How much product room will fintech giants leave for startups?

I was going to wait until after Square reported its Q1 results today to dig into the world of fintech earnings and what they might mean for startups, but something got stuck in my craw that matters more than what Jack’s team may have up its sleeve: How much space is being left in fintech when the major players are growing rapidly in categories where startups are doing their best to make a dent?

This morning, we’ll examine the buy now, pay later (BNPL) market, mostly through the lens of PayPal’s first-quarter results.

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PayPal’s BNPL results are impressive — and not just to your humble servant, but to other fintech watchers as well — which begs the question: Can the platform effect that the PayPals of the world bring to bear suffocate a growing slice of the startup market?

There are obvious issues with the thought. The first being that BNPL-focused Affirm recently went public. And Affirm was, until very recently, a startup and later a unicorn. And then there’s BNPL player AfterPay, which went public a few years back, not to mention Klarna, which could go public sometime soon.

But what we’re watching is PayPal chase a handful of unicorns-and-later BNPL companies. What about the actual startups in the market? Can they hack it? Let’s dig into PayPal’s results, take a peek at what AfterPay’s own can tell us, and then we’ll noodle on the startup question. We’ll come back to all of this after Affirm reports in a few day’s time.

Platforms versus startups

The “kill-zone” concept — that startups should not get too close to what big tech companies do — has never sat well with me. Mostly because it’s not true that small companies cannot take on big ones. And because big companies have a really great history of crappifying their products into vulnerability.

A great example of the first count is Zoom, which took on a host of enterprise-ready, platform-supported video chat services and crushed them by simply being not awful. This brings us to our second point: As big tech companies need to keep finding incremental revenue adds from their existing products, they make them worse to find a marginal top line. The biggest tech shops often trade near-term economic growth for long-term market ownership.