With the impressive growth being recorded in the Fintech sector, more and more people are deciding to take the leap and start creating their own startup or company that implements the latest technological innovations in the financial sector.
China and India have had the most growth in this sector with 84.4% and 76.9% adoption rate recorded respectively, according to data from Carsurance.
For entrepreneurs, the only way to contribute to this budding sector is to join the moving train. So, how do you kickstart a startup business and incorporate Fintech cheaply right from the beginning?
In this article, the reader will be able to understand the changing scenario in which Fintech companies evolve and will know first-hand how to start a Fintech startup, the sectors that have the greatest potential and the different options currently available to obtain financing.
Steps to Starting Your Fintech Company
1. Identify the opportunity
Finding an opportunity is something that goes a long way from copying and doing more of the same. A selling Fintech idea involves acting exactly where financial services are outdated. All you need do is find that breach in the market and attack with an innovative service offering.
2. Focus on innovation
If you really want to succeed, you will have to make a difference, offer something completely new, not a product that already exists with a different name.
You have to make a product differentiation by asking yourself: what makes the product or service you offer so special? What differentiates it from the rest of the products in the market?
To carry out differentiation of your product successfully, you must develop a marketing strategy so that final and potential consumers really perceive it as something innovative, useful and that revolutionizes their lives.
Just as Facebook or Apple created innovative products at the time and knew how to differentiate when new competitors appeared, You have to find an idea and work hard to materialize it.
3. Create solutions that cover existing needs with your product
Many Fintech companies have taken advantage of market niches not covered by the traditional banking sector. For example, savings applications and fast online loan companies allow you to cover unforeseen expenses of small amounts or to better control our personal finances, etc.
4. Focus on technology
It could not be any different, as the name itself says. Fintechs should provide financial services in the simplest possible way. Today, we have the handsets that carry most of our lives.
Why make your clients go to an agency to request a card or open an account, if we have in our pockets smartphones that are able to solve all this, without even having to make a call?
But technology should not be involved only in the sales processes. You also need to provide more innovative methods of customer service, inquiries, security and any other non-financial process.
5. Recruit the best new talents
Many of the clients in the FinTech sector are millennials or members of the so-called “Z Generation.” Although they represent a good percentage of the total, it depends on the product we create and who our target will be.
There is no better way to understand how they think, what their tastes and preferences are than recruiting the best programmers, analysts, marketing experts and economists of this generation for your startup.
6. Eliminate bureaucracy
Completely eliminating bureaucracy in your structuring is almost impossible. However, since most of the processes after launching your Fintech product are automated, it is necessary to do this so as to cut expenses.
Doing this can help you at least break even from the start and achieve an ROI in the nearest time. You can definitely find ways to eliminate processes for delivering documents, mailings, customer service, etc.
Some Helpful Tips
Before putting fintech structuring into practice, some details – common to all niche markets – should be observed and studied.
- Never start a business without knowing the laws that regulate the service provided. As for the financial market, knowing the legal parameters to carry out the work is vital.
- Do not forget the competition. A market study is critical for you to be able to identify the opportunity – as we said above – and also to be one step ahead of the direct competitors.
After structuring, it is important that you keep good practices. With these tips, you can put into practice the correct structuring of your new or existing Fintech company.
Difficulties and Challenges in Kickstarting a Fintech-based Company
The initial phase is undoubtedly one of the most complicated for the vast majority of business projects since it requires a strong injection of capital and many hours of work. Sometimes, the results are not appreciated immediately, but take several months to manifest.
Within the variety of difficulties and challenges we encounter when creating a new company in the Fintech sector, the following stand out:
1. Entry Barriers (competition)
There are two most common barriers to entry when creating a Fintech company or startup. The first of them are the competitors of the sector which vary depending on the niche of the market in which we find ourselves.
The second is the competitors who are “seemingly oblivious” to the sector. These are, for example, traditional banks that have not yet defined their position on Fintech startups or banks that identify themselves as direct rivals of companies operating in the FinTech sector.
In the initial phase, attracting funding to develop the different phases of the business model is vital. Financing the business project with personal capital is sometimes unfeasible due to the high amounts required.
For this reason, we must take into account the most popular financing options, among which we can not forget the following:
- Business angels: They are private investors who invest large sums of money in startups in the phase of raising financing in exchange for a percentage of the shareholding of the company. In case you go to this source of funding when it comes to entrepreneurship in the FinTech sector, make sure you keep most of the shares or you can lose control of your own company (which will be in the hands of others).
- Venture capital funds: These investment funds are another popular source of financing. As with business angels, it is very important to review all the agreements and the conditions with which we obtain the necessary capital to finance our business project.
- Banks credit lines: These are the best-known option by most entrepreneurs. Until just a few years ago, it was practically the only way to create a business, regardless of personal capital contributions or those from friends and family. With the FinTech sector revolution, although it still has a great weight, this option has seen other alternatives to attract financing.
3. Talent capture
Another of the great challenges encountered by entrepreneurs in the FinTech sector in the initial phase of the business is the difficulty in recruiting qualified personnel.
Uncertainty and instability about the future of the company, as well as the inability to offer competitive salaries equivalent to those of large companies to attract talent, are the main determinants that explain the difficulty of forming a team composed of the best professionals in the sector.
Markets With Biggest Potentials in the Fintech Sector
1. Payment methods
Thanks to the emergence of the Fintechs, the days of paying in cash are numbered. The scope of payment methods is experiencing enormous growth through the development of contactless payment technologies. Solutions powered by financial technology which support payments through digital technologies will be the usual trend in the coming years.
The financing of projects by “a crowd” of small investors is still a niche that can be extended to many sectors. Examples we have seen with real estate investment companies are Fundrise and Housers. These types of crowdfunding Fintechs have revolutionized the way small investors speculate with properties, being co-owners with many other owners of the property.
3. Online Lending
Given the growing demand for online financing by individuals, websites like Millineal Money Man have great potential.
4. Artificial intelligence
Artificial intelligence is, without a doubt, one of the sectors with the best growth expectations in Fintech. The development of machine learning technologies will allow many startups and Fintech companies to improve different phases of the business model, such as customer service, scoring systems or data segmentation.
Skills an Entrepreneur Must Have in the Fintech Sector
- Leadership: When it comes to the undertaking, this is necessary for entrepreneurs to be able to make decisions because every decision has a cost. The key is not to always take the correct ones, but to identify the errors and know how to rectify as soon as possible. The profile of a leader when it comes to entrepreneurship in the Fintech sector often changes over time, as the company evolves. In the beginning, leading a small team will be a relatively simple task, but as the size of the company increases, the leader will have to learn to delegate.
- Negotiation capacity and commercial profile: Selling is part of the day-to-day life of an entrepreneur with a new business. You will have to sell the business model to investors, the business philosophy to potential workers and the product or service you offer to customers.
- Analytical and adaptation capacity: Fintech is a sector that is undergoing rapid transformations. Hence, a good entrepreneur must be able to analyze them and adapt to position their company at the forefront of the sector.