Will Airbnb‘s Tilt acquisition kill other group payment apps?
If you thought Airbnb is only in the mood for accommodation industry, you may be surprised. San Francisco’s based giant is trying to enter lucrative industry of travel experiences for quite some time now. Its newest acquisition plans may finally bring a break-through.
Last week it leaked out that Airbnb is in advanced talks to acquire Tilt (old Crowdtilt), a group payments/social network hybrid start-up that helps people split the cost of rent, dinners and events. Tilt has been targeting college communities where an average payment is between $5–$10.
It is quite surprising, though, the buy-out deal for 9-years old Tilt is valued only around $50 million, though the deal is still fluid and things could change even more. The Information reported that the price may be between $10 million and $20 million. Either way, it’s a significant drop off from the $400 million valuation it picked up in May 2015. Tilt raised around $30 million in that financing round, and in total has raised around $62 million.
For me this suggests that Tilt hasn’t figured out how to tackle age-old problem of group payments in day-to-day situations to a wider market. It was focusing on serving those with little purchasing power but high trust in new technologies — uni grads and high school students. Since launch, Tilt has had to grapple with the problem of payments for groups of people — and eventually one-to-one.
Nevertheless, Airbnb can be lured with Tilt’s talent and technology so such bargain deal may be well justified.
American Express understood that as far back as 1891 when its president, JC Fargo introduced travellers cheques to make obtaining cash around the world easier.
AE’s playbook holds to that day that travel and financial services are a powerful combination, making PayPal, PayByGroup us at IamIN and many others to join the race to in group payments for travel.
The rumours support industry view that of all the next-wave tech giants known as WASSUPPs (WeWork, AirBnb, Slack, Snap, Uber, Pinterest and Palantir), AirBnb and Uber are the most aggressive in embracing FinTech as core to their business.
Till the Airbnb do payments part?
While for Airbnb acquihire of Tilt may ease splitting payments for their bookings, it is hard to assume to what point would this aspect oscillate in finance services.
And there are many add-ons that could make sense: travel insurance, micropayments, P&C insurance, loyalty programs, remittances, travel cards, credit lines and blockchain-powered travel applications all fit the bill. You can’t have fun planning getaway or a peace of mind on a business trip if you’re dealing with massive financial friction.
I personally see Airbnb where group payments is just an convenience, improved customer experience, but not a core of the business. Their experience offering called Trips is built like any other ticket selling platform — you buy your number of tickets and then you join other strangers in experience. The only difference is that experiences are created by locals (or at least that’s how the company likes to picture them).
I also see many questions coming with this model (insurance, taxes, choice, quality of such experience presented by person — all coming from budget constrains). That, however, is a topic for another article.
The problem with split payments
Being in group payments business for few months (we launched IamIN last November), we noticed many things that are wrong with the industry. These are our bets and reasons why there hasn’t been yet a visible winner, whose service would be applied to many more situations than just setting bills for last night dinner. (I will omit Chinese market where WePay seems to be winning in every field of group and micro-payments):
Challenge No.1:
Current split payment apps are dedicated to closed groups. Between closed groups (Venmo) and total strangers (Kickstarter, Indiegogo) joining to share a cost there is a huge undiscovered group — people who would like to share experiences with new people. There has to be something much more compelling to build a community.
Challenge No.2:
Business models of split payments platforms seem to be flawed. Since these groups are built-up on close friends, it is very hard to set and charge any fees. Reason being: resource-limited Millennials will avoid paying fees for something, which they can achieve for free (bank transfers or cash in hand), as they value cost-effectiveness more than comfort.
Current platforms fees’ barrier is set at 3.5%. Anything below that creates a loss, since these companies (us included) are charged for each pay-in and pay-out. Anything above that seems to be a rip-off for money-conscious users.
We are building IamIN to be a platform to browse and book group deals, creating a win-win both for a group service provider, end users and our company.
Challenge No.3:
Currency exchange rates is another big obstacle preventing groups to create money pools. Currently users face the dilemma of paying their part bearing transfer fees or the ‘lead’ user paying for everything from his pocket (otherwise deal may be gone or price may change further due to the exchange rate).
More problems arise when the group event doesn’t happen in the end — double currency conversion is always the worst case, and giving back the money in exchanged currency is freezing your money.
Current companies (Airbnb is no different) set their hard-coded exchange rates. We, at Iamin see this challenge as one of the most important one to solve. To do that, you need a peer-to-peer transfer system, successfully exercised by companies like Transferwise, Monzo or Revolut.
The solution would be instant payments supporting different currencies. Imagine that participant can pay in their own currency to the account of the collector. System provides the best rate at the time and money is exchanged and locked instantly into the foreign currency sum. : EUR, USD, YEN
There are obviously many more points we’ve noticed and working on, but you should get the feeling.
As for Airbnb — our team at IamIN can only guess how they will merge Tilt’s assets into business model, but we welcome such competition.
We know one thing for sure — travel + payments market is worth fighting (innovating) for. May the best man win.
Join us at our journey at iamin.io
