YC S20 fintech companies (thoughts and trends) - Part 2
I discuss trends and my thoughts on fintech companies from the current batch. These are the next 6 fintech companies from Y Combinator's most recent virtual demo day.
I started sharing the trends and my thoughts on YC fintech companies from the S20 batch. Here’s a link to Part 1 - https://rohitmittal.substack.com/p/yc-s20-fintech-companies-thoughts
The trends are clear for startups in developing countries. Y Combinator is funding startup themes that have seen outsized success in the US - e.g. Plaid of X, Brex for X.
In this batch, we will look at the next 6 fintech companies in the most recent batch:
CapWay
Mobile bank for the financially underserved
Founder: Sheena Allen
Description: CapWay is a mobile bank (neobank) focused on the 52 million financially underserved millennials in the US.
Sheena started this CapWay because she grew up in a banking desert where the only option is a faraway local credit union. This creates challenges for consumers (particularly millennials) to access high-quality banking services.
CapWay also offers a physical debit card, charges no overdraft fee, and no ATM withdrawal fee which is standard with most new neobanks. They are also adding features like rounding up transactions (to save money). This feature will help lower income households with long-term improvement in their financial lives.
CapWay is partnering with businesses and employers for acquisition. It could be a good strategy. As the number of neobanks has skyrocketed, unique channels of acquisition have become more important. Employer sponsored CapWay cards can have high retention compared to other competing products. CapWay will need to offer features like credit building, free credit scores, etc to retain customers. Anything that can help the vulnerable populations prevent the costly debt cycle and put more money towards savings will bolster their position in the market.
The bank already has a waitlist and will launch to the public in a few weeks.
Charityvest
Donor-advised funds as an employee benefit
Founders: Ashby Foltz, Jon Koon, and Stephen Kump
Description: Chartityvest offers a new benefit focused on charitable giving.
As employees increasingly consider a company’s ethical and moral values in their decision, employers will need new programs to align with the values of potential employees. More employers are adding benefits focused on employee’s personal values. Charityvest is riding this trend by offering employers a simple way to let employees contribute to the causes they care about and claim tax deductions on the donations. The employers can also match donations if they want to. Charityvest will manage donor-advised funds and provide required compliance.
This is a great B2B play and one of the few financial benefits to be added in the mix. Charityvest will charge a monthly fee to employers and earn a return on donor-advised funds. As the company grows, it’ll be great for them to do this globally. With an increasingly remote workforce, the benefit could be useful for attracting talent globally.
Conta Simples
Bank for startups and online businesses in Brazil
Founders: Ricardo Gottschalk, Fernando Santos, Rodrigo Tognini
Description: Conta Simples means “Simple Account”. This is Brex for Brazil. The startup offers a quick and simple account for startups with virtual cards for managing spend.
Y Combinator has funded a lot of successful US businesses in developing countries (which has worked out well). Given the recent boom in LatAm startups, Conta Simple has a growing market where they can be the first bank account and scale with startups.
Conta Simples is also targeting online businesses, which I think are small online retailers, who need to manage a web of complex payments. According to Conta Simples, there are 1M online businesses in Brazil - that’s a big market (they can expand to other countries too.) The startup can also get into SMB tools for online businesses long-term. This will help them in 2 ways:
1. deepen relationships with existing customers
2. acquire startups for the tool and offer them financial products
The execution path is clear. As they scale, they will need to keep fraud in check and continue to build unique products for the Brazilian market. I can see them offering lines of credit, credit cards, loans, and other financial products in the near future.
Cradle
B2B payments network in India
Founders: Siddhartha Gorantla, Gaurav Mishra
Description: Cradle is building is a way for businesses to pay each other without interchange fees (thanks to recent regulatory changes.)
The number of “payments” startups in India is growing faster than anywhere on the planet. Cradle is another take on capturing the 60M small merchants who are looking for a cheaper and faster way to accept payments and pay each other. I think they will follow the route of Khatabook/OK Credit in terms of adoption. As merchants pay each other using Cradle, the word of mouth will accelerate adoption. If the payments are online, then Cradle can collect payments from anyone. I wasn’t sure from the website if Cradle is only for B2B transfers or also includes B2C payments. Cradle will have to compete with big mobile wallet companies who already have a deep reach within the SMB market.
Monetization seems obvious and the startup is already planning on using payment data to offer loans. Cradle may use loans as a way to increase adoption creating a positive flywheel. This is similar to what Fundbox did (through invoice factoring.) As the startup grows, they’ll try to acquire larger merchants and integrate tools for managing finances. The deeper integration will lead to higher retention and Cradle can layer a lot of different financial products. That’s why payment companies are one of the most richly valued startups recently. It will be a competitive land grad for Cradle for the next few years.
Dapi
Accept instant bank payments within any app
Founders: Ahmed Agour, Mohammed Aziz, Hesham Ghandour
Description: Dapi is building the Plaid for the middle east (even the interface looks similar)
Building Plaid for other countries is a lucrative idea. For those who don’t know, Plaid is one of the most successful fintech startups recently (in the process of completing $5.3B acquisition by Visa). There are many successful startup trends that emerge from the US and building an easy way to get bank data for faster payments is one of them. As the number of fintech startups grow, building picks and shovel for them can be super valuable (and increase adoption.) Dapi is doing just that for the middle eastern region.
If Dapi is able to quickly scale the number of banks on the platform, they’ll enter in a virtuous growth loop where startups will choose them because of their coverage and bank will want to integrate faster because of Dapi’s reach within fintech companies. Plaid used the same strategy. The middle eastern region is still seeing a lot of innovation in all areas and has had some big exits like $1.7B acquisition of Careem by Uber.
Dapi’s just needs to execute like crazy, get as many banks on the platform as quickly as possible, keep integration fast and simple, and they’ll spread like wildfire.
Decentro
API platform for banking integrations for India and APAC
Founders: Rohit Taneja, Pratik
Description: Decentro is literally building the Plaid for India and the APAC region. It is interesting to note that India will soon make it illegal to scrape banking data (a technique initially used by Plaid and other similar services in the US.)
For developing countries, Y Combinator follows a pattern of funding successful startup themes in the US. Plaid is one of those themes as we saw with Dapi (focusing on the middle eastern market.) Decentro has already partnered with the top 5 banks and they are currently live with a few customers.
The approach will be interesting in India because developing countries have a big competitor - mobile wallets. The biggest fintech companies like Paytm are mobile wallets with 150M users and more than 300M accounts. These mobile wallet providers also add themselves as a payment option on many websites. So the use cases for bank account integrations may be reduced. Indian population largely doesn’t trust adding sensitive information on third-party platforms, so Decentro will need to make people comfortable doing that. If consumers can pay with wallets, they may not want to connect their bank accounts altogether. But as fintech companies become more common, people may get comfortable with connecting bank accounts. This will be a trend worth watching closely.
This batch has clear trends on the types of startups getting funded in developing countries. As I share more startups in the next few days, I will also do a post on overall trends in the fintech landscape.
Feel free to reach out if I missed anything, if you don’t agree with my thoughts here, or just want to discuss. I love this stuff and can do this all day long. Always looking to learn more.
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