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Technology

How to start a fintech startup that will scale

Ronen Menipaz

Ronen Menipaz

28.11.2019

The impact of fintech on finance is at an all-time high, so it’s no wonder aspiring entrepreneurs are encouraged to jump on the bandwagon and make some money. However, as is usually the case with any business endeavor, that’s easier said than done. 

How to start a fintech startup is a sophisticated question. I’d say it’s a fairly precise science that requires planning and strategizing down to the smallest details. Seeing as fintech has been on my mind lately, I’ve outlined a rough route to key fintech startup requirements in my previous post. The idea with this post is to expand on those interlinked points and add one very important aspect of every type of startup: scalability. 

Carefully pick your sector/niche

Your first step is to decide what area of FinTech you want to conquer. The good news is that there are plenty of niches in a huge industry such as fintech. Each category has numerous subcategories, and they keep growing due to the rapid pace of innovation. 

For instance, cryptocurrencies, blockchain technology, insurtech, regtech, and robo-advisers are just some of the latest examples of fintech’s expanding horizons. The bottom line is there’s no shortage of things you can focus on. 

And your focus will be critical, either on a specific pain point that the current market isn’t addressing or can’t solve, or a quantifiably large market you can address. Great fintech startup ideas (at least those that capture most of the attention and acquire funding) have one common denominator: 

they pose a threat to the current status quo and challenge the traditional financial service providers by offering a better and/or faster service. 

Keep in mind your audience as well, whether it’s a particular demographic or a particular location. Every sector has its own specifications and regulations. Speaking of the latter:

You’ll have to regulate the shit out of your startup

This will be your major pain in the ass factor. Arguably the main reason why finance is a tricky area to build a startup is all the heavy-duty fintech startup regulation. I cannot stress how boring and vital this is at the same time but the end result is the same: you need to have your concept on sound legal standing. 

There are countless laws safeguarding financial systems from abuse, as well as a slightly smaller amount of compliance. The two most obvious examples are KYC (‘Know Your Customers’, a term used to describe how a business identifies and verifies the identity of a client) and AML (anti-money laundering) that needs to be incorporated. Naturally, you’ll also need to account for various privacy laws (GDPR, CCPA, USSR, etc.) depending on where you settle your business. 

Signing Marc Rodriguez GIF

Hence, on the ‘how to start a fintech startup’ checklist, regulation should be the first priority in your business development plan after your niche of choice. For scalability purposes, you should cover both the international and local requirements, as well as best practices. 

Because you’ll be tangling with financial assets along with personal information, your startup will be controlled by the respective governmental body, depending on the judiciary level. There will likely be some hiccups as the pace of innovation has created a sizeable grey area for regulation, with novel methods of handling finances. 

If your startup falls within the existing legal framework, it makes the proceedings a bit easier. In any case, you’ll have to fully understand regulations and comply with whatever local legislation demands, then scale to global.

Identify your strategic/competitive advantage

The way the market is set up now, large players still have an oversized role, meaning there’s room to gain an edge. The aim is to think about the end customer. As I’ve mentioned in my previous post, there are generally two approaches to this: 

  • Improving the consumer experience;
  • Disrupting the existing business models.

The first step would be to figure out which of the two groups makes more sense. Fintech is an industry of huge opportunity and as such, is getting crowded by entrepreneurs left and right. 

The risk is falling in line with your competition and not offering something that is fairly unique and/or of high relevance and importance. Ask yourself one thing:

what’s different about my fintech startup?

You have to have something exclusive to you to assert yourself as a superior option. You can be more agile in serving an underserved segment or be present where your competition isn’t or any other thing that shows you have a unique and valuable service.

From a scaling point, plan your global route from the beginning. Due to finite funding and resources, many fintech startups focus and remain on the local level. In such a competitive industry, they soon get replaced by peers who are faster, better, stronger, etc. In other words – who made the right choices from the start.

Surround yourself with the right talent and technology

Make no mistake – this venture requires top talent, preferably with deep industry experience. I’m not saying you can’t pull this off without any financial experience whatsoever but why take the longer route to bootstrap and the inherent complexities of finance? You’ll need talent in various areas of competence, including finance, technology, and business. 

The same principle goes for software. The data-driven approach is all the rage these days in finance, with technologies like machine learning, AI, and blockchain finding numerous uses. The tech that powers financial services is probably the most important element because it covers so much. 

David Hasselhoff Technology GIF

Hence, no self-respecting startup can rely on third-party solutions or frameworks – your software needs to be customized to fully leverage your competitive edge. Whether that implies in-house development or partnering up with someone else is up to you. Just be prepared for hiccups along the way. 

Build an MVP (minimum viable product) to get funding

An MVP acts as a proof of concept and as a differentiating factor to potential investors. Fintech startup funding is very selective and MVP helps in making your value proposition more appealing. It’s a way to present just enough features for the early users to test it. You get to learn at a minimal cost and risk and deploy at a faster rate. Think of it this way: the chances of getting funded are higher as the risk of investment not paying off is lower. 

Final thoughts

You’ll encounter plenty of challenges during your fintech venture. The industry demands a lot but also offers a lot if you set yourself up properly. The pressure to deliver big-time can be enormous but if you believe you have what it takes to solve financial issues with innovation, take the plunge. Be smart about it – I’ve shown you how. 

How to start a fintech startup:

  1. Pick your sector/niche
  2. Know the regulation
  3. Focus on your competitive advantage
  4. Employ the right talent and technology
  5. Build an MVP for funding

Image credits:

https://giphy.com/gifs/film-vintage-color-3ohjUSqjO5T3vgnIvC
https://giphy.com/gifs/david-hasselhoff-M3o3fL9nnxG4o

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