Finance has always been a part of the modern world. It drives innovation and allows territories to develop. Yet, many of the financial activities have remained unchanged for a long time. With the onset of the internet, there has been a slight shift in how people handle their finances, but only recently has the true transformation begun. FinTech is a mix of two words, finance and technology, and it unites all the companies that try to facilitate the traditional financial processes with the use of technology. There are many startups around the world that center around this exact goal. They try to incorporate new technology to modernize the established practices of large banks and financial institutions. Yet, these companies face many challenges along the way. It is difficult for them to change the learned behavior of customers or to go up against the corporations that have been doing business for many decades. We offer some tips that apply to FinTech startups in general, that could help them make the right choices at the beginning of their endeavors.
Research the regulations beforehand.
FinTech is a relatively new industry. Although the regulations for the financial sector have been laid out clearly long ago, the incorporation of technology could lead to some specificities that fall under a different set of regulations or are not regulated at all. Cryptocurrencies are a good example of this. They are still not regulated by many countries across the world. It is important to know about the regulations beforehand because changing the product later down the line could be associated with a lot of resources and time. It is important to plan the product with all of the regulatory requirements in mind. Digitization of financial activities also facilitates money laundering and terrorist financing, so regulators are especially wary of such companies. It is imperative that FinTech startups plan out their AML policies and KYC rules so that they satisfy the authorities.
Be careful with the funding.
Funding is a sensitive issue for most startups and FinTech companies are not an exception to this. Ideally, these startups would find investors who are willing to invest in the project because they believe it will be successful in the future. Most often, it will be financial institutions who assess the riskiness of the companies and structure their investment accordingly. In such cases, the project authors take on a risk as well, as if their idea doesn’t work out, they will be left with loans they have to pay. Consequently, it is important to spend time looking for investors and assessing their offers. As tempting as it might be to accept an offer and finally start working on developing the ideas, it is not always the smart move. If the product is as good as the entrepreneur believes, there will be investors who are willing to pay for it a fair price. It could just require a little more time to find such investors.
Think about the market need for your product.
Many FinTech startups make the mistake of getting too enthusiastic about some new piece of technology and wanting to use it in the financial world. While it is possible to change many facets of the existing financial infrastructure with the use of technology, not all of them will be met with the same alacrity. Sometimes people just prefer to do things one way. Consequently, before spending time and resources on developing a product, it is important to clearly think whether the customers really need it or not. If there is a niche in the market, go for it. If you are trying to change something that already exists, then extra care is required. Unless the integration of technology saves a lot of time or makes the process much more effective, it might not be worth spending time and money on. Market research should help entrepreneurs identify and judge the needs more accurately.
Work on good relationships with the banks and traditional financial establishments.
FinTech companies are often seen as the rivals of the banks and traditional institutions. This is not necessarily the case. Most often, these startups offer products and services that are complementary to those offered by the banks. In addition, no company today regardless of the sector can survive without a good relationship with a bank. Banks are how these companies will most likely pay their employees, receive financing and payments and much more. As a result, it is not wise to be scornful with the established institutions. On the contrary, entrepreneurs should try to demonstrate to these organization how the two of them can coexist and how they both can contribute to the society. If everything goes well and the project turns out to be successful, banks could express more interest. Acquisitions, as well as additional investments, could be on the line if these companies have good established working relationships with the banks.
Spend a lot of time on putting together a team.
One of the most important factors about the startups, that often makes the difference between a failed project and a multi-million success story is the team. This is especially true for startups that have to do with the technology. No hasty decisions should be made when choosing the employees. In addition, it might not be wise to economize resources on these people. In the small teams, every single employee could make a huge difference so think about getting people who are enthusiastic about the project, who can think creatively, and most importantly, who have the background and experience that can handle the technical workload of the project. New ideas in a startup can come from anywhere. It is important that all of the employees care about the success of the project and will try to think about the ways to improve the product and make it more appealing to the customers.
Be prepared to change.
When entrepreneurs first come up with the idea, it is natural that they get very excited about it and plan their whole processes around it. Later, they get so attached to the project, that it is hard to make changes to it. We’re not talking about minor tweaks and improvements here and there. Sometimes, it is necessary to scrap a big part of the idea and think about something new. Many startups find it difficult to do this even when they know that the changes could lead to a better future outcome. It is important that the authors of the idea start working with an open mindset and consider the option of altering their projects beforehand. This way, they will be more prepared if they, eventually, have to make that decision.
Become a part of the FinTech community.
There are many entrepreneurs who are entering the FinTech industry. All of them have different goals and products in mind. It could be very helpful to have a good network of people in this industry. First of all, many products in the financial world are complementary, and it could be possible to integrate with other providers to offer a better product to the customers. Many ideas will be born simply out of interaction with other entrepreneurs. Furthermore, those who understand the market better will have a better outlook on the needs of customers, the niches in the market and the ongoing trends. Even though FinTech has a huge potential, it does not garner a lot of attention yet from traditional media sources, so any changes and updates in the industry reach our ears a little late. Being involved in the FinTech networks will create a community that shares common interests and new information for the better of the whole sector.
Be ready to fail.
As is true for most startups, the majority of the projects will not be able to establish themselves successfully on the market. This is the truth that everyone has to face. Consequently, it is important to keep this in mind when tackling a new project. This does not mean that the entrepreneurs should not have confidence in their product. If something does not turn out the way that was planned, they shouldn’t be so disheartened as to abandon their aspirations in the FinTech industry altogether. Being prepared for a failure means being ready to start working on a new idea and a new project. With this mindset, it is more likely that a person will succeed eventually, even if it takes a few tries.