FinTech Software Has Evolved. Why Hasn’t Hardware?
That’s when we asked ourselves, what if we built a point-of-sale device, made for consumers, that was simple, convenient, and secure? What if, for less than $50, we could eliminate coins & reduce fraud? And why is it that merchant’s are charged 3% for accepting credit cards? They have to pass those costs down to consumers.
It turns out, we can. All we need is a camera, screen, user interface, and coin counter connected to the internet. Here is an interactive overview of the $50 design. It solves one of the industry’s biggest problems today & puts itself in a position to adopt the leading payment and security trends going into tomorrow.
1 Embedded Hardware Device Enables 2 Very Different Revenue Streams
Our hardware design enables us to create & capture an enormous amount of economic value that can’t be tapped into by software alone. Initially, it’s best to think of CoinDrop as two largely independent business units / revenue streams, on a single PayPal-like platform, that are made possible by our hardware. One involves a dying trend (coins) with high-margins due to consumer price insensitivity. The other is a long-term revenue stream in the growing field of biometric security for payments.
The unit economics of CoinDrop are very attractive and outlined below. Links are available to the financial models supporting these numbers, and we encourage you to make a copy of the workbooks and edit the assumptions as you see fit. We are very confident that you will arrive at the same conclusion we have: even under aggressively conservative assumptions, the payback period of our hardware is incredibly short. This in turn means that the capital requirement to penetrate the addressable market shown above is nearly risk-free. We of course plan to learn to walk first via a pilot (details on that further down). But when the time is right for us to run, this means that the $25M – $50M total capital requirement can been seen as a relatively low-risk investment with a potential upside of roughly $200B (~20% of the US payment industry within our addressable market). Amazon recently announced they will be adding palm readers for payments in Whole Foods. CoinDrop is better prepared to win in this space, as it is able to subsidize the hardware cost using coins. Let me explain:
Financials: Coin Revenue Stream
Objective: Break Even on Hardware as Market Slows
- Conservative Assumptions: 8% commission rate (CoinStar charges 10%).
- Low Estimate: even if no coins are brought from home, and we get only 1 drop per day, per device, the hardware pays itself off in 3.5 years, representing a 28% rate of return. At the current 2% rate of return on treasuries, we only need 1 drop of 50 cents per week (20 year payback period).
- High Estimate: $400 net coin outflow / week (fast food store data) = ~ $50 / day = $5 / hour = 10 possible drops per hour
- If everyone receiving coins dropped them, the payback period is under a month (an unfathomable return).
Financials: Payment Revenue Stream
Objective: Acquire Non-Cash Paying Customers for Full Long-Term Value
- Conservative Assumptions: 2% discount rate, 10 year customer life, 1% made on payments, 20% addressable payments market
- Low Estimate: 11 year payback period (7.5 % rate of return)
- Consumers prefer taking out their phone/wallet to pay & must be bought for $80
- Competitors copy the strategy and CoinDrop only establishes 30% of this low $ and high frequency payment micro-segment.
- High Estimate: 0.4 year payback period (250% rate of return)
- Consumers see it as a more convenient way to pay. Avg customer acquisition cost is $10, or half off a few value meals on their next 2 visits if paying via CoinDrop.
- CoinDrop scales quickly and penetrates 90% of the addressable market (long tail of small payments).
Go-To-Market Strategy, Fixed Costs, & Obstacles Ahead
We are in the early stage of a partnership discussion with a national franchise and are seeking seed funding from an investor that aligns with our vision & core values. The regulatory barriers to entry in the payment industry are not trivial and must be overcome before we can pilot our prototype & platform with the franchise. While cash still represents about a third of payments under $20, that number is shrinking and our biggest risk is time. I can be reached at email@example.com if you’d like to see a demo of the platform & discuss further.