YC S20 fintech companies (thoughts and trends) - Part 1
Y Combinator held its first completely virtual Demo Day on August 24 and August 25. I looked at the fintech companies that presented and some trends and thoughts on startups.
29 fintech companies presented in the most recent Y Combinator S20 batch. One startup is off the record startup, so I’ll discuss only 28 startups.
I created high-level categories within fintech.
Here’s how they are divided:
B2B: 19 (67.86%)
B2C: 9 (32.14%)
Based on their products:
Neobank 6 (21.4%)
API 5 (17.9%)
B2B SaaS 5 (17.9%)
Credit 3 (10.7%)
Payments 3 (10.7%)
CFO Tools 2 (7.1%)
Crypto 1 (3.6%)
Investments 1 (3.6%)
Real Estate 1 (3.6%)
Remittance 1 (3.6%)
Neobanks (both for consumers and businesses) were the biggest portion of the batch. 3 out of 6 were LatAm based. Nubank’s success has had startups doing different versions of neobanks in the developing world.
API focused companies are some sort of data play where they are helping businesses access and manage data from other sources. One new trend here is directly accessing payroll data from large providers. We have already seen multiple companies getting funded in this space. Interesting to note that only 1 company (Plaid for India) is international in this category.
B2B SaaS is focused tools for SMBs. Again, 2 out of 5 startups here are focused on international markets. They are helping startups manage finances, cash, and purchases.
Credit focused companies including lending and building credit. This is a theme focused on saving people money and help them build better financial lives. 2 out of 3 companies are based in the US.
CFO Tools are getting increasingly popular. These companies help startups and mid-stage businesses better manage their finances. They are targeted at CFOs and help them scale without hiring a big team. YC has funded similar companies in the past batches.
Crypto, Investments, Real Estate, and Remittance startups took a back seat in terms of popularity. There is one remittance startup that’s using Stablecoins to transfer funds internationally but they are not a core crypto startup.
This is an alphabetical list of startups. I’ll discuss 5 startups every day.
Below are today’s 5 startups:
Afriex: Remittance using Stablecoins.
Founders: Tope and John
Description: They are helping African immigrants send money home cheaper and faster. The company is using Stablecoins to achieve this. Stablecoins are built on are getting more popular and remittance is one of the clear use cases for crypto.
Remittance is a big market and there are multiple billion dollar companies in this space including 169 year old Western Union. Some new startups such as Remitly, WorldRemit, Xoom, Transferwise, and others are all big and successful. So, using a completely different method for transfer is interesting. It is also extremely competitive. Afriex will need to figure out how to acquire customers cutting through the noise. If the rates are consistently better than other players, they will gain significant traction with word of mouth. A few dollars with every transfer add up for families back home.
I’d be interesting to see if they can consistently keep low transfer rates as they scale to other countries and if they are able to acquire customers through word of mouth.
Atomic: API to enable companies to embed investment accounts in their service
Founders: David Dindi
Description: Atomic is an example of an embedded finance company. They want to enable B2C finance companies to offer their customers investment products embedded in their apps. Many consumer PFM and financial apps don’t offer consumers financial products because building products on their own is a huge undertaking but embedded finance API companies can integrate with companies that already have huge customer bases. It is not clear who will own the customer relationship. If partners don’t continue to own the customer relationship, it’ll be difficult to convince them. Similar products such as ForUsAll and Guideline serving the SMB space have been successful. They enabled every company to provide 401(k) plans. Similary, if Atomic can enable every PFM app to provide investment accounts, it’ll increase value and LTV of the app for customers. It’s a win-win-win.
Bits: A digital credit card that helps people build credit
Founder: Faisal Khalid
Description: Bits helps people build credit using a safe credit card. It is not clear if the credit card is secured or unsecured but it reports to all the major credit bureaus in the UK. Building credit has been a core problem of a large segment of people across the world. Because of this cost of credit can increase up to $250k in the US. Imagine paying higher rates on everything from auto loans to mortgages because of a lower credit score. Bits is trying to solve that problem. As a business model, they charge a monthly (or annual fee) to report payments to the credit bureaus. There is inherent churn in the business as people graduate from paying to build credit to using traditional products. If Bits can continue to offer them more products, they can acquire customers very early in their lifecycle and continue to be their trusted relationship (have a high LTV.)
Blue Onion Labs: Single source of truth for company’s financial data
Founders: Lyndsey, Manav, and Charles
Description: Blue Onion Labs (BOL) wants to help companies better manage their finances using one data source. Companies can integrate different ERP systems such as SAP and Oracle to BOL and BOL can reconcile those transactions automatically. The goal is to reduce the work for accounting team and standardize complex financial processes through a single system. This will help the finance team (CFOs) to better manage cash flows and runway. With quick/automated reconciliation, it’ll also save companies a hundreds of thousands of hours spent on accounting every year. CFO tools are all the rage right now and many startups are targeting small to mid stage companies with a variety of tools. It is a way to get into the accounting department of companies and build additional services from there. A version of this idea has been in the works for a while with startups like inDinero that are an outsourced accounting team for startups. Startups like BOL make it better with API integrations, automation, and instant reconciliations. 10 years into the future, the CFO office is bound to have smart tools and Blue Onion Labs could be one of those.
BukuWarung: Accounting app for micro-businesses in Indonesia
Founders: Chinmay and Abhinay
Description: BukuWarung helps micro-merchants manage their accounting (credit and debit). It is an app that tracks how much credit merchants have given to customers, what is outstanding, and what’s paid. This is analogous to Khatabook or OKCredit in India (both funded by Y Combinator). It’s interesting that they didn’t pitch as Khatabook/OkCredit for Indonesia. The developing markets have been growing really fast and need small app based tools to enable digitization for the masses. As big startups like Tokopedia and Go-Jek digitize payments for normal transactions, small merchants will look for similar tools to run their businesses. The acquisition is organic and scales fast as merchants recommend these apps to other businesses they transact with. As the app scales to millions of merchants, BukuWarung will start layering financial products such as payments, lending, and merchant cash advances for a deeper and high LTV relationship. This playbook has already proven to work well in India. Speed to execution and scale will be key for this business.
I’ll discuss the next 5 startups tomorrow.