When expanding internationally, payments start-ups may start their planning with the challenge of getting licences overseas. This is important, of course, but it misses the biggest barrier to commercial success – the often surprising differences in local attitudes towards financial services.
These differences surface in a number of ways, from deep-set customer attitudes to technology enablement and industry behaviours:
Customers have a love-hate relationship with banks no matter where they live – but in different countries, they trend towards different ends of that scale.
In some places, banks have unique cultural status, sometimes even enjoying special protection in law. There can be strong expectations that they will serve society – a mind-set that can lead to public outcry when they are seen to be anti-competitive. In other countries, big banks are synonymous with a sense of national prestige and systemic safety. As a result, there can be huge public resistance against payments start-ups entering the market to challenge them.
As an example, it was essential to highlight local banking connections when we launched in Canada – a market where consumers look for the reassurance of trusted major banks.
National technology infrastructures vary to a huge degree between countries, which can cause problems for start-up business models when expanding overseas.
Developing nations, for example, have fewer issues with legacy technology as their banking infrastructures are much newer. As a result, they can be more advanced when it comes to FinTech.
This leads to surprising differences in attitude. In India, customers are used to making real-time mobile payments from their bank accounts, and now expect this as the norm; in Kenya, mobile-money system M-Pesa is used by more than two-thirds of the adult population. This is far from the case in the US, where customers are still accustomed to posting cheques.
Consequently, disruptive payment offerings grown in the US may appear positively backwards when rolled out elsewhere.
Another challenge is the different industry behaviour that has evolved in separate markets.
In the US, for instance, a tendency towards ensuring the ‘user pays’ means that checking accounts always come with fees. In the UK, however, high profits from one product category (e.g. wealth management or mortgage origination) are often used to subsidise current account operating costs. Here, free transactional bank accounts are seen as critical to retaining customer relationships – clearly, FinTech business models can’t just be ‘one size fits all’.
Given these challenges, payments start-ups must pay attention to three key areas in order to succeed in international expansion:
- Never assume
Most likely, a FinTech start-up will develop a service that exploits an opportunity in its local market. This is the natural outcome of successful local experimentation, and is great in that it provides a track record for investors and an opportunity to build some scale before expanding.
However, it’s risky to assume that the opportunity exists in the same form elsewhere.
Payments start-ups must be prepared to rerun tests that worked before, and must not be afraid to revise decisions already made on various product features. When launching in North America, for instance, we had to revise earlier risk decisions and provide new customer settlement channels in order to meet local standards.
- Do your research
In each new market, FinTech start-ups must be prepared for incumbent businesses to react differently to them – they should not just assume they’ll experience what they’ve seen before. Though it may have worked in other markets, adopting aggressive defensive action can be as damaging as counting on willing partnerships when there are none to be had. The right approach must instead be determined by local context and research.
Customer attitudes are bound to differ too, so it’s important to research these differences as efficiently as possible ahead of launch. In some regions, price consciousness reigns supreme; in others, convenience is more important to customers, and in yet others, conservatism is very high.
- Prepare for regulation
In FinTech, it is often regulation and infrastructure that dictate user experience, rather than limitations in innovation and good design.
Take the case of customer registrations as an example. While in some places, digital identity cards make online registration easy, in other countries, friction comes from highly prescriptive legal frameworks that dictate how online financial services verify new registrations. In Canada at the moment, KYC still requires that new customers submit utility bills, bank statements and government-issued IDs before their first transaction – there’s little that a nifty app can do to remove this obstacle.
These differences can easily lead to successful registration conversion rates in one region that end up way behind market in another, so it’s important to assess the risk before drawing up an expansion plan.
Though it’s all too easy to do, payments start-ups must not ignore the old business truism that cultural differences can be the biggest threat to successful international expansion.
Tom Rundle is global head of payments at the OzForex Group, an international money transfer company.
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