies and limits.
In fast growing organizations, it gets exponentially complex to manage spend across multiple departments and hierarchies. Multiply these requirements with the number of tools they buy and the number of vendors they look at, it becomes a lot to manage.
Evergreen takes the approach of embedding themselves into fast growing organizations and retaining them for the long-term. Also, big companies with differentiated needs will find them really useful.
*I interacted with Rujul during pitch practice at YC and he is really smart. I’d totally bet on him.
2. Finch
API access to payroll and HR systems
Founders: Jeremy Zhang and Ansel Parekh
Description: Finch is building the Plaid equivalent for payroll data. Developers can integrate the API with just 3 lines of code.
Finch is a part of the growing API ecosystem for payroll data. As the financial services industry streamlines operations, payroll data are the next stop. The initial use cases are clear. Lenders can use Finch to verify paystubs and employment without any document uploads (speeds up processing time and reduces fraud). They also complete with other startups such as Pinwheel (raised a $7M seed round) and Check. I think these APIs will remove the need for paystub verification in the next 5 years. I expect new services will become possible as these startups democratize access to payroll data.
Finch has to get 2 major things right: coverage and accuracy. There are some big payroll providers like ADP, Workday, TriNet, and Paychex for large corporations but for this to work, Finch will need to integrate with all the small ones too. As banks, lenders, investment firms, and others evaluate using Finch, coverage for their target customers will be crucial.
As Plaid enabled a fast pace of innovation, APIs like Finch and further enhance it with a data source that’s not easily accessible today.
3. Finmark
Financial planning software for startups
Founders: Rami Essaid, Greg Lissy, and Jeremy Neuberger
Description: Finmark is a financial planning tool to help startups manage runway, review projections, and forecast cash. It falls in the category of “tools for the CFO office.”
Finmark is building a tool to remove the use of Excel for managing finances. Most startups including Stilt, use Excel and Quickbooks for accounting, monthly financials, and projections. The existing systems don’t allow us to run easy what-if scenarios when projecting financials. Finmark can helpful for running simulations and also save on accounting costs.
Depending on the startup, they may have to run these simulations multiple times or project burn as they scale. As the tool matures, I’m expecting that they’ll move up to help large companies and handle complex scenarios.
With companies increasingly going remote, Finmark’s software will also need to account for benefits across all 50 states (and exchange rates if startups are international.)
4. Flat
Opendoor of Mexico
Founders: Bernardo Cordero and Victor Noguera
Description: Flat buys homes from sellers with an instant upfront offer and sells them later (in 30 days). They charge a fee to sellers (and buyers) for the transaction.
Flat is literally taking Opendoor business model and applying it to Mexico (they also have Opendoor team as investors.) As the markets change, execution becomes really important. The regulatory structure, pricing power, speed of sale, real-estate agent requirements, and central home database - all of these things can make the execution 10x more difficult. But Flat seems to be executing well. They have already completed a lot of transactions and recently secured a big credit line.
Flat needs to solve some fundamental challenges e.g. Mexico doesn’t have an MLS system like in the US which means that the pricing is more difficult. This also leads to advantages such as building a proprietary database of listings and using it to capture the market faster. Using this data, they can also make more accurate offers.
Flat will need to scale automated home price valuation models, on the ground inspection operations, debt facilities, and just optimization on a fast turnaround process.
5. Heron Data
Categorize and label bank transaction data
Founders: Johannes Jaeckle, Dominick Kowk, and Jamie Parker
Description: Heron Data cleans and standardizes bank transaction data. They make it understandable and categorizes it. The data can come from services like Plaid.
Heron Data wants to make the lives of fintech startups life easier by fixing the messy bank transaction data. They are using data science to standardize, categorize, and clean up the data used by neobanks, lenders, investment firms, CFO tools, remittance companies, and other fintech startups.
Bank transaction data are messy and difficult to clean quickly, and categorize correctly at scale. e.g. Amazon is an employer and a retailer, every Macys transaction has a detailed code in the transaction related to the purchase. If a lender wants to make decisions based on transaction level data, they need to accurately categorize these transactions. The same is true for neobanks if they want to show a transaction with the correct category and a beautiful icon.
As a fintech company, we deal with challenges of incorrectly labeled and messy data every day. The value of correctly labeled data can lead to better underwriting decisions and help us save hundreds of thousands by lowering future defaults.
6. Lendtable
Loans for 401(k) match
Founders: Sheridan Clayborne and Mitchell Jones
Description: Lendtable gives employees loans for contributing to their 401(k) and take a fee as the employer matches the contribution.
