It’s a well-quoted fact that most Americans don’t have passports. But when you can lounge on Miami beach, ski in Aspen, explore national parks like Yellowstone or visit some of the most vibrant and diverse cities in the world, you begin to understand why so many people choose to vacation in the US.
The domestic market similarly dominates America’s Fintech industry. Most startups simply don’t feel the need to expand outside the US until much later in their growth trajectory, by which point they realize they don’t have the right fundamentals in place. If we want more of America’s early-stage Fintechs to succeed on the world stage, this has to change.
Why do Fintechs focus on the domestic market?
The fact that many Fintechs focus on serving the domestic market is perhaps unsurprising: the world’s largest economy is a vast commercial opportunity in and of itself. The reality is that a US Fintech can reach hundreds of millions of customers in the wealthiest country in the world without ever having to go through the trouble of entering a new market.
This isn’t true of other regional Fintech hubs: businesses founded in London or Berlin know global expansion is essential if they want to scale beyond a certain point, and that’s reflected by the fact that they build a business with potential customers beyond the borders of their home country in mind from the beginning.
The lucrative nature of the US domestic market isn’t the only reason companies resist leaving the country. There is still a lingering perception that persists in the US Fintech community that operating across borders is a step into the unknown, as well as a not-unjustified sense of being put off by the compliance and risk-management burden entailed with moving money between different jurisdictions.
How to move to a more global mindset
So far serving the domestic audience has proven pretty successful: research from Plaid published in October 2022 revealed that almost half (48%) of Americans now use a Fintech to manage their finances daily – up from 42% in 2020 – with 76% of respondents reporting that they use technology to manage their finances more often now than in previous years.
But as the venture capital (VC) bonanza subsides, investors are now much more selective about where they put their money. Prominent VCs have begun talking about a concept called ‘default global’, a business model where companies plan to scale worldwide from the beginning. When top VCs start talking, smart founders pay attention.
There are generally two types of models that thrive in a global setting: those that service the end-user like a small business or consumer, and those that provide the underlying technological infrastructure used by the first model.
For the first type, a lot of the focus is on B2B: think of small- and medium-sized businesses that may have a global workforce, suppliers or customers. Levro, for example, is a multi-currency business neobank that allows companies to pay in and out of more than 30 currencies using one account – it’s all about providing a one-stop shop for global-minded businesses.
Then on the other side, you have the likes of Episode Six that are providing payment processing and ledger management infrastructure to power cards and wallets via APIs. These APIs are designed to be highly versatile and know no borders: whether you’re a neobank based in Berlin or The Bahamas, Episode Six’s technology can be seamlessly integrated with your existing infrastructure.
US Fintechs can no longer afford only to think domestically
America is a great place to set up a Fintech company. With its vast domestic market, abundant capital and deep tech talent and finance pool, we have a lot to shout about. But the reality is that investors will only back the pick of the bunch and they have a global pool to choose from.
In a context where there’s increasing scrutiny on startups’ revenue and financial stability, thinking global from day one could be the thing that allows a founder or startup CEO to move from pitching a great idea to having a real business on their hands.