Financial technology (fintech) startups are changing the face of tech-savvy America. A 2021 Fortune report states that nearly 90% of Americans used a fintech app to manage their financial lives. Another report states that the fintech market will be worth over $492.81 billion by 2028. So what’s behind this explosive migration from traditional banking methods to safer and cheaper online transactions? Is it just the ease and allure of a smartphone-integrated ‘No Wallet’ economy, or is there more to this than meets the eye? Let’s delve into how to build a fintech startup and what it entails.
Why Start a Fintech Startup?
The fintech market share in 2022 alone was worth $194.1 billion, and it’s expected to grow at a whopping CAGR of 16.8% between 2023-2028. This makes the various offshoots of fintech highly compatible with early-age startups. Moreover, the need for lower service costs has also resulted in replacing traditional banking options with a more disruptive, data-driven banking culture.
How to Get Started in Fintech?
Let’s talk about how to build a fintech startup and survive amid an inundated space.
Step 1: Find the Right People
Considering 7.1% of all startups in the world operate in the fintech industry alone, finding the right combination of mindsets is central to making your product vision stand out from that of the competition. There are many options to find the right collection of people: If you don’t have the bandwidth to hire entire teams of technical experts, you can work with app development companies that provide discounted offers and packages.
Step 2: Identify Your Target Niche
This step is about choosing the right fintech domain for your business. Your most successful target niche would be an industry you’re already well-versed in and the domain in which you have connections with experts. Here are some of the different niches of the fintech market you can choose from:
- General banking
- Investment banking
- Money transfers
- Cryptocurrency trading apps
- Payroll services
- Personal finance management
- Credit monitoring and reporting
Step 3: Develop an Idea
Startups are storehouses of ideas. Learning how to build a fintech startup involves spending considerable time coming up with radical ideas for disrupting traditional banks and payment systems, as well as addressing difficult pain points your potential consumer base could face. Here are certain questions to consider while brainstorming:
- What are the most accessible and preferred payment modules available?
- How to further simplify and smoothen the process of payments?
- Where does my idea of the fintech app stand about solving actual customer problems?
- Why would people download my application, and for what purpose?
Step 4: Define Your USPs
As of 2022, approximately 65.3% of the U.S. population used digital banking. While this does bode well for fintech startups, it also means you have to define your USPs clearly to make them more evident to your customer base.
Step 5: Define Your MVP Scope
A Minimum Viable Product (MVP) refers to a product development model created to attract innovators and early adopters—consumers with the highest risk appetite. They also know to validate a product idea and solicit relevant feedback that boosts user experience and engagement. Therefore, clearly defining your MVP scope is a crucial driving factor for your startup’s success.
Step 6: Study Relevant Laws and Regulations
Regulations are in place so that sensitive financial information never reaches the wrong hands. Here are the most important fintech laws and standards you need to study:
- GPDR – General Data Protection Regulation
- PSD2 – Payment Services Directive 2
- eIDAS – Regulation on Electronic Identification and Trust Services
- FCA – Financial Conduct Authority
- GPG13 – The Good Practice Guide
- APPI – The Act on the Protection of Personal Information
- PIPA – Personal Information Protection Act
- ISO 27001 – International Organization for Standardization
Step 7: Determine the Fintech Services You’ll Provide
You can only stand out with your product or service if you know the different touch-points of friction in the user journey for various consumer bases. Fintech is an umbrella term that serves different categories of people, from simple customers to large-scale businesses. Thus, you need to narrow your focus toward a specific niche and concentrate your resources on making it a launchpad for future innovations.
Step 8: Research Your Competitors
Business Intelligence (BI) in fintech involves performing competitive analysis to catch up with industry trends, review the current product benchmarks, avoid the gaps in products and services that competitors have filled, and correctly identify the USPs yet untouched by competition.
Step 9: Prioritize Security
In the first half of 2021, more than 98.2 million people fell victim to data breaches. Information security is directly proportional to making it big in the fintech industry. You can furnish this with the best practices of data encryption, role-based access control, and an organized, hierarchical application of passwords.
