Remember the last time you were in charge of buying a gift for a co-worker? Or collecting money to organize a bachelor party of your best friend? A French start-up called Leetchi.com, a platform for online group payments has just made your life easier. With over 3 million frequent users and four language versions (French, English, Spanish and German), Leetchi aims to become the group payment platform of choice for Europeans. And although there is still a room to growth, recent acquisition by the Crédit Mutuel Arkéa for a rumored price of $56 million (for 86 percent of the company) will certainly give it the dry powder to grow.
How it works
Leetchi is very simple. You can register for free, open an online pot of $$, set a target (or a minimum) you want to raise and invite friends to contribute (via email, Facebook or link). Done collecting? You can just transfer the money to your bank account, buy gifts through Leetchi.com with participating merchants or pay the person you were raising for directly. Still confused? See this.
The more the merrier
Leetchi exhibits strong direct network effects. The higher the number of users participating, the more it becomes the platform of choice for birthday gifts, weddings and other special occasions. Signing up is easy, with an option to log in using your Facebook account. Once the account is set up, users can store their payment details (credit or debit card) and contribute to a particular pot with one click. In line with other online payment platforms such as Venmo, Leetchi aims at creating social context around payments. For instance, once you set up a money pot for a friend, you can exchange messages and ideas as well as see how much the group has raised so far. Finally, while building the user base, founders have not forgotten about security concerns. In 2013 the company launched an e-wallet solution called Mangopay that has since been extended for other marketplaces beyond Leetchi.
Building momentum for the two-sided platform
Looking at PayPal, Leetchi knows how easy it is to loose to the “next best thing” in the world of online payments. That is why the company worked hard to sign up merchants, including the French Amazon, allowing users to purchase on Leetchi.com directly. For merchants it is an opportunity to reach customers that are already thinking about purchasing, in contrast to less targeted ads on social media. The bigger the group of users Leetchi is able to attract, the stronger will be the incentive for merchants to sign up for the platform. For customers on the other hand, there is a financial incentive to use merchants signed with Leetchi. When users buy through Leetchi, they don’t pay anything to the platform. Conversely, to transfer the money pot to a bank account, a user will incur a fee of ranging 2.9%-4% of collected amount.
As Leetchi is tapping other European markets beyond France, it will encounter several challenges. The first-mover advantage it enjoys at home might be difficult to replicate abroad. Winning users as well as signing merchants in less familiar markets might slow down the user adoption and give ample time for competition to enter. In addition, any online giant (such as Google, PayPal, and Facebook) or even a credit card company may enter this lucrative market with much more money to spend on R&D. Nevertheless, Leetchi can hope that by the time the competition has caught up, the platform will have a critical mass of devout users, unwilling to switch to anything else.