The Moat in Payments Is Not UX
FX & Float: Operator Note
Most fintech pitch decks start with better UX as a core proposition – they have better onboarding, cleaner dashboards, and fewer clicks to send a payment, and this will win them customers. The implicit pitch being made is that better UX is a competitive advantage. This is not correct. In payments, while UX is necessary and table stakes, it is never a moat.
The reason for this misconception is that the biggest fintech success stories of the last decade all had exceptional UX - Wise, Revolut, Nubank, and Chime. It is natural to look at them and conclude that their UX was the competitive advantage. But this confuses correlation with causation. These companies won because of their structural choices and implementation (Wise’s pre-funded local accounts, Revolut’s multi-currency architecture) that happened to come with great UX.
Yes, the real moats in payments are how the underlying infrastructure is built.
Licensing. A payments company with Money Transmitter Licences in 48 US states, FCA authorisation in the UK, and MAS registration in Singapore has spent years of effort and millions of dollars building a regulatory footprint that cannot be replicated quickly. A new entrant cannot ship this in a sprint.
Banking relationships. Cross-border payments require reliable correspondent banking partners in every corridor. These relationships take months to establish and years to build trust, and are governed by varying risk appetites for every corridor. A network across dozens of corridors is an advantage that is not easy to duplicate.
Pre-funded local accounts. To offer fast settlement, a payments company needs to hold funds in local currency in the destination country. The company with pre-funded accounts in 30 countries settles in hours. The company, without them, relies on correspondent chains that take days to settle.
Integration depth. Once a business customer has integrated through API and built workflows around your data formats, switching is a major operational effort. The deeper the payments company is embedded, the higher the switching cost.
This is also why building a payments product on top of someone else’s infrastructure is not a viable long-term strategy. Using a BaaS partner’s licence, an aggregator’s banking relationships, and a third party’s settlement network helps with a fast launch. But every structural moat belongs to someone else. The fintech controls the UX and the customer relationship, but nothing underneath. The BaaS partner controls the licence, the aggregator controls the banking relationships, and the settlement provider controls the speed.
This means two things. First, the cost structure is permanently higher because every layer includes the partner’s margin. Second, the dependency on these partners is existential for the fintech. If the BaaS provider loses its licence, the aggregator renegotiates the terms, or the settlement partner deprioritises a corridor, the fintech’s business is severely impeded.
The borrowed model works as a quick launch strategy. But every serious fintech has to build its own licensing, its own banking relationships, and its own settlement infrastructure. The sooner this process starts, the better. The longer it is deferred, the more dependent the fintech becomes on the partners.
A beautiful UX on borrowed infrastructure is like building your ambitious storefront on rented land. The landlord can raise the rent, sell the building, or shut it down. And you will have no say in the matter.