How fintech can significantly extend the value of online marketplaces
Marketplaces are earning huge revenues across the globe, making this one of the most successful online business models in the last few years. However, they are just starting to scratch the surface of their true potential. As they can connect multitudes of people or businesses and sit in the middle of immense service chains, introducing various financial technologies into marketplace offerings promises an unprecedented ability to add value.
Consider the phenomenal growth of homestay rental platforms; one company alone has over 6 million rentals available in 81,000 locations. On the accommodation side, each of those 6 million properties is a potential prospect for financial services. For example, offering a loan to an owner to renovate their property could result in higher rental prices, which benefits both the owner and the company. With all the potential data that the company can collect — vacancy rates, average room rentals, visitation trends, ratings and much more — they’d have deep insight into the value of the renovation and the associated risk.
The company can profit off both the financial service and the additional rental value. With all the data available to them, they can model out various scenarios to pinpoint properties that would add the most value to their network. The property owner can improve their property and receive higher rental income. With all the advancements in fintech, the owner might not even have to put in much effort. In a best path scenario:
- The loan is approved quickly (much of the information is already on file)
- Design options are offered (based on data analysis of renter patterns)
- Vetted builders are hired (the network effect can deliver significant scale for contractors and feedback systems can help ensure that they deliver)
- The refreshed property becomes available again at higher rates and at a higher quality
The other side of the marketplace, the consumer, can also benefit from financial service offerings. Perhaps they want to travel but don’t want to pay for the accommodation all at once. Based on their profiles, custom travel loans could be proffered that allow the traveler to pay off the room over time. Perhaps an upgrade in lodging would be on the table with the opportunity to pay it off later. Again, this presents the marketplace an ability to collect more fees, both from the loan itself and from more rentals.
A better marketplace
While the above example demonstrates the potential value of adding fintech to marketplaces, combining the innovations enables whole new forms of businesses to emerge. It’s not simply adding a bit of fintech on top of existing marketplaces where the biggest opportunities rise. Rather, it’s like the development of those innovative models themselves: new technological capabilities allow whole new systems of value creation. After all, temporary rentals were always available but only achieved notable velocity when the proper technology and processes were in place to deliver a safe, seamless experience.
Here are some of the driving forces:
- Data and AI — collecting and analyzing massive data sets to better target opportunities and avoid pitfalls
- APIs — integrating services from multiple sources into a cohesive single offering
- Payment innovations — digitizing transactions for easier and less expensive payments while enabling more complex payment models
- Transparency — improving methods to monitor, audit and assess marketplace participants to advance trust in the system and participant responsibility
A commonality and fundamental enabler of successful marketplaces is effective trust and safety; mass participation in marketplaces requires that people trust other participants in the system. If they have doubts that they might be a victim of theft or violence, the marketplace will have difficulty gaining traction. Capable and secure identity verification systems are, therefore, a fundamental driving force, using digital advances to create an environment where marketplaces can flourish.
Where all these developments will take us is speculation, but the opportunities are mind boggling. Integrating new ways to finance, insure, transact and manage how people cooperate, sell goods, provide services and deliver value is a paradigm shift in the social fabric.
Marketplaces are known for their ability to scale rapidly. Add in financing options, and other ways to better support market participants can drive even faster growth. With scale comes better access to capital, which can then drive even more expansion in a virtuous circle.
Gig workers, as opposed to being isolated, can have access to more capital, training and resources than ever before. These tools help provide participant lock-in, incentivizing participants to stay in the marketplace and not jump to a competitor. Not only does the marketplace offer a way to make money, it provides ways to grow and develop, while still retaining the benefits of working independently.
New opportunities, new risk
There are obstacles, of course, to advancing new marketplaces. On top of all the challenges of operating a successful marketplace business comes the added scrutiny and complexity of financial services. As regulated entities, financial companies have strict compliance requirements that might come into play. Since they are dealing with money, governance and risk questions become a significant challenge, requiring whole new skillsets and outlooks.
One aspect that might not change, though, is the need for effective identity verification. While financial service companies require proper Know Your Customer (KYC) procedures, smart marketplaces will have already taken these steps to help establish themselves as safe and trustworthy. For marketplaces that are building their space, their brand and their opportunities, integrating identity solutions will not only help build the business now, but set up the path to a whole new layer of possibilities.