Fintechs are figuring more and more in the future of marketplaces, taking a cut of their success, with the lines between the two entities becoming increasingly blurred, according to a new report from international marketplace operator Adevinta.
Fintech solutions are taking a greater slice of online consumer spending, through means such as payments commission, Buy Now Pay Later interest and escrow.
“Online marketplaces are increasing taking advantage of both ‘plug and play’ embedded fintech solutions, and fintech products built in house, to create new monetization streams, improve user experience, and boost customer retention,” states the report.
Fintechs are particularly well-positioned to assist marketplaces as they move into developing and digitizing markets, where access to traditional banking is more limited.
The report asserts that the marriage of financial services and online marketplaces leads to outsized returns. Moreover, record investment in online marketplaces (€78 billion in 2021 so far) leaves marketplaces in an optimal position to invest in building or acquiring new financial services in-house.
It also cites the rising valuations of fintech products aimed at marketplaces (such as Buy Now Pay Later) as evidence of the dynamism of the tie-up.
In contrast to both the initial wave of supply-driven and vertically-focused marketplaces from the 2000s, the marketplaces of the 2010s–on-demand, location-based and almost fully managed by the operator to improve the user experience–enabled the transaction to take place on the site, said the researchers.
“Today, we are at a time of abundance of capital, e-commerce adoption and millions of unbanked consumers in growth markets. The next generation of online marketplaces embed financial services to create a better value for the customer, increase retention and monetization,” states the report.
NFX general partner Pete Flint–who co-founded real estate classified pioneer Trulia, which was acquired by Zillow–added, “Marketplaces relentlessly evolve to improve the user experiences and economics for the demand side, the supply sides as well as the core marketplace itself.”
“Embedding financial services within new digital marketplaces presents an exciting frontier where operators are potentially able to launch breakthrough product experiences that can significantly reduce friction, increase liquidity and capture new economics,” said Flint.
Adevinta highlights the greater value attained by fintech-enabled marketplaces, such as U.S.-based IBuyer Opendoor and Latin American e-commerce and marketplace company MercadoLibre, versus traditional marketplaces.
It points out that MercadoLibre has built an entire ecosystem, including payment solutions, logistics, financing, advertising for sellers and publishers, and software to help offline businesses digitize and have an online shop. Its payment solutions, Mercado Pago, already account for 50% of the company value in terms of revenue generated and transactions.
Pan-African general marketplace Jumia is another of the platforms that have developed financial services products in-house — its digital payment platform, JumiaPay — to increase financial inclusion and extend payment infrastructure to third parties to collect consumer data, adds the report.
Sacha Poignonnec, CEO of Jumia, told Quartz African, “E-commerce marketplaces are very powerful engines to drive payments. Everywhere in the world, some of the leading payment companies were born out of and grown by marketplaces.”
Others have chosen to partner with third-party fintech startups, to control and improve the user experience at lower outlay.
“The acceleration in the shift to online retail has been partly enabled through the increased integration of financial products and services,” said Alex Chesterman founder and CEO of British used car online marketplace Cazoo. “This has been particularly true for higher value transactions like cars, where offering financial services with instant decisioning as part of the checkout process has materially increased the addressable market.”
Financial solutions massively extend the value added in the process of matching supply and demand, says Adevinta, from financial tools — which reduce transaction friction and add revenue streams — such as loans, escrow and IBuying to post-transaction services like insurance.
The report cites property platforms such as Opendoor, Redfin and Zillow offering mortgages, payslip advances to freelancers from Fiverr, and car subscription or lease plans from the likes of Cazoo and Bipi.
“Mobility and how we access cars is changing at the speed of light. Before Covid, 99% of cars were bought and transacted in a physical place. Today there are many players offering a full transactional and digital experience to access a car as easily as buying a pair of jeans online,” said Hans Christ, CEO of Spanish car subscription startup Bipi.
“Car subscription is the best example with a 100% online experience with everything bundled and included in the price (insurance, maintenance, taxes etc). In the next five years more than 30% of car transactions will be online with everything included. Marketplaces like Bipi that control the supply, pricing and user experience and are able to offer a bundle for the same monthly price are poised to succeed in the near and long term.”
Escrow services from marketplaces like Adevinta-owned LeBonCoin, for cars (AutoTrader) or real estate (Zillow, Opendoor, Compass), and instant buying (Vroom, Redfin, Kodit) have been other fintech avenues.
“At Kodit we are big believers in vertical integration of the real estate product stack and see huge opportunities to add more financing products into our offering,” said Kalle Salmi, CEO of Finland-based IBuyer, Kodit.
“We have recently expanded our offering beyond the pure instant home buying business to include sale and leaseback and rent-to-own products. These new products have really helped us to bring our customers more flexibility and better experience resulting our business to grow 5x during the past two quarters.”
The post-transaction phase also offers opportunities to extend the customer relationship. Upwork and Fiverr handle payroll to speed up payout, while Cazoo and Bipi are among the marketplaces bundling insurance, adds the report.
Adevinta Ventures released Fintech-enabled marketplaces: The future of marketplaces part 2, in September, in partnership with DealRoom and Speedinvest.