Finance technology, from ecommerce security to mobile applications, has become extremelAs of February 2015, bank spending on new technologies in North America was projected to reach 17 billion U.S. dollars in 2015 and increase to 19.9 billion in 2017.y competitive over the last decade and it’s a trend that is only going up.” With such a competitive and crowded landscape getting your fintech startup off the ground and profitable can come down to some basic strategy.
1. Keep your Idea Flexible at all Stages of Development and Promotion
Ideas are always changing and always need to be adapted to a given situation. The best fintech startups know this and take full advantage of it. If your startup is working on a method for introducing crowdfunding to a whole new clientele, it should focus on accomplishing that goal, not all of the ‘bells and whistles’ of a brand or what you see your company achieving in the future.
Most of the time, most successful ideas have to be shaped around and made to fit the needs of a partner or venture capital. Refusing to be flexible shuts the door on a powerful opportunity. Remember, the goal of the game is to make money. This is business. Treat it as such.
2. Encourage Banks to Focus on Core Technology and Leverage 3rd Party Applications
As large banks throughout Europe create incubators to chase the new trend in banking API, fintech startups offer the best opportunity for those traditional banks to continue to service their customers, while the powerful APIs do all of the work for them.
Consider a company like Kontomatik who offers an API that allows developers to securely and rapidly make use of powerful data from banks’ customers; data that is largely untapped today. This Polish fintech company makes it easy for reliable and consistent use of data to be utilized in a number of different ways, including card-linked marketing. Banks and other financial institutions stand to benefit dramatically from this use of technology. Encourage its recognition and growth.
3. Don’t Try to Destroy Banks, Exploit their Weaknesses!
Banks are stalwarts of keeping accounts simple and predictable for their clients. As they transition from beautiful buildings in your local town to a total service financial assistance company, consider placing your fintech startup right in the middle of the action. In this transition, banks are looking for new ways to predict client’s behavior and provide real time advice in their spending and saving. They also want to comfortably introduce better account protection to an audience that is savvy on privacy and security.
One of the most common areas that banks are inefficient in is foreign exchange. Few people play the foreign exchange market as an investment within their normal bank accounts, but quite a few people work and live in different countries or enjoy taking regular holidays abroad. In each circumstance, money has to be exchanged and very often the rate is hardly competitive.
Companies like Transferwise – who have raised more than $90 million in funding from entrepreneurs such as Richard Branson – have made a powerful impact on improving this inefficiency, offering clients far better exchange rates. Instead of exchanging the currency with the consumer, Transferwise pairs consumers together and allows each party to trade the currency they want to get rid of in exchange for the currency they want to own. It’s not rocket science, yet it works.
4. Focus on the Boring Stuff that Makes Money
Cutting costs and improving efficiency. Any financial institution who sees an opportunity to do one or both of these two strategies is far more likely to partner with a fintech startup than those with arcane ideas, trying to change the world. Often it can take years and millions of dollars in debt to bring that incredible life-changing idea to the market. By then it’s too late. No one cares anymore.
Instead reflect on how some of the hottest fintech companies are making money today. They study small instances in which they can provide a product or service that cuts costs and improves efficiency for a potential client. Successful startups can look forward to long-term retainers and contracts by following that principle.
5. Remember How Old Fashioned Financial Services are and Respect it
Most financial services companies (retail banks) focus simply on providing their clients with accounts to meet their day-to-day needs. Most users seem to think they want the bare minimum and most banks are satisfied to provide it. Start thinking about the core of what retail users want in the simplest of financial terms.
Meniga does this in an exceptional easy way. Based in Iceland, this fintech startup has partnered with Santander – Europe’s largest bank – to offer their services to retail banks on a subscription basis. What’s the buzz surrounding this fintech? They simply provide a money management software for the banks’ clients. That’s it. What makes the old fashioned service so successful is that it utilizes the demand that clients of the old-fashioned banks have, while utilizing the familiarity of an app akin to the familiarity of a Facebook feed for users. Nothing is shared or social, but the software acts in a way that is both comfortable and familiar to users, allowing them to swallow the often dreaded and ignored topic of personal finance. This could have major implications for a more healthy relationship between people and their financial activities.
6. Cut Costs whenever Possible but Never Skimp on the Most Important Services
Most fintech startups are going to waste capital and resources on the company’s blog, social media accounts, and duking it out with other fintech entrepreneurs over the internet when they should be focused on improving the product or service at all angles. The absolute easiest way for these startups to save money to is to only focus on those projects that improve the idea forward. Yes, advertising will eventually be necessary and no one is likely to find your game changing technology without some SEO and social clout on Twitter. That stuff can wait until you have a tested model that can be implemented and shown off to venture capitalists.
The costs you will not want to skimp out on are all of those associated with compliance and the legal elements. Forming a relationship with a financial institution to share with them your data, product, or service on any number of levels not limited to licensing and subscription services will require a stalwart legal team. Covering your butt here could save millions in the future!
7. Tackle Specific Real Problems in the Real World, not just Vague Ideas
One of the biggest financial problems in The United States is the growing student loan crisis. Several years ago this debt eclipsed national credit card debt and it doesn’t look like it’s going to slow down any time soon. Consider a startup like CommonBond, which acts as a refinancing company for graduates who need help. Their solution is simple, look beyond the credit score and assess a borrower’s’ other attributes such as their work history and the money they’ve held in a savings account. This company is using their world changing ideas to tackle a specific problem with a specific solution.
8. Value Retail Customer’s Time by Fixing Automation
As the twenty-first century speeds along with world-changing technology it becomes clearly and clearer that our lives are getting easier and at the same time busier. Technology improves our lives while demanding more from us. From the smartphones we use every day to the eventual self-driving cars produced by Google, we are presented with a better use of our time. Time might become the new currency of the future and fintech startups would be wise to work on projects that respect retail client’s time. Automation respects that valuable time.
An excellent example in fintech automation is the quietly successful Stripe. Stripe allows users to accept payments through their website or merchant store, often with the implementation of a single piece of code. Simplicity is powerful and financially valuable. Consider technologies that encourage automation whenever possible.
9. Be Careful Handling Other People’s Physical Money
The central theme in this guide seems to suggest that rather than replacing the banks and trying to do their business better than them, fintech startups should at least start off by working in close concert with the financial institutions. Aside from the myriad reasons laid out, a growing number of fintech startups are running into trouble by trying to replace the bank completely by being the client’s personal bank vault.
Handling other people’s money brings forth a whole new breed of legal precedent that will eat away at time and money, not to mention legal fees that will cause even the best funded startups to sink. The regulatory licensing required to act as an investment trading service or money transfer company is bound to take up thousands in legal fees and likely years before a decision can be made. That said, There are plenty of peer-to-peer and micro lending companies that are succeeding at handling money. Make sure that is the right path for you.
10. Ideas and Data May Require Licensing, Tread Carefully
One of the many reasons fintech startups can use the assistance of venture capital is the suite of market data and information they can provide the budding entrepreneur. Just because you’ve read it free online doesn’t make it eligible for copying or even simply using. Make no mistake, data, no matter who it is received is intellectual property.
Market data is absolutely paramount to identifying a niche problem and exploiting the opportunity to make money. This is especially true for fintech startups focusing on the capital markets and equities. Before utilizing any data to build a model or service product, ensure you have the right licensing for commercial use. Venture capitalists will pull funding before you even get started if they find you’re in violation of scraped data.