Bank of America is launching Erica, a digital assistant to help manage your bank account. The app promises to help you manage your bills, transfer money, and access important information about your account. Branch, a fintech company, raised over $100M to provide credit products to customers in emerging markets, mainly Africa right now. Both of these products are in the Fintech space, but they are miles apart in that sector. It’s symbolic of the massive divide between fintech in the developed world, and fintech in emerging markets. Bank of America targets American consumers. Branch targets mostly Kenyans. Fintech in the developed world is focused on optimization, while fintech in emerging markets is focused on access. This is an important distinction because it has implications for how organizations manage their strategies and develop their business models. Companies in developed markets, with few exceptions, are optimizing on existing products. Robinhood is optimizing the stockbroker experience. Stripe is optimizing enterprise payments. Square is optimizing merchant payments. These are all incredibly valuable businesses with great products. Branch though is providing access to credit. Their customers don’t have the option of another credit product. M-Kopa Solar provides access to electricity, TV, and refrigeration to their customers.
I think finding product-market fit in the access model is far easier. Companies can provide services they know add value to their customers lives. There’s lots of examples to copy and improve on when they build and deploy their product. I believe Branch raised all that money because investors think there’s a big untapped market, and Branch can take advantage of that. The optimization model does have one big advantage over the access model. While Access companies can reach product market fit far faster, they have a more difficult time reaching profitability. Optimization companies have complementary products that they are trying to disrupt. They have the price points on these complementary products, and the market size, and the data on how the market has grown over several years. That allows for more clarity in the future of your business. Robinhood knows that Charles Schwab charges X amount for brokerage accounts. So while their pricing at $0, there’s some comfort knowing they can probably raise fees if they have to. Branch doesn’t have that luxury. They have a harder time determining where to price their product. Are people using their product because it’s priced well, or because they desperately need it? How much can Branch raise their fees by? How big is the market, and how when will it stop growing? These questions all impact profitability, and enterprise value, and are much harder to answer.