Recently FinTech definition has become a major trend. Financial technology or simply FinTech is a recent technological innovation that seeks to better the financial world through the introduction and usage of technology to the world of finance. The predominant feature of FinTech is to combine both new and existing financial and technological features to provide effective services in the areas of online payments, mobile transactions, and smooth financial management.
Starting a Fintech company is a great idea, especially if:
Currently, you are working in the FinTech industry and would like to expand your skills and practice to arrange your own business;
You have been actively using the benefits of the FinTech, so you can easily identify the challenges in banking industry as well as challenges facing financial managers today. Eventually, that will enable you to come up with a bold and innovative approach;
FinTech is a great solution to various bureaucratic problems. In that case, if you run a business in other spheres (for example, healthcare) than you can easily incorporate the best practices of the FinTech to improve your strategic menegement process.
How to Start FinTech Business
FinTech stands for technological innovation in the financial services sector. The role of the FinTech companies is to utilize technology as extensively as possible for easing out various financial processes.
Our team understands the importance of being differentiated from the other already existed startups. Therefore, we picked up several crucial steps that will help you to build a FinTech startup from scratchusing innovative technology of today.
1. Distinguish your niche
FinTech is a complex and big sphere which is quite hard to cover at once. You need to identify your niche first, in order to shape the successful and effective business strategy. The typical classification contains six domains:
Capital raising is providing customers with access to investments and raising capital either in exchange for equity or in return of interest rates. This domain might be further divided into crowdfunding (focuses on helping companies and entrepreneurs to raise capital for the business products or projects) and alternative financing (refers to innovative ways to raise capital without going to a traditional financial institution).
Deposit and lending focus on loans and management of the finances and savings. It consists of 1) personal finance (budgeting and managing financial activities of individuals and households) 2) digital banking (online services to pay bills, transfer funds, etc.) 3) alternative lending (it compliments the other by focusing on providing customers with credit scores and peer-to-peer loans without going to traditional financial institutions).
Enterprise financial software includes IT solutions made for the financial sector. It subdivides to collaboration and workflow software (cloud-based solutions that enable better communication of internal process in the company), accounting and invoicing software (helps financial institutions to improve the time and resources spent on the bookkeeping and invoicing process), data and analytics software (regulates cybersecurity issues).
Investment management is a service that helps private and institutional investors in the process of buying, selling and managing assets and securities.
Market provision focus on improving the transparency of information in the market to ease the connection between buyers and sellers.
Payments are about payment services including payment processing providers, solutions for accepting electronic payments, point of sale terminals, and card providers and mobile payments. Consumer payments include mobile wallets and seamless payment solution to enable payers to pay on the go and peer-to-peer transfer of money. Cryptocurrency provides access to digital cryptocurrency markets such as Bitcoin.
We provide a broad domains’ specification, so you will have a clear vision of the FinTech ecosystem. In addition, you may target a specific audience depending on a state or demographic group within the choosing domain. We advise you to launch your startup locally first, and aftermath you can expand to the international market.
2. Know the regulations
Banking and FinTech industry is highly regulated. Therefore, you need to know all the peculiarities and specification of this highly complex sphere including the legal regulations, laws, limitations, and requirements. Note, that legislation may differ from state to state (or even from city to city), therefore if you oriented on the global launch, please do proper research on the matter of legislation differences. Without the proper knowledge, the legislation system and regulations to build a truly successful business will be impossible.
3. Discover your competitive advantage
The market of FinTech is quite competitive, therefore you need to think about the unique value or competitive advantage of your startup. As soon as you have chosen your niche, get to know your competitors. Learn what they offer new to a customer. Then think of what innovative approach you can offer and contribute to the FinTech market. This can be a completely new product targeting a specific niche market (e.g. financial services for a specific group) or simply improving the quality of an existing offering (e.g. faster and more convenient mobile banking.
4. Hire the right people
No idea, however great it is, could not survive without the team of professionals. Devs, designers, marketing and sales managers are working hard on building and maintaining the product’s brand. Consequently, skilled talents would choose the right tech stack for FinTech development. In fact, the tech stack is equivalent to the building’s foundation - well build and a strong foundation for the whole project that will be built upon it. The right technology will guarantee the effective scaling as well as refactoring processes, the new features could be added easily without breaking the existing ones, the code base will be easy to maintain and iteration will be quite fast.
It might be challenging to find the skilled team if your location has a limited talent pool. Another issue is that experienced devs’ services in the US might cost quite expensive. In that case, the practice of outsourcing might be a great solution. Therefore, hiring a software development team or a freelancer from another region or a state will be more cost-effective. For example, nowadays Eastern Europe became a source of skilled professionals with a solid work ethic and tech background. Consider contacting one of the companies or a freelancer from this region to save your money with no harm to the quality of your product.
Read our article “Freelancer vs Web Development Company: what to choose?”
Some business owners tend to neglect this step, however, we suggest considering MVP as a crucial step in a new product development process. MVP is a cheaper, faster and more effective way to launch your product as soon as possible with a minimum features. MVP should include only basic features of the product so the user will get the purpose of this app and will be able to test it. This practice will allow you to get the first users’ feedbacks, so later, you could improve existing features and add new ones.
Read our article “How to create an MVP”
6. Building a partnership is a key
It will be a great practice to develop alliances with relevant financial institutions for future cooperation and support. Due to the fact, it could be hard for users to trust a newly emerging entity, so a partner relationship is a great solution to gain credibility. Financial institutions usually have brand recognition, large customer base, a wide range of product offerings, robust infrastructure, licenses to provide regulated financial services, etc. While FintTech startup is focusing on the culture of innovation, modern IT system, agility to market, specialized solutions, etc. Therefore, such a collaboration will provide benefits for both sides and resulted in a new business approach.
