Fintech Unicorns in the Chinese Market - 3 case studies : MOZIDO, TransferWise & ADYEN

According to the latest statistics of Business Insider, there are 27 financial technology ‘Unicorn’ companies who are currently valuated more than $ 1 billion, including 8 Chinese companies. Among the other 19 foreign financial technology enterprises, Mozido, TransferWise and Adyen have extended their business scope to China. The Suning Research Institution at Silicon Valley found that there are differences between these three companies’ strategies for entering Chinese market, and between their following market environments.

Mozido: invests in other companies

Founded in 2008, Mozido is a mobile payment solutions provider from Texas, USA, currently valued at $ 2.4 billion, with a financing size of $ 307 million.

The company's globalization began in 2014 and has been in business in most parts of the world, with key clients covering education, government, finance, and international top 500 companies.

For different regions, Mozido has adopted different entry strategies. In China, they adopted the ‘investment / acquisition’ strategy. In December, 2014, Mozido and PayEase reached a merger agreement, the later becoming a subsidiary of Mozido. Founded in 1998, PayEase was the first online payment services platform that achieved online payment with multiple bank cards. It has direct access to 23 national banks and China UnionPay core payment system, supports national issued bank cards and international credit cards. In 2011, PayEase obtained the ‘Payment Business License’ issued by the People's Bank of China, and in 2013 it obtained the ‘Cross-border E-Commerce Foreign Exchange Payment Service’ license granted by the State Administration of Foreign Exchange.

Through this acquisition, Mozido opened the door of Chinese market in one fell swoop, and attracted a few big customers through PayEase. In February of this year, PayEase became Apple's first payment partner in China, to integrate payment solutions for the Chinese cooperative business partners of Apple Pay.

TransferWise: applies for operational qualification

Founded in 2011, TransferWise is a P2P platform who provides international remittance transfer services, headquartered in London. Taavet Hirinkus, the founder of TransferWise is one of the core team members who founded Skype. The company is currently valued at $ 1.1 billion, financing scale of $ 116 million,and investors include the founder of Paypal, PeterThiel and the founder of Virgin Group, Richard Branson.

The company begun to internationalize in 2015, and has opened operations in the United States, Canada, Brazil, Australia, New Zealand and other countries, targeting young people in business, small and medium-sized enterprises with cross-border transfer needs.

In February of this year, TransferWise was approved by Chinese regulators to start its business in China, but currently it only supports the one-way remittance service of transferring foreign currencies to RMB. They plan to open its corporate transfer services next year and prepare to open its foreign exchange transfer services on WeChat. The company hopes to open the remittance services of transferring from China mainland to other regions. But, considering the current strict control of capital outflows, this expectation is not very easy to achieve.

Adyen: seeks for partners

Founded in 2006, Adyen is a technology company that offers solutions such as integrated payment receipts, it is headquartered in Amsterdam, Netherlands and San Francisco, United States. The company is currently valued at $ 2.3 billion, with $ 266 million financing scale.

The company was profitable as early as 2011, then its pace of internationalization gradually accelerated. Its business scope covers Europe, North America, and Asia. Currently, it has more than 3,500 corporate partners all over the world. The company provides 250 payment options for these companies and supports 187 currencies.

Adyen's strategy for entering China is different from that of the first two companies. There was neither an M & A nor a license application. they chose to work directly with the payment companies. Adyen has became a partner of CUP, Alipay, and Microsystems, targeting multinational internet companies that were hoping to develop their businesses in China, such as Uber and Airbnb, etc., helping them to accept the payment methods used by Chinese customers. In 2015, Adyen opened an office in Shanghai, the next step is to help those Chinese customers wishing to step in foreign markets, to connect their customers in markets using different payment methods.

Adyen's way: the maximum return

Simply analyzing these three companies from the perspective of business models, Adyen has the best results in the Chinese market, and the company is the most difficult one to be replaced.

Adyen's goal is to provide a ‘global seamless payment consumer experience’, which is quite difficult. Because generally, to support local payment in a new market, multinational companies would have to establish a cooperative relationship with third parties: payment gateways, financial regulators and credit card clearing networks; and it is necessary to start this process all over again in a new market. The establishment of these partnerships is time-consuming. However, Adyen has chosen to save these processes for multinational companies, by using a single system to integrate the world's major payment gateways, risk controlling and clearing, and a series of background processes. Once multinationals have chosen Adyen, all they need is one business partner with one set of technical systems, and no need to select multiple partners for different regions with different sales channels.

Well, can other companies follow Adyen's lead and copy this single payment system?

