The FinTech industry continues to change and transform traditional finance. The world of fintech is a whirlwind of innovations that is constantly changing and advancing. This is why venture capital (VC) firms are always on the lookout for new investments that will pay off big in the future.
FinTech flourished in 2021, as most of our lives continued to shift online. Cryptocurrency prices rocketed and entrepreneurial talent flooded the digital world. With that, in 2021 alone, venture capitalists poured $133 billion into fintech startups around the world. That is almost 3 times the investment in 2020.
The fintech world has big players like Google, Amazon, and Alibaba on one side and then countless startups and small businesses on the other. All of these startups compete in the same market as the big players, and naturally, they need all the help they could get.
Many businesses and institutions offer their significant help, such as the
Start-Up SEO Agency in the fintech sector, AWISEE, which strives to help young entrepreneurs place their innovations in the digital market.
However, the role of VC in this sector is of major importance. And why is that so?
Venture capital is a form of private equity provided to small businesses that are high-risk, but with long-term growth potential. This risky investing in the form of seed funding brings an enormous opportunity for striking, high returns.
Except for the financial engagement which offers an opportunity for expansion, VC funds provide startups with long-term support in various areas. From connections and networking that help with publicity and exposure to valuable guidance and mentoring, which can be crucial in helping companies succeed. Also, they can act as a sounding board for any new ideas in the startup and can guide entrepreneurs into the complex world of finance and technology.
And this world is complex and competitive, to say the least. Big leaders like Amazon have the funds and resources to tear any startup down. This is something that we can see almost on a daily basis in the fintech world. A smaller company launches a popular product, and then Amazon comes in with a nearly identical private label product and sells it much cheaper than the startup. This is the case with Block (former Square) founded by Jim McKelvey and Jack Dorsey (co-founder of Twitter). Block sells payment processing software and credit card readers that need to be plugged into smartphones or iPads. The startup’s early focus was on small businesses that struggled to afford financial services, like credit card payments, because of high fees. Block grew quickly. It scored a deal with Starbucks in 2012 and accumulated an annual payment volume of around $6 billion by 2014.
Then, Amazon came and introduced their nearly identical credit card reader. What scared the block of ‘the death by Amazon’ was Amazon’s fee on their card reader. They offered processing fees of 1.75%, compared to the 2.75% rate from Block. McKelvey understood the situation he was in: “When they undercut your price by 30% and have the Amazon brand and all the other stuff they bring to the table, you’re dead.”
However, Block survived. A year after launching, Amazon stopped making the product and surprisingly sent a Block card reader to its business customers.
The reason for Block’s success was that it did not only sell card readers for the iPhone. The company operated every aspect of its business differently from traditional payments, forcing it to develop an “innovation stack”.
“Innovation stacked upon innovation stacked upon innovation gives you this weird thing where you end up with a market all to yourself,” McKelvey said. “It’s really hard to unseat a company that has all those innovations.”
