One Man's Secrets behind Five Successful Fintech Startups
Q&A with Sunny Sun, Founder of Fast-Growing US Digital Bank CBIG and Leading Chinese Payment App Qian Dai Bao
Welcome to Episode 2 of the Entrepreneurs of Life podcast, dialogues with distinguished immigrants in Silicon Valley, along with AI insights!
Today, our guest is Sunny (Jiangtao) Sun, a legendary FinTech founder of five successful startups across Asia and the US. The most prominent one is Qian Dai Bao, a leading digital payment app in China serving over half its population. Sunny is now revolutionizing cross-border banking with his latest venture in the US, CBIG.
Discover how CBIG leverages technology to serve a long tail of small- and medium-sized businesses in cross-border trades, where offerings from traditional banks fall terribly short. Sunny also shares battle-tested insights on timing market opportunities, startup exits, validating product ideas, navigating strategic tradeoffs as a founder, and much more.
This episode is a must-listen for aspiring entrepreneurs and FinTech enthusiasts alike.
Quick heads up: the Q&A is originally in Chinese. We’ve got English subtitles in the video below and a slightly abridged transcript that follows, also in English. You can also listen to the podcast in Chinese on Apple or Spotify.)
Key Chapters:
(00:00) Introduction
Part One: Lessons from 5 Payment Startups over 20 Years
(04:56) Secrets of timing market entrance and exit
(11:42) How to choose the strategic partner to sell your business to
(14:45) Meituan's strategic vision behind the acquisition of Qian Dai Bao
Part Two: The Story Behind CBIG
(18:08) Macro perspective: the founding thesis of CBiBank
(25:40) Massive opportunity for global cross-border banking services
(28:48) Why do traditional money center banks struggle with serving SMBs?
(32:01) How CBiBank uses technology and AI to redefine the game
(34:50) From payments to deposits and loans: CBiBank’s product suite evolution
(38:22) Much more than a bank: Positioning CBIG’s banking versus SaaS services
(40:57) License vs. partnership: a crucial choice for early FinTech startups
Part Three: Advice for Founders
(46:04) Validating startup ideas: how to tell pseudo or weak demands?
(49:59) Go broad or go deep? A founder dilemma
(53:09) US vs. China: differences in startup ecosystems
(Slightly abridged transcript of the interview below)
Part I: Lessons from 5 Payment Startups in China over 20 Years
Sophie:
To start, I wanted to chat about your insights as a successful serial entrepreneur in China's payment and mobile internet industries over the past 20+ years.
Secrets of timing market entrance and exit
The first question is about your experience in grasping industry opportunities and choosing the right timing for launching or exiting a business. In interviews, you often humbly attribute your entrepreneurial achievements to luck or "catching the wave at the right time." But we all know it's very difficult for entrepreneurs to seize real opportunities at the right time, and to exit or transform a business before high growth opportunities run out. So what lessons have you gained in terms of seizing trends and judging timing?
Sunny:
There is an element of luck in timing, but much of it stems from our understanding of the industry we are engaged in. You have to spend a lot of time and energy thinking about this matter, constantly processing everything that happens in your industry. This way, you will naturally form your own predictions about its future direction.
You can't be overly optimistic in predicting the outlook, nor can you be overly pessimistic and give up the moment you encounter difficulties. While you need to be persistent, you also need to detach yourself and revisit the problem from an outsider's point of view. Don't get caught up in obsession and miss the right window to let go.
When I consider entering an industry, I pay attention to whether it can be covered with my expertise, ability, social resources, team, plus hard work. If we have to stretch our abilities too far, then usually we will not enter it.
In my previous startups, we generally decided to sell when the competitive advantages of top players came from outside our vertical, or we lacked appropriate licenses to grow sustainably.
Take Qian Dai Bao as an example - by 2016, we were a leading player in payments, but tech giants like AliPay and WeChat Pay began entering the space. Their competitive edge was their massive user base. Under attack from these giants, an independent payment company had slim chances of survival.
When we decided to sell Qian Dai Bao in 2016, we believe it was necessary. Years later, pure-play payment companies that ranked ahead of us have disappeared or are struggling.
We also sold Zhang Zhong Finance in 2016, which provided online lending. Top online lenders had advantages over traditional institutions, but faced a common problem: lack of official lending licenses. As a FinTech challenger, if we extended high-yield loans without licenses, the company wouldn't survive long. So when selling Zhang Zhong, we considered acquirers with far-reaching licenses, hoping that after merging, we could operate compliantly and grow sustainably. The merger would create synergies, making one plus one greater than two.