Lendtable helps consumers who are stretched too thin because of their obligations and unable to contribute to their 401(k). Lendtable provides a loan to these consumers, so they can take the benefit of 401(k) match and then charge a fee to the consumer. The advantage is that they don’t need to be embedded with the payroll system.
30M employees at these companies are leaving free money on the table by not taking advantage of their 401(k) match. It’s really a no-brainer for the consumer. They are guaranteed to save extra money because of these loans. Lendtable will just need to make it frictionless for consumers to contribute. Also, Lendtable loans don’t need to be paid back in installments - they charge a fee from the consumers after the money is vesting.
I see them as a starting point for wealth building tools for the financially disadvantaged Americans. As consumers grow their savings, Lendtable can provide investment management and other products to manage and grow their wealth.
7. Letter
Neobank for High Net Worth Individuals
Founders: Matt DeLoach and Drew Wilson
Description: Letter is building the first digital bank for rich people (with $1M or more in net worth). They are building tools to help these people manage their finances.
Letter is definitely an interesting idea. All other neobanks are going after the underserved and low income population but Letter has identified the opposite segment. The needs and requirements of HNWIs are extremely different than the average customer.
HNWIs need help with managing money better more than basic banking. They already have personalized service from most banks. Letter has an opportunity to digitize many infrequently used services (like estate planning, tax planning, charity contributions) that are still cumbersome for HNWIs to use. The quality and experience would be really important. Letter can also build a unique club for these people (which can be a status symbol). It is really important to make these initial customers super happy.
Letter will face little to no competition from the existing banks here.
8. Maytana
Financial command center for multinational startups
Founder: Mokhtar Bacha
Description: Maytana is building an integrated tool for startups to manage international operations. As the business world is going remote, they help startups manage global finances.
Maytana is building a company for an increasingly globalized world. Startups are generally more global than 10 years ago. They have customers, employees, vendors, or partners in multiple countries and this complexity is growing. Maytana helps these startups manage payments for vendors and finances globally (currently focused on startups and SMBs.)
Companies like Stripe have made it easy to accept payments and transfer funds but the problem of managing global finances is still not solved. Anyone using vendors in multiple countries has faced this challenge - especially startups working with physical (hardware) products.
International cash management is not a problem faced by all startups but the market is certainly growing fast.
9. Mozper
Greenlight bank for Latin America
Founders: Yael Israeli, Pablo Klestorny, and Gabriel Roizner
Description: Mozper is building a neobank focused on parents and kids in Latin America. It helps parents manage allowance for their kids and teach them about money.
Mozper is building a bank to help families teach their kids about money. It has been a growing market in the US and similar startrups are launching in Latin America. LatAm is moving fast to digital payments, especially Gen Z population, they are getting used to handling digital money more than physical cash.
Parents can also manage spend for their kids, teach them better financial habits, and help them set up a successful financial future. There is a lot of opportunity in teaching the young population about responsible finances. Mozper is helping parents provide that initial support.
Mozper will continue to build products as kids grow up and wants to their bank for the future.
10. Notabene
SWIFT Network for crypto
Founders: Pelle Brændgaard, Andres Junge, Ania Lipinska, and Alice Nawfal
Description: Notabene helps crypto transactions be more compliant by building a layer on top of the decentralized network.
As the regulations force startups to comply when dealing with crypto, Notabene is trying to make it more traceable by adding a layer on top of these decentralized transactions. Regulation is coming for crypto and Notabene is helping banks and companies comply.
By adding a layer on top of the decentralized transactions, banks can identify the transactions using a system of SWIFT like codes.
11. Perch
Credit Karma for the underbanked
Founders: Michael Broughton, Ayush Jain
Description: Perch helps students build credit using a virutal card that can be used to pay for subscriptions like Netflix.
Perch wants to help students and the underbanked population build credit. They provide virtual cards for paying for subscriptions and rent (that they pay using a debit card). There are other startups like Self (build credit with a secured loan) and Grow Credit (build credit using subscriptions) in the same space. Bits is another YC company that’s building credit but for the UK population. Some neobanks are also starting to offer credit building products.
The product is not launched but there is a 22,000 student waitlist. Perch is planning to acquire customers through partnerships - which is an interesting approach. Perch will need to cut through the noise, scale fast, and figure out how to keep students on the platform as students build their credit scores.
Perch also plans to cross-sell products like credit cards, student loans, and refinancing options as their users go up the ladder of credit score.
12. Plunzo
Zapier for SMBs banking in LatAm
Founders: Nicolás D'Onofrio, Ramiro Furtado, Federico Goldberg, Martin Nagelberg
Description: Plunzo is helping SMBs manage their banking tasks on one screen. They integrate with banking APIs and allow companies to automate tasks like Zapier/IFTTT.