FinTech Startup Challenges
Like any startup development, there will be certain challenges that new business needs to overcome. Note that FinTech startup challenges are mostly related to the transformative nature of digital technologies. Therefore, we picked up the biggest issues the digital finance may face.
Cybersecurity. FinTech services require to contain personal and sensitive data, therefore data breaches are not acceptable in this business. For the security of the financial data, the blockchain might be an effective solution. While many companies incorporate distributed ledger technology (DLT), we suggest adopting blockchain technology.
Blockchain integration. As it was mentioned earlier blockchain as a key component for data security. In addition, blockchain has massive value in banking and investment apps all over the world. From solving challenges faced by investment banks to helping customers make safer payment transactions, the list is growing daily.
Big Data Usage. Using big data is both opportunities and obstacles for providing financial services online. In fact, lack of centralized data is a major challenge for FinTech industry. It is not an easy task sorting through torrents of unstructured data for useful information. It requires to implement powerful data analytics technology. Consider using a wide range of data analytics solutions to transform asset management, trading, risk management, and other financial services.
AI use in finance. Currently, AI is transforming all spheres of life including the financial sector. Implementing automated wealth management, customer verification, and open banking might provide opportunities for business development.
Read our article “Top 5 Startup Challenges and How to Deal With Them”
Top 5 Influencers You Need To Know
Like every industry, over time the operation of FinTech has been improved and contributed by influencers. The people who shaped the industry and continue spreading ideas and information related to FinTech. Our approach is to learn from the best, therefore we picked up top 5 influencers, so you could be familiar with the works and ideas of those people for your own benefits.
Chris Gledhill is generally recognized to be the world’s top ranking authority on FinTech. He regularly delivers speeches and writes articles about digital banking, finance, and what lies ahead for financial institutions. Chris was lead mobile architect and led the disruptive innovation labs at Lloyds Banking Group before becoming CEO and Co-Founder of FinTech Startup Secco. Chris has both a technical & business background with expertise spanning a wide range of disruptive technologies including Blockchain, AI, API, Big Data, Deep Learning, Virtual Reality, CryptoCurrencies, Biometrics, Mobile & Wearables.
Brett King is a world-renowned futurist and speaker, an International Bestselling Author, and a media personality who covers the future of business, technology and society. President Xi Jinping cited his book Augmented on the topic of Artificial Intelligence. He has spoken in over 50 countries, at TED conferences, given opening keynotes for Wired, Techsauce, Singularity University, Web Summit, The Economist, IBM's World of Watson, CES, SIBOS and many more. He has appeared as a commentator on CNBC, BBC, ABC, Fox, and Bloomberg. He previously advised the Obama administration on Fintech policy and advises regulators and bank boards around the world on technology transformation.
Chris Skinner is a writer and financial commentator. He has written several books, including the best seller “Digital Bank”, where he speaks about the relationship between technologies and the banking field. Moreover, in his professional blog Mr. Skinner discussed and analyses challenges and changes that are happening in the world of finance. Chair of the European networking forum the Financial Services Club, which he founded in 2004. The Financial Services Club is a network for financial professionals and focuses on the future of financial services through the delivery of research, analysis, commentary and debate. Chris is known for speaking and keynote presentations at leading industry forums. Through these keynotes, he has presented alongside many other leading world figures including Jack Dorsey, Will.i.am, Hillary Clinton, Richard Branson, Meg Whitman, Bill Gates and Sir Clive Woodward.
Jim Marous is one of the most influential people in banking and a Top 5 Fintech Influencer to Follow. He is an internationally recognized financial industry strategist, co-publisher of The Financial Brand and the owner and publisher of the Digital Banking Report. Marous advises on innovation, portfolio growth, customer experience, marketing strategies, channel shift, payments and digital transformation within the financial services industry. He is a contributor to Forbes and has been featured by CNBC and CNN, The Wall Street Journal, New York Times, The Financial Times, The Economist, The American Banker, Accenture and the Irish Tech News and has spoken to audiences worldwide. Jim has also advised the White House on banking policy and is a regular contributor to several publications and podcasts.
He is a FinTech strategist, thought leader and practitioner in the digital banking space. Bradley Leimer is Co-Founder of Unconventional Ventures, which connects founders to funders, provides mentorship to entrepreneurs, advisory to corporates, and broadens opportunities for diversity within the ecosystem. As the former Head of Innovation and Fintech Strategy at Santander U.S., his team connected the bank to the FinTech ecosystem and served as an observatory for the global organization for trends originating in the U.S. that have potential to expand and accelerate globally. He adds additional perspective leading marketing and technology teams and projects within the bank and credit union industry and from a decade driving database marketing and analytic programs.
FinTech is the combination of the existing financial features along with the new technological opportunities. It is a great industry to start your business, whether you have experience working in the industry, you have been actively using the benefits of the FinTech and want to bring an innovative approach to it or you simply sees FinTech as a solution to various bureaucratic problems for your ongoing business.
In order to start FinTech business, you need to distinguish the niche, be familiar with regulations and legislation (which are different from state to state), identify your competitive advantages, hire the right skilled team for the tech development, launching the MVP and building a partnership with financial institutions for sustainable development. We advise you to take a look and learn from the best influencers in this industry, such as Chris Gledhill, Brett King, Chris Skinner, Jim Marous and Bradley Leimer.
If you have any questions or you think about your own FinTech startup, contact our team, and will help you in any inquiry.