Choosing the strategic partner to sell your business to
Sophie:
Your consideration for an exit partner is not purely about maximizing payout, but finding a suitable partner to hand over the baton, providing resources for the next stage of development. I imagine this also goes hand in hand with financial value.
Sunny:
Correct. Right before selling Qian Dai Bao to Meituan [author note: Meituan operates the largest digital platform in China for local services; as of May 2024, it had a market cap above $80 billion], several public companies offered high prices, but we declined. They were obvious financial acquirers without synergies with our payment business. Profitable in traditional sectors with little growth prospects, they wanted to tell a fintech story to drive up stock prices. We passed because the combination wouldn't have obvious synergy.
Through merging with Qian Dai Bao, Meituan gained strategic upside in fintech. Meituan held a small lending license and was interested in fintech, but lacked payment licenses and compliance experience. With Qian Dai Bao, they launched Meituan Pay.
Qian Dai Bao had 1.2 million customers, but after merging gained access to hundreds of millions of Meituan users. Today, Meituan Pay likely has over 800 million users. Qian Dai Bao's merchant network also saw exponential growth through Meituan's businesses.
Sophie:
For Qian Dai Bao to become Meituan Pay, growing its user base hundred-fold into a payment giant second only to Alipay and WeChat Pay, your consideration of this exit had era-defining significance, in my view.
Meituan's strategic vision behind the acquisition of Qian Dai Bao
Sophie:
You shared how you chose Meituan as the merger partner, proactively contacting Wang Xing which led to the deal. From Meituan's perspective, what was their strategic rationale behind acquiring Qian Dai Bao? Behind Meituan's large-scale acquisitions like Mobike, Dianping, and Qian Dai Bao, there are generally grand strategic considerations. I'd like to hear your insights.
Sunny:
It was a process of mutual selection. For Meituan, entering fintech was a strategic move, but tight regulations made it impractical to apply for financial licenses itself. It could only obtain licenses through M&A.
The fintech business Meituan wanted to engage in must be broad, not limited to a narrow segment. As the third largest player after WeChat and Alibaba, Meituan benchmarked against WeChat Pay and Alipay, wanting any payment capability they had. So the acquisition target's licenses must be comprehensive.
Qian Dai Bao's licenses were all-encompassing - mobile payment, PC internet payment, POS acquiring, cross-border payment. These covered all payment businesses Meituan wanted to pursue.
Meituan had other options beside us. Some had less comprehensive licenses; some had a weaker tech stack that could cause integration or scaling problems; others demanded too much cash in the considerations mix. Meituan, not yet public at the time, wasn't flush with cash. An ideal target would accept a suitable price without requiring too much cash as opposed to stock. Broad license coverage, a strong tech stack, and willingness to take more stock vs. cash - Qian Dai Bao met all three criteria, which was why they chose us.
Part II: The Story Behind CBiBank
Macro perspective: the founding thesis of CBiBank
Sophie:
Let's discuss your current startup CBiBank, a cross-border payments and financial services platform targeting small- and medium-sized businesses (SMBs) as well as high-net-worth individuals. This time, it goes far beyond just payments and has a cross-border focus. What major trends did you identify in choosing this direction?
Sunny:
When I left Meituan in March 2017, I was faced with the question of what to build next. Looking back from 2017, my roughly 16 years of entrepreneurial journey had been focused on Fintech, primarily payments. Within mainland China, I couldn't see other fintech opportunities for us due to regulations. I was faced with two choices: either change tracks completely, or consider applying my experience outside of China.
We spent about half a year researching markets outside of China. One big category is developed economies, and another is developing economies. The advantage of developed markets is mature rule of law; the disadvantage is saturated competition. Conversely, developing markets have very crude laws, but if you engage with the local regime, they may create a license for your needs. The risk is the next administration might revoke it. The good thing is, from a competitive perspective, developing markets might not have this type of business at all.
The other thing is, if you are a licensed fintech operator in a developed country, you have optionality: you can either do business with entities in developing countries, or compete for domestic business with local players within the developed country.
We also have to think about whose money are we ultimately earning? Are they entities in developing or developed countries? If we do a TAM (total addressable market) exercise, the largest profit opportunity lies within the developed economies. The second largest piece is transactions between developed and developing countries. The smallest piece is completely within developing economies.
We chose to focus initially on the second piece: obtaining financial licenses in developed countries and doing business with developing country entities. This gives us decent profit margins from the get-go. Meanwhile, once fully prepared, we can go after the bigger and more lucrative markets in developed economies themselves.