Plunzo is building the IFTTT version for finance operations. This can be super helpful in situations where banking APIs don’t talk to each other and managing finances is complex. Startups use multiple bank accounts based on various repetitive use cases and banks generally don’t talk to each other. This exponentially increases the work required to manage accounts.
Plunzo acts as an account aggregator for the startups and shows everything going on in the bank accounts. They can also move upmarket and help optimize accounting functions at mid-size companies. Using Plunzo, startups can reduce errors in money transfer, payments, and other repetitive tasks.
Plunzo can also integrate with the existing workflow - businesses can try to use them without changing bank accounts or their processes.
13. Safepay
Stripe for Pakistan
Founders: Raza Naqvi and Ziyad Parekh
Description: Safepay is building the Stripe for Pakistan. They make it easy for companies to accept payments and offer country-specific payment operations.
Safepay is building the much-needed payment infrastructure for Pakistan. The western world may not know how broken the payment systems are in some of the developing countries. But things are changing really fast. Digital payments and wallets are growing faster than any other industry. There are multi-hundred million dollar payment companies built for these countries (like Razorpay for India).
It helps that Pakistan is also one of the largest countries in the world and is close to other countries that have huge mobile wallet acceptance. No doubt Pakistan will be digitally enabled in the next 10 years. Startups are already pushing ahead and there are Pakistani versions of many successful startups like Uber.
Safepay just needs to continue to make it easy to accept payments and keep a low fraud rate. They can win this market by being the first and the fastest to scale.
14. Spenmo
Bill.com for SMBs in SE Asia
Founders: Mohandass Kalaichelvan and Isaq Ahmed
Description: Spenmo is building digital tools to automate payments and spending for startups and SMBs in SE Asia
Spenmo is trying to capture the fast growing SMB market by helping them automate and manage B2B payments. This is a proven strong attack vector. This product lends itself to really fast scaling as businesses refer other businesses they transact with. The viral loop is inbuilt. That’s why payments is the hottest category in Asia (especially SE Asia).
The market for payments is also super competitive and the core product doesn’t make money. Payment companies unlock value at scale and it’s honestly a land-grab situation. Spenmo will also need to acquire customers quickly and scale their product to fit the needs of growing SMBs.
15. Thndr
Robinhood for MENA
Founders: Seif Amr and Ahmad Hammouda
Description: Thndr is building the investment app for the MENA region (Middle East and North Africa). They are making it easier for the young population to invest (starting with Egypt.)
Thndr is building an app for the 9M investors in Egypt who are looking for an easier way to invest. Ahmad is also the ex-GM of Uber in Egypt which is a huge advantage for the startup because of the slow and archaic regulatory structure. Thndr is the only app to receive a brokerage license in the last 10 years.
Financial services innovation is tough in developing countries if the regulatory structure doesn’t allow for it. The mobile penetration has increased significantly in these regions but the governments are behind in allowing new business models to scale.
Thndr has overcome a major hurdle (with the brokerage license), now they’ll need to build the infrastructure for buying and selling stocks with limited supporting infrastructure.
16. Volopay
Brex for South East Asia
Founders: Rajesh Raikwar and Rajith Shaji
Description: Volopay issues virtual cards for SMBs and startups in SE Asia. They also help with automating and managing payments.
Volopay (similar to Spenmo) is helping SMBs manage expenses and payments with virtual cards. Brex popularized this market in the US and Volopay is using the same playbook for SE Asia.
Volopay cards can also be deeply integrated into a company’s payment management system. With the proliferation of many tools and services, companies need simpler ways to manage their expenses from Day 1. As startups grow, Volopay can also grow with them and help with accounting functions (CFO tools).
17. Yotta Savings
Neobank with a focus on savings and prizes
Founders: Adam Moelis and Ben Doyle
Description: Yotta helps consumers earn prizes through lucky draws. Consumers earn tickets to the lucky draws based on their savings. The more consumers save, the higher their chances of winning.
Yotta is an interesting approach to neobanking. They engage consumers by offering lucky draw tickets and gamifying savings. Consumers are likely to save more if they think they can win up to $10M. This concept was illegal until 2015 (which means no real direct competition for this product). This is actually common in the UK where 33% of the population has a prize linked savings account. Yotta is trying to popularize the same concept in the US.
Consumers have hundreds of neobanks to choose from and each one is offering something unique to attract deposits. Yotta’s $10M jackpot with weekly draws is that hook. Square’s Cash App popularity has shown us that neobanks need to offer something unique to attract and engage customers. It will be interesting to see how engaged consumers stay with the account even if they are not winning prizes.
That is a wrap on fintech companies from YC S20 batch. I hope you enjoyed reading this.
Feel free to reach out if you have questions, comments, or want to discuss. Always looking to learn more.
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