Payoneer is a fintech with rare China entry success. It is facing challenges as new disruptors are offering faster and cheaper services. How can Payoneer sustain its success in the super competitive China market?
- Payoneer, a fintech wiht rare successful China entry is facing challenges from new comers.
- Payoneer should put in more resources into its China operation and connect its global resources to create more value added services and moats.
- The exciting cross border payment disruption is just started.
Extending from my last article, How Foreign Cross Border Payment Companies can Enter China, today we will look at one of the success story: Payoneer. In addition, we will also look at the booming and ripe for innovation B2B cross border payment industry Payoneer is in, and two of the new rising star challengers: Airwallex and WorldFirst.
Note: I am not affiliated with Payoneer. But I do applaud its success in entering the tough China market especially for a fintech payment company. And I do believe such success deserves a case study.
Industry background & use case
As a follower in first principle and jobs to be done (JTBD) theories, let’s first look into the basic foundation, the industry.
Fintech companies like Payoneer rose out of global payout from online cross border commerce. Online shopping platforms allowed sellers to sell anywhere in the world without physical presence, think Amazon FBA. For example, after a Chinese seller sell on Amazon USA, Payoneer will help the merchants get the payout in local currency. Converting US dollars from the Amazon sale to RMB, and into sellers’ local Chinese bank account.
It’s solving a real pain point, a necessity, for cross border online sellers. China happens to be a country for one of the largest number of cross border online sellers. This is likely due to the fact that most of the suppliers / factories are in China. Chinese sellers accounts for ~50% of top 10,000 sellers on Amazon USA:
The revenue opportunity from cross border B2B payment is estimated to be $290 billion. Notice, this is the just the revenue opportunity. Needless to say, with such large TAM (total addressable market) and necessity use case, the market is crowded and highly competitive in China.
Here I will list some of the more prominent players and their features for a brief intro. A more detailed analysis is certainly warranted, but out of the scope for this article.
Founded in 2004, Payoneer is one of the largest and oldest. Payoneer has the most international presence and a very complete product offering. Its products include: multi-currency bank account, bill service, integration to marketplaces, pay VAT, pay suppliers, ecosystem of partners, working capital access for merchants and API solution for enterprise.
Founded in 2015, Airwallex is one of the newest and most aggressive. Airwallex has one of the fastest payout time (T+0 or T+1) and product functions include: multi-currency bank account, real time bank level access to FX (MarketFX & LockFX), international payment, and API solution for enterprise (Scale).
Founded in 2004 in UK, WorldFirst was originally set up as an international money transfer company, more like a TransferWise. For the Chinese market, WorldFirst targest online cross border sellers and exports. Product features seem standard with global collection account and payout to local Alipay wallet or bank account. WorldFirst was acquired by Alipay in 2019
LianLian is one of the more prominent domestic player who pivoted to cross border payout in 2013. LianLian has a complete global acquiring solution as well as payout. LianLian boasts its advantage on marketplace integration and skipping the need to set up multi currency account for some of the marketplace.
The current trend
The fierce competition has resulted in bringing down the fee. Paypal is the first to market with high fee of 5%. Starting 3 years ago, Payoneer’s fee was 3%, then Worldfirst came out with 1.2%, followed PingPong’s 1% and LianLian’s .7%
Now Payoneer is around 1.2% for smaller seller (cheaper for larger seller). Worldfirst is at .3% and PingPong around .6%. Airwallex offers free for the first year and .3% after.
The new challengers
For Payoneer or anyone in the industry, the biggest challenger is Airwallex for the following reason:
- Moved its headquarter to China to focus on the Chinese market
- Raised more money than competitors, $402.7 million to date
- Offers cheap and fast service with new tech stack
Airwallex was founded in Australia. To focused on the China market, Airwallex moved its headquarter to HongKong and operations to Shanghai. In April of 2020, Airwallex raised $160 million during the pandemic, and later added more to an even $200 million. To date, it has raised $402.7million, the most out of all the companies in the space. For context, Payoneer who started 10 years prior and the largest in the world now, only raised $270 million to date.
Airwallex also seems to have the newest technology stack. It boasts least time to on board new users (1 day vs 3–5 days), fastest cash payout (0-1 day vs 1–3 day), and cheapest exchange rate. Fee is 0 for the first year and .3% after. In addition, Airwallex offers real time currency exchange rate access that’s only available to banks through its MarketFX and LockFX products. Basically its technology ensures that its users have access to the best exchange rate like the banks do.