Now, after six or seven years, we have built a solid foundation doing business with developing economies. We have also started to enter developed economies, snatching business from top-notch local players. This is what we had planned on all along.
Massive opportunity for global cross-border banking services
Sophie:
Approximately how large do you estimate the market size to be worldwide, for SMB cross-border financial services?
Sunny:
The ideal customers we serve today consist of SMBs engaged in international trade. Their production is primarily in developing countries like China, Southeast Asia, Brazil and Latin America. Meanwhile, their products are sold in North America, the EU, UK, Australia, and New Zealand.
There are about 1 million such businesses in China alone. Other developing countries combined also have more than 1 million of them. Therefore, based on conservative estimates, the entire industry segment we can serve comprises at least 2 million SMBs globally.
We obtained banking licenses in the US, and payment licenses in the US, Canada, Australia, New Zealand, Singapore, Hong Kong, and the EU. Among these 2 million SMBs, if we can achieve serving 100,000 of them, and assuming each customer has an average of ~$100,000 deposited with us (based on our current customer statistics), our group can become an influential financial conglomerate with $10 billion in assets. This is the stage one business goal for CBiGroup.
We commenced official operations in March 2020. In four years, we have achieved the initial small goal of serving over 10,000 SMBs with roughly $1 billion in customer fund balance. We have successfully validated our business model. Over the coming years, we will continue to scale and refine this model to achieve our first stage goal of $10 billion assets. Throughout this process, we will simultaneously prepare to serve SMBs in developed economies.
Why do traditional money center banks struggle with serving SMBs?
Sophie:
Speaking of serving SMBs' cross-border needs, what are the fundamental reasons traditional financial institutions have lagged in this field? Is it an underestimation of the market potential, or some tough obstacles? Do the challenges relate to the nature of SMBs, cross-border operations, or both?
Sunny:
We should examine this from various angles. HSBC, Standard Chartered, Citibank, and other multinational big banks all place significant emphasis on SMBs. However, over the past years, SMBs have not received very satisfactory service or experience. There are several reasons for this.
The first is that the overall financial services market is extremely vast. Big banks must prioritize the most lucrative opportunities before addressing smaller ones. Large enterprises provide a quick return on invested resources. If the big banks see unmet demand at their big enterprise clients, naturally, they lack capacity and resources to cover SMBs. This is the first crucial reason.
The second reason is that once you concentrate on serving big enterprises, your technological capabilities, business model, product design, compliance flows, and customer service model are all optimized for serving them. For big enterprises, you can assign dedicated customer service personnel, even several per account. But this approach doesn't work for SMBs. It is nearly impossible to use manual approaches to serve them, because the customer value brought by each is very limited. If you rely on manual approaches, the cost may not be justified. You must depend on product capabilities to serve SMBs.
However, because large institutions focus on big enterprises, they will not provide many customized services for SMBs in terms of investment in technological capabilities, products, and service capabilities. Consequently, when it comes to serving SMBs, they lack sufficient enthusiasm and even the necessary ability to cover this segment. This presents opportunities for innovative players like us.
But it's not to say that the clients we serve are insignificant. We are supporting their growth. We have been working with these SMBs for four years. Over another four years, and then another four, they will gradually expand. Once accustomed to using our products and services, they develop stickiness even as they grow.
It's similar to China Merchants Bank [Author note: the 7th largest bank in China today with $1.5 trillion assets], which 20 years ago also started out serving SMBs and college students. Now, many of those SMBs have grown into unicorns and industry giants. Many of the students are now part of the middle class or business owners. Yet, they still loyally use China Merchants Bank's products. By supporting the growth of these seemingly small enterprises now, our products and service capabilities are also gradually evolving alongside them.
How CBiBank uses technology and AI to redefine the game
Sophie:
You mentioned traditional institutions may lack the willingness to invest in serving small customers. I know this is where your edge lies. Your services are not only customized and high-quality, but you've also built software leveraging AI to provide quality services cost-efficiently. I know your team invested 5 years and significant R&D; what breakthroughs have you achieved?
Sunny:
We are called a fintech business because while we provide financial services, we utilize technology to deliver them to users.
Traditional institutions often require in-person service, paper contracts, and old-fashioned service models. But in recent years, with mobile internet, nearly all financial services can be delivered electronically through computers and smartphones. This requires extensive tech capabilities behind the scenes. The key is providing a comfortable and convenient service, not flaunting cutting-edge tech.
Over half our staff is in R&D, showing our emphasis on tech investment. We aren't the creators of large language models or deep learning, but we aim to be among the first to apply these new technologies. They can either improve efficiency and reduce costs, and / or provide users with a considerably better experience, even if not saving money today.
