Developer as the Customer: One of the Most Underrated Opportunities in FinTech

I think the ‘developer as a customer' is the most underrated concept in the world of FinTech and surely in the broader world of Finserv (banks and FIs). All the consumer FinTech products that you love are supported and powered by a massive under-the-hood fin and tech infrastructure. Over the years this infrastructure has become an interesting offering in the market in the form of ‘APIs’ by some companies (mostly startups) where the focus is on the developer (as a customer). Some of these developer platforms will become massive businesses in the future. My bet is that we will see a couple of trillion-dollar API businesses in the next 10-15 years that focus heavily on developers. In the next five minutes, I will try to make data driven arguments to prove this hypothesis and also share some tips with budding entrepreneurs on how to go about building such firms.

Every component of the financial stack is becoming an API. It took some time (we have been saying this since 2015) but it's happening rapidly now. From payments, card issuing to virtual accounts, practically every back-end functionality that enables banking/finserv products is being made available to ‘developers’ as APIs. And it's not just about financial services; it’s happening everywhere. Companies like AWS changed the on-prem model and brought cloud infrastructure for renting computing and storage. Twilio changed that for communications, Google for maps, and Stripe is doing that for financial infrastructure. These and other API companies have started a supply chain revolution in software (in matured automotive supply chains 70% of the vehicle parts/modules come from suppliers). And please notice that the end beneficiary here are really the bright ~17-21 year-old developers in a college and/or a 22 yr tech founder of a new startup that now has easy and cheap access to the same stack as the largest corporations did in the past. Imagine the possibilities...I am seeing mind blowing stuff every week 🤯

We will focus on the financial services and FinTech space in this essay. Especially how to tap this opportunity. The API era has created a compelling case to focus on a new class of customers in this space = 🖥 🙋 developers. Open Banking and, subsequently, its expanded view ‘Open Finance,’ will make this particular customer segment supremely important. The age of 'developer platforms' is upon us.

Here’s a question: what startup do you think is the most valued private tech startup in the USA?

Hint: a B2D (business-to-developer) tech company that sees 250 million+ API calls per day. It grew by 50% in terms of the value of transactions processed in 2020. Investors are valuing this company at a $115 billion valuation in “secondary market” transactions now (mid-late feb 2021). 

Yes, you guessed it right—Stripe. There is a lot to learn from Stripe as it relates to building for developers. Developers everywhere in the world love them. At MEDICI we have been using Stripe and love it. Apart from payments and other great APIs, Stripe has recently introduced Stripe Treasury that allows companies to set up business banking accounts using APIs. To gain traction, it gives developers something that is useful, saves time and allows them to build something amazing in an easy and standardized way. Anything short of amazing is a waste of time in this segment. Expectations are high when the developer is the customer. In this essay, we will talk about more such companies.

But first—the developers. A bit more on their importance and their evolving role.

Jeff Lawson, founder of Twilio, says that developers are the creative workforce who can solve major business problems and create hit products for customers—not just grind through rote tasks. Most companies treat developers like digital factory workers without really understanding what software developers can contribute. From Google and Amazon to one-person online software companies—companies that bring software developers in as partners are winning.

I think Jeff has nailed it in the above statement. And to understand and target developers, you need to work very differently from, say, if your target segment is small businesses or banks. With developers, you need to look in places like Hacker News, Product Hunt, Reddit (MANY subreddits for devs!), Slashdot, discord servers, gaming, meetups, dev conferences, and ofcourse Twitter. Your website, design, and marketing copy should talk to them. Your approach has to be very specifically focused on developers.

Check out Twilio’s homepage (the forward slashes, “It’s time to build,” and “start building” and Docs & Tools):

Here’s an excerpt from the homepage of Stripe. See how its “designed for developers.”

There are now many successful developer-centric businesses in FinTech like Stripe. As we know, the last 7–8 years were marked by a Cambrian explosion in terms of consumer-facing FinTechs. However, in the last couple of years, Infra API businesses are not only the talk of the town but are exploding. So much so that there is huge growth in the number of new startups and companies operating in this space. Not just early entrants like Marqeta but it’s also attracting entrepreneurs like never before. These companies are hoping to be the ‘shovel makers’ in the ‘gold rush’—the ‘arms dealers’ in the internet-scale war. 

This is why it seems to be the fastest-growing segment in FinTech in many countries. If you are still wondering why the following paragraphs shall answer that for you:

What is driving the demand?  

As BigTechs and many consumer tech companies are now adding FinTech offerings, they need rails. They need well-built APIs that the banks are not able to provide for most part. Developers at tech cos need various types of functionality directly and easily via APIs. Plaid, Finicity, Marqeta, Galileo, and a few others are making it easier (see the schematic diagram below). Even newer consumer tech companies (on the demand side) are behaving the same—that is why Chime needs Galileo, and Robinhood needs Plaid. When the underlying infrastructure is ready and easy to tap into the rails using well-built APIs, BigTechs come in with full force (Google Pay on UPI in India is a classic example). Its happening globally especially in this 15-trillion-dollar industry like financial services with much scope with regard to improving things. The result of these developments is that today almost half of Spotify’s revenues comes from payments.

Another company that’s definitely worth a second mention is financial data API specialist Plaid. Look at how they focus on connecting with the developers. This is their home page.

Plaid connects to 11,000 US financial institutions and more than 200 million consumer bank accounts and, through their data APIs, power apps like Robinhood, Public, Coinbase, TransferWise, Venmo, Varo, Acorns, and so on. It's a long list. They are getting into full-stack payroll APIs as well. 

