The Promise of Platforming the Platforms

A necessary step to unleash API integrations

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Platforming the Platforms

Let’s get into this week’s topic: “platforming” the platforms we know so well. The uptake of platform-based on-demand services has been aggressive. Across the globe, companies like Grab (SEAsia), Rappi (LATAM), Alibaba (China), DeliveryHero (Europe) and DoorDash (USA) have created new industries. The importance of these platform services cannot be overstated — they have engendered an entire generation of digitally-connected workers. What does this mean for tomorrow’s business models? Well, at present, it depends on whether you are banked or unbanked.

Source: Kyle Banks

Financial APIs are (mostly) for the banked…

For the workers and customers that are already banked, companies like Plaid have deployed APIs (Application Programming Interfaces) to literally “weave together” archaic bank systems with software products. If you are not familiar with APIs, Benchmark Capital’s Eric Vishria paints the picture in the simples terms:

people interact with software through Graphical User Interfaces (GUIs), software interacts with software through APIs

Why does that matter? Well, because APIs enable companies to access more data, process it more effectively, and so much more. Need a tangible example? No worries, here’s one: If you use Venmo to send money to friends and family, or buy or sell goods and services, you generate a lot of information on your cashflows (how much you spend and receive, and when). However, unless you are moving funds from your Venmo wallet to your checking account after every transaction, your bank might not have the same information.

To some degree this example means you have two linked but separate ecosystems with different information: your bank may grasp your balances and credit cards, but your Venmo may have information on your side-jobs, spending habits/categories and more. Combining both with APIs, gives a clearer picture of your finances. If I were a lender, tapping into both ecosystems would give me a much better picture of you than just relying on your bank account. API’s are one way to paint that picture. Wouldn’t you want the full picture?

Source: Janis Graubins

API’s are sufficiently exciting to warrant their own series (I will be writing more about them soon). Anish Acharya, Seema Amble and Rex Salisbury from a16z have a great piece on the promise and use cases of payroll APIs. But, these benefits often hinge on individuals already having bank accounts. Is that representative for most workers in emerging markets? Not yet…

But…start-ups are creating ramps to banking

Here is where it gets more interesting, and certainly more challenging. If customers are outside the formal banking system, how can platforms provide an on-ramp to get where a16z and others are thinking?

One option is vertical integration. That is, Uber or any of these platforms offering direct integration to bank-like services as part of their portfolio. In 2016, Uber — then still operating in Vietnam — began sharing fare data with Viet Capital Bank to enable Uber drivers to borrow and upgrade from scooters to cars (and increase their earnings). The value proposition was clear: Uber had better visibility into the unbanked driver’s earnings than traditional banks. Banks had the working capital and infrastructure to dole out the loans. Qualifying Uber drivers could 1) use their Uber earnings to open a bank account and 2) use that same data to to secure a small loan at lower cost. In this case, Uber front-loaded a ramp to basic banking and credit services with informal institutions.

Unfortunately, Uber’s program is no more. In 2018, Uber abruptly withdrew from eight Southeast Asian countries and sold its operations to regional rival Grab. It is important to note that Uber withdrew not as a result of challenges with banking, but rather as a result of challenging economics and competing in too many markets simultaneously.

But, even if Uber had succeeded in South East Asia, I think this ramp to banking and credit was unlikely to succeed long-term. Why? Because Uber only had access to data points on its own platform, but no info on how much that driver earned on other platforms like Grab.

The vast majority of gig-workers operate in more than a single platform and generate data across multiple isolated ecosystems. Unless they are already banked, their fare or income on these platforms is not aggregated by their bank accounts. Thus, to really unlock the potential for the hundreds of millions of unbanked gig workers in emerging markets, companies need to platform the platforms.

Here’s one example of what that looks like, let’s consider the case of Lana.

Lana: Creating bridges between wallets

Lana (literally the Spanish translation of wool) is a free payment and benefits account aimed at Latin America’s gig workers. In short, lana provides a debit card and additional services including credit, savings and financial literacy. The company’s name is interesting because ‘lana’ colloquially means “cash” or “funds”: to “borrow lana” (prestar lana) is to borrow cash. To be “lanudo” is to be flush with cash 💰. Currently, Lana operates in Chile and Mexico.

Most gig economy workers in Latin America are paid through app wallets (e.g. RappiPay, MercadoPago, etc.). On top of that, most gig workers work for multiple apps/ platforms simultaneously in order to make ends meet and maximize their chances of finding gainful work. As a result, gig workers have segmented income streams, assets and wallets. Imagine having $360 in total spread across different wallets: $230 in RappiPay, $80 in MercadoPago and $150 across several other wallets. If you need to pay $300 in rent, you have the funds, but making that payment is not easy. Though your landlord may have one or two wallets, it is unlikely she’ll have the same ones. For her, its easier to get paid the full $300 in cash, brank transfer, or within a single wallet.

Moving money from an app wallet to a bank account often entails fees and takes time. If you are trying to pay rent, moving funds to the bank needs careful planning, patience and a little on top to cover fees. It also requires…well…a bank account.

Here’s where Lana kicks in. Lana is building a ‘wallet of wallets’ to unify these siloed apps into a single account with full visibility of a worker’s income streams across platforms. In doing so, Lana is in effect platforming the platforms, and creating a very rudimentary ‘API-like’ integration between the different wallets.1

Importantly, Lana does not require its users to have a bank account in order to sign up. Customers without an account are able to seed their Lana account by transferring funds directly from their app wallet. Even those without wallet services can “seed” their Lana wallets by paying in cash at one of more than 3000 establishments. With a Lana debit card in hand, gig workers can aggregate their funds more quickly and cheaply than at a bank. In our example above, that means paying rent easily and so much more. Over time, using this aggregated data could prove very useful in providing a more complete picture of a user’s cash-flow history and credit risk, even for people without scores from a credit bureau or a bank.

Beyond that, signing up with Lana creates strong incentives to formally enter the banking system. Users can have a clear view of their finances across platforms and how best to spend and save their money. Once inside, other companies like Paystack can then deploy financial APIs to create new and better services. Lana, is an on-ramp, and important one.

Final Thoughts

In the short term, it is not clear if the majority of Lana’s current customers are banked or unbanked. The company raised $12M from Cathay Innovation, Base 10 Ventures and others last year to accelerate its growth in Latin America. However, I expect that banked customers offer more upside and revenue potential than unbanked customers. Why? Because Lana can offer higher-value added payroll services to these platforms for banked customers. In addition, complying with local financial regulations is easier for already-banked customers.

In the long-run, if workers gain access to formal bank through Lana, then the company must think about retaining customers: what’s to stop newly-banked customers from just moving all their funds to a well-known commercial bank? Lana may need to add other services like wealth management, saving or credit that may put it in competition with other new fintechs.

Lana’s approach to gig economy workers and financial inclusion has a lot of potential. Beyond Latin America, there are millions of gig workers facing the same pain points across Africa, South East Asia, South Asia, the Middle East and beyond. I think we will begin seeing more companies platforming the platforms to create on-ramps to banking and other internet services for the next billion internet users. In the long-run, these services will amplify the potential of API-companies that we already see manifesting in Europe and the United States.