For example, we introduced AI into compliance and anti-money laundering. In our analysis, this AI could actually cost more than manual workflows. But it enables significantly faster transactions and better user experience. In this case, we believe the extra investment is worthwhile.
From payments to deposits and loans: CBiBank’s product suite evolution
Sophie:
The next question is about your "payment-deposit-loan" service evolution path. It's different from traditional banks' "deposit-loan-payment" approach. Going from payment to deposit and lending is a big leap, involving credit risk management, pricing, and other complexities. What work have you done to expand from payment to deposit and loans? What difficulties have you overcome?
Sunny:
We don't design products out of nowhere. We analyze users' needs and create products to meet them. We chose "payment-deposit-loan" because our customers' primary need is to receive and pay money. They need an account to receive money from offshore customers and pay vendors. "Payment" here includes both inflows and outflows.
Once they have an account with us and transact frequently, we have regular touch points. In a transaction, if they sell something for $10,000 that cost them $8,000, there's a $2,000 spread. After fees, maybe $1,000 profit is left. This becomes our deposit. More transactions mean more deposit growth.
Receiving and paying funds is our foundation. Deposits are generated from payments. Once we establish a convenient payment channel, customers naturally accumulate more transaction data with us, including on their counterparties. If they later need funding, we have a strong data foundation for lending. If transaction history is positive, their credit score improves, making loans easier to obtain. The more transaction data they generate, the better loan terms we can provide. Knowing this, customers try to use us for payments as much as possible. Transaction frequency grows, leading to more deposits and data, allowing us to offer better credit terms. Our "payment-deposit-loan" model creates a virtuous circle, organically developed as we serve customers.
More than a bank: positioning CBiG’s banking versus SaaS offerings
Sophie:
CBiG provides both financial and software services. How do you position CBiG? What is the relative importance of its financial services versus its SaaS product? What linkage exists between them?
Sunny:
Our new SaaS business line, CBiLink, was born last year as an extension of CBiG's capabilities. Over the past six years, across CBiG's banking and payment services, over 95% of our technology was developed in-house; this plus the fact tht we adopt a cloud-based model make monetizing our capabilities via SaaS viable.
In the US, there are around 5,000 banks, 80-90% of which are small and medium-sized. They have strong IT needs. While we’re relatively new, our product offerings and scale may have surpassed the vast majority of small and medium US banks. We believe our capabilities can meet their needs. CBiLink naturally emerged from CBiG to serve these banks, letting them leverage our system for their customers.
In the near future, I think our financial and software services will complement each other. As our product portfolio evolves, that makes CBiLink better as well. As it matures, our cloud software will serve small and medium banks more independently. Eventually, our group will be able to spin off the SaaS business from financial services.
Sophie:
This reminds me of Amazon incubating AWS - starting from internal needs, building industry-leading capabilities to meet them, and finally selling such capabilities as a software product. It's another manifestation of the data flywheel effect.
License vs. partnership: a crucial choice for early FinTech startups
Sophie:
Next, I'd like to discuss your choice between capital-lite and capital-intensive models. Many US fintechs like Ramp and Brex, valued in the billions, did not apply for banking licenses, at least initially. Instead, they partner with banks while focusing on software and user acquisition. Securing a banking license means more capital requirements and complex challenges in leverage, risk, compliance, operations, etc.
CBiG currently holds various financial service licenses across multiple countries, encompassing payments, banking, asset management, trust, insurance, brokerage, and more. At CBiG's inception, you decided to obtain these licenses, rather than choose the partnership model common in US fintech. What were your considerations in this regard?
Sunny:
It's hard to say which choice is better. They both have advantages and disadvantages. For a startup, beginning without pursuing licenses means you don't have to invest as much resources early on. You bridge gaps through industry partnerships. Once you succeed, it could bring rapid growth.
But this involves survivorship bias. We see companies that made it this way, like the examples you mentioned. But many more have failed. A company chooses a segment it thinks has demand, and tries to find financial institutions to partner with. The idea may be viable, but if it fails to find suitable vendors that provide services of the quality it wants for end users, it cannot compete and dies.
When I started businesses in the past, I also mostly chose the capital-lite model. With Zhang Zhong Finance, we didn't consider much what licenses it would need. We just thought about making it grow faster and generate maximal revenue on minimal input. But as it grew, many businesses it wanted to get into required licensing. Obtaining those licenses would take too long or was impossible. It faced a tough hurdle. Fortunately, Zhang Zhong found a suitable M&A buyer, allowing its ideas to become fully compliant with the acquirer's licenses. But not all companies are as lucky. This model has its good side, but also limitations it has to address when scaling.