Venture capital investor Garry Tan said it well:
Another threat worth mentioning is WorldFirst, and it’s mostly due to Alipay’s acquisition. After the acquisition, WorldFirst lowered its fee to .3% and also offers real time pay out to Alipay wallet, which has 700 million users in China. I believe that WorldFirst will further integrate with Alibaba’s B2B platform to create more value proposition / moats. Others should be aware and be ready.
So, how should Payoneer, a successful fintech startup who has become the “incumbent” respond?
More focus on the Chinese market
First, Payoneer should look into its China strategy and operation on whether it has the right focus, resources and tools needed to be competitive.
(Disclaimer: I don’t have insights into Payoneer’s global nor Chinese operation.)
From my personal experiences having worked both in multi-national corporations and local start-ups, areas such as resources, communication delays, to lack of autonomy can all cause disadvantages. In addition, China is a super competitive market. When I was running my fintech start-up, I could think of a new product feature, and have my developers work into the weed hours of the night, and have the feature ready to test the next morning. We had to operate at that intensity because our competitors are as well.
Leverage its strength
Second, Payoneer needs to leverage its strength as the incumbent.
Let’s look at Payoneer’s strength.
- Strong global presence, and has been in operation and in China for a long time.
- Created a community and leverage its knowledge and network (affiliates) to attract users.
- Not the cheapest, but does seem to have a more complete offering.
But how do we translate the strength into concrete values:
Service & Price: Service and price are probably 2 of the most practical metric users care about. In an ideal world, Payoneer should match the service and price of the new challengers (Airwallex and WorldFirst). Notice, I include speed (speed to on-board new users and receiving cash payout) as part of the service.
In reality, large companies tend to go for one of the two, like service over price. I think given Payoneer’s positioning such strategy can work. But Payoneer needs to make sure the additional services it offers justify the additional fees. Currently, Payoneer’s user on boarding time and cash payout time are slower than Airwallex. That’s a clear disadvantage given Airwallex is also cheaper.
Connect global network and resources: Payoneer needs to leverage its strong global presence, networks, and resources to help the online sellers grow (not exclusive to Chinese sellers). Let me use an example to illustrate: iPayLinks, another local Chinese competitor, focused on helping Chinese sellers expand to the MiddleEast as its unique value proposition. I like the strategy in that:
- Avoided the crowded US and European market
- MiddleEast has a number of oil rich countries that rely heavily on imports, which China produce
Payoneer is in an unique position to be a true global company to its clients: by connect its local resources and knowledge, serve as the global expansion advisor to its clients, and identify areas of growth for clients.
In this process, Payoneer can maximize its value, justify the higher fee, and create moats.
Another way Payoneer can grow is by leveraging its China presence to offer better payment experience for its non-Chinese sellers. For example, currently most USA Amazon sellers are using the antiquated wire or PayPal to pay their Chinese suppliers. This is a pain point as it’s costly, slow (comparatively), and lack transparency.
Notice this is not boosting Payoneer’s offering to its Chinese customers, but a way the local Chinese team can create more value for the Payoneer company as a whole.
The pain points in this area does not just stop at the payment methods. The whole process from factory contract, to payment, to shipment are disconnected. For example, after the seller paid the shipper, he / she is kind of just hoping that the products will be delivered, and somewhat similar experience for the factory. I am not saying the process is totally broken, but there should be a better experience. Modifi, a German company that provides trade finance, is addressing such issue by connecting trade finance with shipping. Modifi just entered China and one of its value proposition is that it partners with Maersk, the largest shipping company in the world who is also Modifi’s financial backer. By leveraging the shipping record, Modifi can better understand their users and their financing needs.
By connecting its global presence and its Chinese team, Payoneer can offer better holistic payment experience for its online sellers worldwide.
The bigger picture
What truly gets me excited about cross border payment is that we have just begun. Throughout this article, we have only looked at one use case. Currently Payoneer and most of its peers are focused on cross border online sellers, freelancers, and the travel industry. But the whole cross border payment space is much bigger and many pain points still exists. As illustrated below, the current focus is only on the retail and SME:
One of the key pain points in cross border payment is lack of the under lying pipe, which I have talked about in International Payment Landscape. However, with updated pipes and banks slow to adapt, gives companies like Payoneer a great opportunity to address some of the pain points and beyond.
For example, China now has one belt on road initiative to help its companies expand globally. Companies like Payoneer can leverage its multi-currency account to help companies set up payment or collect disbursements, leverage its acquiring solution to collect payment, and help companies further on other payment related issues. The opportunities are abundant as we are in the beginning stage of the cross border payment revolution.