ALSO READ: The Fintech Landscape
Things to Consider Before Starting a Fintech Company
Now that you are aware of the basic steps of how to build a fintech startup, here’s what you need to consider before jumping in:
Build a Network
A successful startup can rarely exist in a vacuum; it needs to be supported by a group of like-minded individuals, venture capitalists, customers, and employees, among others. Capitalize on this network and provide relevant value to each set so that your ideas start attracting curiosity as well as investment. Building a network can come in the form of different strategies such as relatable content generation, regular customer engagement strategies, etc. For example, Hex Trust’s content marketing strategy covers end-to-end brand awareness programs. It utilizes its grand network of key players to position the company as a custodian of valuable digital assets.
Don’t Start by Building an App
Starting with an app may sound tempting, but it often becomes an expensive investment to merely gauge consumer response. A better alternative for validating your startup ideas is by doing deep market research, finding a hyper-local market or a niche audience interested in your service, and recording their reactions and feedback after usage.
Patience and Persistence
Any successful startup, irrespective of its domain, has to tackle countless factors and weather difficult situations such as intra-team conflicts, creative challenges, wrongly-timed business pivots, and simple fruition of different strategies—tackling all these aspects takes time, patience, and perseverance.
No Tech Co-Founder is Still a Go
The success of Airbnb has proven that no tech co-founder isn’t a dealbreaker. Joe Tuan, founder of Topflight, talks about the importance of partnering with the right companies and finding the most compatible team as distinguishing factors for startup success in their initial developmental stages.
Own the Expertise
Learning how to build a fintech startup is often synonymous with having extensive experiential knowledge of the industry. Klarna’s BNPL service was adopted by non-Swedish countries primarily because the startup understood the technical gaps within the system and was operating within a climate where credit was termed a red flag. Garnering extensive knowledge about the domain, in other words, owning the expertise, allows a startup to become a trendsetter.
What Should be Avoided When Launching a Fintech Startup?
Hiring Mediocre Employees
A lot goes into understanding how to build a fintech startup from scratch. What not to do is as important, and one of those strict no’s is hiring mediocre employees. Instead, hire a dependable team of experts armed with the latest market insights to ensure impactful changes in product development that resonate with the target audience.
Overlooking the Actual Needs of Your Niche Market
Overlooking the needs of your target market shows up in the form of ignoring consumer feedback in the early stages of customer acquisition. Avoid ignoring the relevant and current needs of the niche market by conducting thorough research on the actual pain points of consumers. Finding a niche market is central to formulating a steady revenue stream, especially if you are learning how to build a fintech startup.
In the fintech landscape, it is easy to get distracted by multiple elements competing for your attention. For example, avoid handling all sources of expenditure at once. It is crucial to think of the finance behind each crucial element such as advertising on different platforms, and technological and infrastructural developments., but don’t trigger investment anxiety by systemically diversifying the funds.
Examples of Successful Fintech Startups
Mint, a centralized app to manage spending, credit scores, and balance, was founded in 2006 and acquired by Intuit three years later. It has always been customer-centric when connecting to user banks and monitoring their budget 24/7. While online apps now exist to trace all our transactions, two decades ago there was a clear demand for the digitalization of tracking financial transactions. Mint’s business model to personalize ad campaigns from other financial institutions spiked its revenues and today it has over 15 million users.
Formerly known as Transferwire, the company was founded in 2012 and solely dedicated itself to the niche of seamless international money transfers. Headquartered in the UK, the company’s USP lies in its dirt-cheap exchange rates—it claims they are the lowest in the fintech market. Currently, WISE has a market value of $4.1 billion and over 13 million customers worldwide.
Founded in 2011 and headquartered in California, Kraken captured the yet-untapped crypto market and centralized the exchange platform. Kraken’s highest security standards account for its immense popularity: It has a proven track record of no hacks for ten years straight. Additionally, there are over 36 cryptocurrencies supported in the domain, and has a user base of six million users.
Ace Fintech with Emeritus
According to PwC, almost 90% of global financial services firms fear losing revenue to fintech challengers. The future holds immense potential for fintech and its most disruptive offshoot, blockchain technology. As cryptocurrencies swiftly penetrate the marketplace, learn how to harness the most of such opportunities with the latest fintech courses from Emeritus.
Written by Bishwadeep Mitra
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