This time with CBiG, we want to start with a solid foundation, so that all the businesses we might want to pursue face no such regulatory uncertainties down the road. We got licensed for all major business lines we might expand into. This way, we're free to experiment with new products without compliance restrictions.
The downside is that early investment is substantial. A good chunk of our headcount is dedicated to compliance, license management, and so on. We were incorporated in 2017, but didn't open for business until 2020. We didn't take customers for three years.
Between these two FinTech models, I think there is no good or bad. It comes down to different choices made based on the founder's beliefs, resources, and strategic plans.
Part III: Advice for Founders
Validating startup ideas: how to tell pseudo or weak demands?
Sophie:
Let's discuss your advice for entrepreneurs. One topic is about early-stage entrepreneurs finding the right direction. You've shared that for early entrepreneurs, identifying pseudo-demand may be easy, but recognizing weak demand with limited user willingness to pay can be difficult, especially when using subsidies or low prices to attract an initial customer base. How can entrepreneurs distinguish weak demand from real demand that is nascent and still needs to be cultivated?
Sunny:
Validating customer demand involves diagnosing pseudo-demand and weak demand. Pseudo-demand is relatively easy to catch through user engagement metrics and simple experiments.
Weak demand is more difficult. One type is so weak that as soon as you ask the customer to pay, they churn. Another is where users are willing to pay a certain fee, but not more. However, the threshold they're willing to pay is below your break-even point. If you ask them to pay slightly more to the point where you make money, they're unwilling. For these types, if you can't produce a model where someone else pays the bill, your business can't be viable.
A typical example is bike-sharing. If the operator charges enough to cover costs, customers give up, because they have other transit options. But if you offer cheap rates, customers may be eager to use it. So if you can monetize through other means like Meituan and Alibaba did [Author note: both have acquired bike-sharing startups in China], rather than directly charging for bikes, this model could be viable. If you're like Mobike or ofo [Author note: the two largest bike-sharing startups in China, acquired by Meituan and Alibaba, respectively], trying to achieve profitability on a standalone basis, it's not feasible. In these cases, you must find a strategic backer willing to subsidize your model, allowing better monetization through other means. Otherwise, it's a typical example of weak demand.
Simply put, an easy way to judge weak demand is to charge the customer. If you charge to the point where you make money, and the customer is still happy to pay, then you know the demand is strong enough.
Go broad or go deep? A founder’s dilemma
Sophie:
My next question is about choosing between rapid expansion into new business lines versus doubling down on an existing one. You mentioned that after Alipay and WeChat entered in-store digital payments, it posed an existential challenge to independent payment companies, including Qian Dai Bao. Diversified giants entering new verticals is a common threat to specialized startups already in the space.
Given this threat, some entrepreneurs feel they need to extend their product line fast to stand a chance against giants. But biting off more than one can chew is a common pitfall, especially for early-stage entrepreneurs. You have been both singularly focused and diversified at different times. How should entrepreneurs choose between these two paths?
Sunny:
I have not built a giant company, so my experience may not help those aspiring to create a business empire. But if you want to build a solid startup with a high chance of success, I have a few things to say.
To improve your young startup's success rate, undoubtedly focus on making one product great first; until then, don't think about diversifying or building a "platform business". 99.99% of companies that rushed to do so have died miserably.
As an early stage startup, how can you disperse your few dozen or hundred people and limited capital into multiple fields and still win against more resource-rich competitors? Only by pooling all you have into a narrow field may you become the undisputed king there. And only then, should you consider diversification.
If at that point you find it tough to expand horizontally, don’t hesitate - sell your company to a larger platform, making it part of something bigger.
The risk of specializing is that industry shifts could wipe out your chosen segment overnight. But this risk is unavoidable and you have to live with it as a founder. A smart entrepreneur would stay vigilant and pivot or exit before this occurs.
Sophie:
As a fintech entrepreneur across China and the US, have you observed major differences between the two tech ecosystems?
Sunny:
To me, US entrepreneurs seem more idealistic - they want to change the world, disrupt industries, and do imaginative things. Chinese entrepreneurs are relatively more pragmatic, generally pursuing sectors with more proven demand.
Sophie:
I imagine a great entrepreneur better combines both ways of thinking! A great reason why both sides may benefit from conversations and idea exchanges.
Thank you very much for sharing today! I hope our audience enjoyed hearing about your founder journey and visions for cross-border financial services of the future.
Sunny:
Thank you Sophie.