What is a Fintech Startup?
A Fintech startup is an emerging business often five years old or less that uses technology to provide financial services like paying for an item through the phone. Fintech businesses are increasingly popular due to the convenience, efficiency and cheaper solutions they offer. While creating a successful Fintech startup, it needs to solve a gap in the market either by providing something new or better than what is already available.
An example of a problem solved was Stripe which caters to online payments. Patrick and John Collison realised the difficulty web developers went through when adding a payment system to the site. The solution focused on making the setup easy and adding relevant development tools that swiftly transformed Stripe into a $36 billion fintech giant.
9 Steps to take to start a fintech company
01. Identify your niche
Fintech is a broad industry thus finding gaps to solve are many. However, solving too many problems at once will result in failure thus the need for clarity and starting small and growing to solve other issues. The following questions can help you choose the specific niche for your fintech startup:
- What is the sector in the fintech industry that you are passionate about?( payments, crypto exchanges Insurance, regtech etc.
- Who are you targeting? Is it a certain demographic group, specific country, region, or it’s a global product?
- What is your expertise in this industry?
- What are the individual benefits your FinTech app suggests? Do you have an X-factor that stands out?
- Duplicating another solution from the market has more disadvantages than advantages thus the need to understand why you are solving this problem.
02. Consider the company’s location
After understanding the problem and target customers, the startup has to be created either in a physical location, online or both. This is because some companies may start out as remote or physical offices. The following questions can help you choose the location:
- Do you want to launch the fintech company first locally and then globally?
- What market are you focused on? A country in a regional bloc that allows ease of entry like the EU region. The bottom line is the potential to enter two significant markets at once.
- What are the applicable taxes and requirements needed? In some areas the area is unregulated thus a lot to consider on taxation
- Consider the cost of maintaining the company relative to the potential benefits.
03. Know the regulations
You should learn about various laws and how they will impact your business if you plan to launch a startup accessible globally such as labour, company profits and use of data. It is important to know the ins and outs of the fintech and banking industries since they are highly regulated. There are many laws governing the industry, such as the anti-money laundering (AML) policies, Payment Card Industry Data Security Standard (PCI DSS), Know Your Customer (KYC), and The General Data Protection Regulation (GDPR).
04. Know your licenses
A license is a document from a country’s authorities that allows you to work legally in finance. These vary depending on the niche sector you are in. The choice of a particular license depends on price, the amount of preparatory work and the range of services you will be able to provide
05. Know your competitors
The new product you offer should be unique and address a specific gap in that sector. Alternatively, you may fail to introduce something new but improve the quality of what is already there. Take, for example, mobile banking, with your new product, you can make it fast and simple compared to what other companies are doing.
06. Build a team
Individuals who come up with an idea may decide to bring in experiences close acquaintances to join the company or have a chance to outsource some services such as app development. Most startups have one to two co-founders while fewer startups have more than three co-founders. Having a founding team is vital and impacts the creation of the minimum viable product to the exit or scale of the company.
The skills and characters of the founding team are important as well. To have a strong founding team, having a vision is important, but also being a specialist or expert in the business is always a plus.
These qualities ensure that the right customers buy the product sustainably allowing the company to grow. In Fintech startups, the key skills needed are engineering and business expertise. At this point, it is important to decide on the equity stake of the company which can be done divided into two:
The Founder’s part which should be equal unless the contributions were different or the co-founders joined at different times
The skills part or the expertise level of different team members, which may be different, thus impacting the equity stake and needs to be decided.
07. Choose your funding options
There are many ways of getting money for your fintech startup. These include crowdsourcing, bank loans, venture capital, angel investors, startup competition, among others.
However, you need to have a minimum viable product (MVP) that serves as a proof concept. Minimum Viable Product is a basic version of your software product that provides value to the customers. The funds from MVP are enough to build software or app for your target market. Most fintech giants started that way since startups with a viable product indicate potential to investors, founders get feedback from customers and there is an efficient use of time, effort and money.
After a viable MVP is created, the next step is upgrading the product and implementing the company’s vision. However, most startups do not have the capital for this stage, therefore Fintech founders look for suitable funding options.
08. Choose your tech stack
When it comes to putting together the right technology stack it is important to consider that when something is ‘good’, fast and cheap aren’t always possible. To make the right decision it is worthwhile to consider 3rd party out-of-the-box solutions, serverless architecture, rapid development tools, technology with good documentation and a big community and cooperation with the right development team.
09. Build and improve
This is an ongoing process that stretches forward into the future. The best path is to start small and keep on improving your product in order to reduce the risk of failing rushing into this saturated and highly competitive fintech market. This process involves launching your startup, starting its operation, improving its processes and products, adopting new technologies and trends as well as embracing change from time to time. The monetization model is key in this process as pricing options of your solutions will promote your startup sustainability while attracting customers.
Fintech Startup Ideas
It is important to understand the technology you are using to ensure the problem is solved effectively. The commonly used technologies are blockchain, Big data, cybersecurity and artificial intelligence. These technologies are used to implement ideas and scale startups exponentially. Here are the most popular Fintech start up ideas thriving in 2022:
01. Digital payments
This is the largest sector in the fintech industry because they made it easy, faster, and safe for customers to process financial transactions across the world. Digital payments solutions comprise of digital currencies, online payment systems, and e-wallets. PayPal , Google Pay, Apple Pay , Zelle, Venmo, Payoneer are some of the popular platforms that deal with digital payments.
02. Crypto Exchange Platform
Companies earn money by charging transaction fees and commissions from trading cryptocurrencies like Bitcoin, Ethereum, etc., for fiat currencies. Some types of crypto exchange sites you might consider creating include: Centralised exchanges, Decentralised exchanges, Peer to peer exchanges and Instant exchanges. Some cryptocurrency exchange platforms include Binance, Coinbase, Fundsbarter, bitFlyer, and Bitfinex.
Crowdfunding is a popular form of fundraising, and it’s been used for a variety of reasons to support individuals and businesses, to support NFT projects etc. This is one of the funding options used by individuals and startups that is increasingly popular. The options in the crowdfunding platforms include: Donation-based, Reward-based, Lending-based and Equity-based. Kickstarter, Indiegogo, Patreon, Crowdfunder are some of the popular platforms that deal with crowdfunding.
04. Personal finance apps
Today, robo-advisers offering assistance on investments, retirement, and savings are gradually becoming mainstream. Apps like Mint, BillTracker and Ibotta bring customers an overview of their finances, including loans, credit card accounts, and investments.
Innovative technologies are helping to solve regulatory issues. Businesses are now able to automate KYB, KYC, AML as well as other compliance checks. They can also monitor ongoing processes while ensuring compliance with regulatory requirements. It has also helped them to minimise human error risks. Cappitech, Onfido, Suade, Fenergo are some of the popular platforms that deal with RegTech.
Companies focusing on investing handle other financial tasks such as track spending, reduce wastage and even make financial suggestions in real-time. A revolutionary feature that most top investment apps have is one that allows users to monitor their bank accounts. Here are some Investment apps that are currently making waves: Robinhood, Webull, Betterment, Acorns and Wealthfront are some of the popular platforms that deal with investments.
Benefits of launching your fintech startup today
- There is a high rate of adoption thus a growing customer base interested in Fintech solutions
- Existence of a wide range of technology to choose from promoting the creation of effective and relevant solutions
- Incorporation in major industries due to the many uses of Fintech solutions both internally in companies and externally
Having an idea in the Fintech industry is the first step to entering the industry. Additionally, it is important to continually network and learn about the industry and sector to continually grow.