It is difficult in a short term. Adyen has established partnerships with more than 200 payment gateways, financial regulators, and clearing networks in different countries all over the world. The company supports more than 250 payment options worldwide, and all transactions are in strict compliance with requirements of local regulations, departments and clearing networks.

Adyen is not only far ahead of other competitors in the establishment of cooperative relations, recently it also paid attention on the integration of O2O transactions. In 2015, Adyen launched an offline payment solution. Merchants could have direct access to Adyen online payment platform once they installed Adyen’s full-function POS machine. However, it should be noted that, currently Adyen is not planning to carry out its POS-related businesses in Chinese market, because the industry is relatively saturated, the threshold is much higher.

From a practical point of view, Adyen's globalization strategy is far more successful than Mozido and TransferWise. In 2015, the trading volume of Adyen was worth $ 50 billion, with $ 360 million income and $ 43 million profits. The trading volume was doubled compared with $ 25 billion in 2014, and the profits increased three times compared with $ 13.8 million in 2014.

Mozido harvested the largest market autonomy

In contrast, the autonomy of Mozido in the Chinese market is better than Adyen's and TransferWise's.

Mozido's business model relies on ‘investment & acquisition’. Taking advantage of other companies’ licenses or technologies in order to directly enter a new market, would make the market autonomy relatively large, produce more outcomes if successful. For example, PayEase has the first-mover advantage in China, and Mozido is able to take advantage of it to connect China with its surrounding markets through PayEase's payment gateway. In July 2016, PayEase reached a strategic cooperation with a South Korea company,KG Inicis, and were ready to jointly provide services for users from two countries.

However, Mozido can not compete with Alibaba, Suning, Baidu, Tencent and other domestic internet financial giants in terms of financing and appealingness. Once these giants start to carry out their own cross-border payment businesses, Mozido has no ally other than PayEase. Its market shares will be squeezed. In this case, in order to survive, Mozido must develop other financial technology products.

This is why Mozido invested in SimplyTapp for $ 2.5 million in 2015. SimplyTapp is a technology company focusing on research and development of HCE cloud-linked payment technology, objectively enriching Mozido’s strength in cloud-linked payment. In August last year, Mozido reached a cooperation agreement with 14 banks along with Taiwan Mobile Payment, which will enable Mozido's HCE cloud-linked payment technology to provide mobile wallet services for these banks’ customers in the future. If this is successful, it can be expected that Mozido will try to copy this business model in mainland China.

The current situation for TransferWise is the most passive

Comparing with other two companies, the current situation for TransferWise is the most passive. Its business model is essentially matching those who are in need of foreign currencies, then transferring the local currencies into foreign currencies with the same value in order to achieve the purpose of exchange. The principle of transferring is in accordance with the daily real-time exchange rate in international market, and this process does not involve with any actual ‘international exchange’ business.

It should be noted that, if the demand for capital flows between two countries is unbalanced, for example, the flow of funds from country A into country B is much greater than that from B into A, it will lead to deficit. Another tricky challenge is the liquidity of currencies. If there are obstacles in the process of purchasing, demands for currencies would be useless to make a deal. This is why TransferWise felt less optimistic about its development in China. The founders of the company have admitted that, these challenges exist in other countries or regions, and they are negotiating with financial institutions in these places, hoping to get more support and help.

The era of internationalization in internet finance has come

In addition to the aforementioned international fintech ‘Unicorns’, there are certain small and medium-sized financial technology start-up companies that have recently entered the Chinese market, such as the financial risk control company ZestFinance, the cross-border financial application Robinhood, and so on.

In the future, the ‘gold rush’ enthusiasm foreign fintech companies have in China will continue, but most of their businesses will generally be limited to several areas, such as cross-border payment, or background technology companies. The success of these companies depends on whether their business models can be replaced by other companies.

For the domestic internet financial enterprises, the international era has arrived. A few years ago, the domestic internet financial companies were majorly investing in the acquisitions of foreign technology companies, and the acquisitions were mainly used to assist the domestic businesses. Even if some companies have entered international markets, the main purpose was still to serve domestic users, not to open businesses for foreign users. With the level of intense competitions to increase in the domestic market, and with the growth of their own strength, the internationalization of Chinese internet financial industry is inevitable. It can be said that, in the near future, some domestic internet financial giants will join forces with fintechs ‘Unicorn’ like Adyen, to achieve co-development in the international market.

Author: Shi Wenxuan, researcher of Suning Research Institution at Silicon Valley

Source: SuningWealthInsights

Original article here

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