Those who have talked to me on this topic of ‘developers as customers’ over the last 5 years or talked to me about API companies in this segment know how I love this segment and enjoy talking to developer-focused entrepreneurs that are building the next generation of companies. Let me talk about a few relatively less known API companies that I find remarkably well-positioned for success: 

Prove: Identity and authentication APIs. They did about 20 billion API calls in 2019 for banks, FIs, FinTech companies, and others. Prove is the modern platform for continuous identity authentication and is used by over 1,000 enterprises and 500 financial institutions including 9 of the top 10 U.S. banks. Prove’s cloud solutions and mobile intelligence-driven APIs can be easily orchestrated to increase Approve Rates to over 90%, enabling companies to authenticate customer identities while mitigating fraud. All of this functionality on a single API.

Feedzai : Risk scoring and fraud detection APIs like those from Feedzai

M2P/YAP: Offers fin infra APIs to numerous FinTechs in India, middle-east and other regions. Including but not limited to wallets, cards, accounts, deposits, cross-border and investment product enabling APIs.

Riskcovry: Riskcovry offers modern APIs to automate omni-channel insurance distribution. Any company can sell insurance by plugging in their APIs. They provide simple integration endpoints - Plug and play infra to complete your desired enterprise InsurTech model. Agnostic of Insurer, Product, Channels, Devices, and Distribution Compliance License - Flexibility to enable insurance to your end customers in a manner that best works for you. And enable compartmentalized data - Keep your data secure with complete privacy. Cloud, On-prem, or Hybrid. They are enabling some amazing use cases for startups, tech cos, and FIs. 

Decentro offers business Banking APIs: This YC company offers banking APIs available in the form of simple, automated, and plug-n-play APIs in Singapore and India. 

Also, I have seen many founders and folks looking at this space and interested in this space often asking that once you have decided to focus on building for developers...how do you go about executing product, marketing, and sales for infra ‘APIs’ as an offering?

So here is a little bit of help on how to think about it. Developers and decision-makers are probably going to be two different customer groups, so make sure to get your messages nailed down for both. I have to admit that it might be technically more correct to say “developers as consumers” in some cases where business leaders still take API vs. build decisions and company-level technical decisions in general. However in many cases now, developers might be customers as well apart from being consumers especially if leaders are thinking like Jeff Lawson. Some of the examples I gave above - Stripe, Plaid and Twilio should serve as good examples for marketing and sales ideas across channels. You should also look at Bessemer Venture partners’ very useful piece for developer-focused platforms that you can learn from, and they had noted down a few practical laws as well.

Also, look at this blog for some paid marketing ideas. You may also go through this great slideshare deck.

In addition to that, I will be sharing more resources from time to time on my Twitter.

Why do large enterprises suck at this game? 

Many banks and large enterprises think: just expose internal APIs into external APIs, and there you have success in API banking. It’s not like that. It's not just a tech problem—tech may be the easiest thing in this. As an example the documentation and the UX for developers are very important. Back-to-front one great experience via APIs is what is required. And that is why large enterprises are bad at this. Therefore ‘Developer’ as a market is a great opportunity for new entrepreneurs.  

Usually, large enterprises go about exposing their APIs without thinking about their broader strategic value. Once an organization creates an API, they need to focus on its maintenance, promotion, easy consumer onboarding, enact the right security, instill testing and performance monitoring, developer documentation, and consumer support. Not by throwing 100s of people and IT vendors to do these tasks but by pushing ownership down. Giving responsibility to their own developers. It is said that the best practice to build an API is to be able to transform it into a public API product in the future. Public or Open APIs are created in order to give a wider population of developers access to an organization’s information assets. Many of today’s successful APIs, which were built as private APIs, became so valuable that their owners decided to open them up to external developers and monetize them.

Ok I am guessing by now you agree that “Developers are a huge market”. If I am being presumptuous do let me know in the comments or DM me here or on Twitter. Before I end this article just to quickly revisit the excitement in this space from an investor lens. Investors are lapping up these companies that focus on ‘developers’ as customers. Visa was going to pay $5 billion+ to acquire Plaid. And yet, after the deal fell through the cracks, Plaid is getting valued even higher in secondary markets 😎 and I am sure will continue to grow in EV. Financial Infrastructure API companies have managed to raise billions in just the last 2-3 years. Elad Gil recently posted about the concept of "index companies." Stripe and Shopify act as indexes of the e-commerce boom and have grown along with the industry’s growth. In FinTech, infrastructure companies have the opportunity to serve as an index of the entire space. If we believe that the consumer FinTech segment (especially banking and credit cards) is growing, an index company is a great bet.

If we completely move to Open APIs one day (and I believe we will) across broader finserv, it would be a utopian place with the democratization of financial services in the true sense. It will accelerate long-tail growth because big companies have the means and resources to partner up (with hundreds of cos) and get an unfair advantage today with their armies of bizdev folks and alliances—people with tens of years of experience and relationships. But in a fully software and API-driven market, the developers win, including the developer in a small upstart who is now at the same level playing field as, say, a GE to offer financial services. We shall see how long it takes. I am always optimistic. 

PS: It's 2021 and I think we need a new taxonomy for FinTech. I think we need to look at it from a more customer-specific lens and not just wallets and lending and wealth. you will see a bunch of articles in this series where I make a case for changing the age-old taxonomy and segmentation of FinTech. Next up is 'bank as a customer' FinTech companies and 'small-business' as a customer FinTech companies.