Now that we have suddenly realized the importance of going cashless, fintechs have started to feel the customer demand for their services. @Venmo, @Paypal, and @Chime in the US have begun to feel the surge in new registrations. I know of numerous startups in the region that are working toward digital wallet solutions. Contactless and online payments will become standard feature in the near future, as most experts agree.
As business leaders, it is good to understand the business model of Payment wallet companies. Take a look at the diagram above where I have summarized the model.
Revenue Opportunities for Wallet Cos
•Withdrawal Charge (free for most consumers)- otherwise customers will not deposit funds into wallets. No funds means no revenue earning opportunities (see below)
•Charge for Instant withdrawals- these customers need the money quickly and therefore will pay for quick access to funds (0.1-1% of the amount)
•Charge Merchants for usage- just like a card scheme, charge the merchant 2-3% of the transaction amount
•Interest income from funds stored in wallet's bank account. This is why the wallet cos like customers to retain the funds within their ecosystem as long as possible
•Fee income from marketplace access- Allow the customer to buy products that get the wallet company a referral fee.
Costs:
•Transaction cost of existing payment rails (ACH in the US/ Visa Card to Card xfer/ Direct Debit in the UAE).
•Low Marginal costs of account management within their system. Mostly cost of operating on the Cloud/Fraud management services/ Microservices cost et al
This commentary is a somewhat simplified version of what happens, and I will be happy to have a more in-depth debate if you want.
So there you have it, when you combine the comparatively stable revenue relatively low fixed/marginal costs, it is no surprise that operating a wallet company can be a profitable business.
#startupideas #fintech #digitalwallet
