Pete Flint discusses how marketplaces are embedding financial services to improve transactions. He covers whether platforms should build fintech capabilities in-house or partner with companies like Stripe and Affirm, and examines examples including Zillow and Amazon.
Hi, P. Fellow Brit here. I'm an ex-marketplace founder, now a fintech founder, and I can't help but see the similarities of maybe it's the growth hacking and the way to kind of kickstart our products. How are you seeing the lines between fintech and marketplaces blurring? And do you see one as an enabler to the other or a product set that sits on top?
Yeah, good question. I think know, we've written about what we— our thesis around fintech-enabled marketplaces. And so, you know, some people call embedded fintech. But really, you know, the general observation here is that you go back through the sort of history of marketplaces from Craigslist, kind of the original, or eBay, which were doing very horizontal, but sort of lightweight transactional. So they were getting less involved in the transaction, but doing multi-category. And it's really evolved into, you know, from a verticalization. So picking off verticals, been well documented about picking off Craigslist verticals, into going deeper into the transaction. And you can, you know, extrapolate where this is going, that typically to get deeper into the transaction, there is some sort of fintech component, because you're dealing with the money, and/or financial products in general. So, and it does feel that there is this relentless journey towards a better product experience, or that better user experience, and getting closer and closer to the transaction. And so fintech is a big enabler of that. And so we look really for companies that can deeply embed a financial services component into their product experience to transform that product experience. And often, you know, that can manifest itself in greater take rates, or increased margin, or greater product experience, which draws people in. And so we see this being not applicable to everything, but many things. there can be, there can be opportunities there. So that's, and that's enabled by this sort of new set of fintech infrastructure, you know, from Stripe, back, you know, through to, you know, stuff doing credit checking and financing and insurance, all these, you know, API layers there. So from an investment perspective, we're looking at, you know, we look at both the sort of platform business that can enable the next set of marketplaces with adding that fintech product in. And then also marketplaces that can incorporate these things in. It's one of the sort of conversations that we have with the portfolio is like, should we build this ourselves or should we be partnering with other people? And it's like, and I think there are ambitious founders that think they can build this themselves. And there are kind of many of this like, no, wait, we've got enough to do. Why on earth would we build another Stripe? So why would we build this other fintech component? And I think the sort of the conventional wisdom now is that it's it's better to partner than it is to build because the marketplace dynamics are complex enough. And then the underwriting models and risk profiles, extremely difficult. You know, I watched how Zillow got into iBuying with great fanfare and then basically lost their shirt. And $500 million getting out of that business. And I think, you know, Zillow is terrific at building software-driven marketplaces. But in terms of buying homes and renovating, was buying homes and renovating, which is not their core business, not their DNA. And so, and so I think the, I think now it's, you know, it's clear, it's much better to to partner. And even Amazon's doing— Amazon's partnering with Affirm. You think Amazon really literally could do anything, the resources behind their organization, but they choose to partner. So that's, you know, quick summary of just how we think about it, um, in certainly in the near term, that we have this relentless rise to greater product and greater focus on the transaction.
