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Industrialization: Railway & Steamship

Postal system has its political importance, which is why it’s included in the constitution. As the US expanded, how information / news / mails were transmitted were directly influencing the limit of a united society.

The Railway mail service began as early as November 1832. In 1835, railroads accounted for only one percent of mail transportation and connected only two major cities – Washington and Baltimore.

On July 7, 1838, Congress declared all railroads to be post roads and enabled the railways to make contracts as long as sending mail by rail cost no more than 25 percent above transporting it by stagecoach.

But it’s the industrialization that enabled the US to include / connect California and other lands that are far away from the initial states.

In 1848, US acquired California at the end of the Mexican War. Under the  Treaty of Guadalupe Hidalgo, Mexico also recognized the U.S. annexation of Texas, and agreed to sell California and the rest of its territory north of the Rio Grande for $15 million plus the assumption of certain damages claims.

In November 1848, Postmaster General Cave Johnson dispatched a special agent to California to establish Post Offices. By Christmas, steamships were carrying mail from New York to California via the Isthmus of Panama. This was before the construction of the canal. When the ships reached Panama, the mail was taken off and transported in canoes or on pack animals – and later by railroad – about 50 miles to the Pacific coast. Another steamship collected the mail on the Pacific side and headed north.

Congress authorized funding for the overland routes not because they brought any financial profit to the Post Office Department or the federal government, but because they helped build and bind together a nation.

Also briefly mentioned in 一朝风雨一代王：Sears, Walmart, Amazon, the expansion of the US rail transportation contributed to the growth of USPS (Post Office Department at the time).

In 1862, mail was sorted en route, as a train moved between two points, using converted baggage cars.

On August 28, 1864, the first U.S. Railway Post Office (RPO) route was established officially.

By the early 1900s, railroads were critical to postal operations. Like Union Station in Washington, D.C., located adjacent to the City Post Office Building, the Post Office Department ordered that all new main post offices in large cities be built as near as possible to the principal railroad station.

Below is the chart for Jumia’s performance in terms of GMV.

• • A spike in 2018Q4 just before IPO is controversial..
  • Although with the “artificial” growth in 18Q4, the trend looks good
  • The more worrying part is the slowdown in GMV growth – especially when Jumia is still has a long way to go

Jumia’s full year 2019 GMV is €1.1 billion, up 33% compared to 2018.

Comparatively, Pinduoduo’s GMV in the twelve-month period ended December 31, 2018 was RMB471.6 billion (US$268.6 billion), an increase of 234% from RMB141.2 billion in the twelve-month period ended December 31, 2017.

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Combined with Jumia’s annual active customer base, we can see the GMV per AAC declining over time.

In its Q4 press release, Jumia says “we have reduced promotional intensity and consumer incentives on lower consumer lifetime value business. While most product categories experienced GMV growth in the 20 to 50% range, phones and consumer electronics contracted by approximately 20% on a year-over-year basis. This aspect of the business mix rebalancing will likely continue to negatively impact GMV development over the next two quarters.”

“…we have increased our focus on everyday product categories such as Fast Moving Consumer Goods (“FMCG”), fashion, beauty and personal care as well as digital services which provide affordable entry points into the Jumia ecosystem…”

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We could also see that Pinduoduo’s GMV per active buyer is a little bit insane..

approx. annual GMV per active buyer = $268.6 billion /  418.5 million = $641.8

Jumia is at ~€180 in 2019, using annual GMV divided by ending AAC.

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To compare it with consumers’ e-commerce purchase across the globe..

• • World avg. $499
  • US $1,389
  • China $1,021
  • South Africa $109
  • Egypt $96
  • Ghana $59
  • Nigeria $44
  • Kenya $42
  • Morocco $41

In the future where Fintech firms dominate, established companies are reacting with three main strategies:

1. Cut costs for legacy business lines – like what we said in a previous post Banking Headcount Cut
2. Consolidate with other legacy companies to gain more market share and thus more say/power, further cutting expenses and trying to get more economy of scale – like what we said in the last post From TD Ameritrade To E-Trade: A Wave Of Consolidation
3. Acquire Fintech startups or replicate what they are doing – like the title of this post Buy & Be FinTech

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Visa x Plaid

In Jan 2020, Visa said it will acquire Plaid $5.3 billion. The deal includes a $4.9B cash consideration and $400M of Visa stock as retention equity and deferred equity consideration.

Plaid is a Fintech firm that enables a lot of other Fintech apps & digital transaction based businesses, providing underlying APIs. It counts Venmo, Robinhood, Coinbase, Acorns, etc. as customers.

Previously in Dec 2018, Plaid raised $250 million Series C at a valuation of $2.65 billion, led by Mary Meeker with capital from Kleiner Perkins’ growth fund. The growth.

In its mid-2016 financing tho, Plaid was only valued at $200 million.

The growth of valuation is supported by the growing business, the network effect and the sticky/recurring nature.

Through the Plaid acquisition, Visa secured a very strong spot in the future of Fintech and can expand/build upon the Plaid’s platform.

In Visa’s presentation, there is a list of Fintechs with rapidly growing users, on the top of which is Credit Karma with 100 million users.

Intuit x Credit Karma

On Feb 24, Intuit (Nasdaq: INTU) announced that it has agreed to acquire Credit Karma for $7.1 billion in cash and stock. (50/50).

Credit Karma lets people check their credit scores, shop for credit cards and loans, file taxes and more. It had close to nearly $1 billion revenue in 2019, growing at 20%.

In 2018, Credit Karma was valued at $4 billion when Silver Lake purchase $500 million in the secondary market.

The company started out originally in 2007 providing free credit scores, later extending that to full credit reports. Credit Karma’s launch of a financial planning tool in 2013 drew a direct comparison to Intuit’s Mint. And since then, Credit Karma has launched other products that directly rival Intuit, for example a free tool to help people file their taxes. These not only represented direct competition, but a disruptive threat, since Credit Karma’s products skewed younger and were built on a “free” premise (offering the products at no charge and instead making money off showing users and selling relevant, related products). The fact that Credit Karma partners with so many other financial services providers also means it’s sitting on a huge data trove that it leverages to build and personalize products, representing a data science angle for Intuit here, too. [TechCrunch]

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Meanwhile, besides the notable acquisitions of Fintechs, companies are building similar services by themselves.

In Jan 2020, Goldman Sachs launched a long-awaited app of its online bank Marcus for customers . The bank launched Marcus in 2016.

And BofA’s AI-powered assistant Erica has pulled in more than 10 million users. Zelle peer-to-peer (P2P) payments increased 76 percent year-over-year in the fourth quarter of 2019.

While JP Morgan has closed its experimental mobile banking app Finn last year, its own branded mobile app is ranked one of the best. The idea was for Finn to reach locations—St. Louis among them—where it didn’t have branches.

By mimicking the experiences/apps offered by startups, established players are essentially becoming Fintechs themselves, thus evolving internally and embracing the future more positively.