The article was updated on January 06, 2021.
Fintech is no longer just another buzzword, it is a vital part of our everyday life. Even if you don’t trade bitcoins and don’t know how stocks work, there is a chance you still have used one or two fintech apps, e.g. online payments or mobile banking solutions.
In fact, the number of fintech startups worldwide has grown from 12,131 in 2018 to 20,925 in 2020. This stunning 72% growth in just two years demonstrates that fintech app development will only continue to expand, swallowing the old ways of data handling and instilling new standards of financial operations.
But, how do you even get into fintech? With dozens of startups entering the market every month and billion-dollar giants running the show, it can be hard to get your piece of the pie.
In this article, we’ll talk about the pitfalls of starting a fintech company and how to safely navigate them while on your journey to success.
A fintech startup is a company that relies on technologies to address the consumer needs in financial management. They usually aim to compete with or completely replace the traditional financial service providers by offering a superior experience or simply more efficient solutions to the existing problems.
Here are some examples of the best fintech startups that have become an illustration of success:
Niche: online payments
Funding: $478.7M across 9 funding rounds
One of the most popular online payment gateways, Stripe is used by eCommerce businesses all over the world. Unlike PayPal, another leading online payment company, Stripe focuses on digital businesses rather than on the consumers.
The key to the success of this fintech app is its simplicity of integration. Patrick and John Collison, the brothers who co-founded Stripe, recognized how much hassle web developers had to go through when adding a payment system to the site. As a response, they focused on making the setup as easy as possible and adding relevant development tools that quickly transformed Stripe into a $36 billion fintech giant.
Niche: Personal finance management
Funding: $31.8M across 5 rounds; acquired by Intuit in 2009 for $170M
Mint is a personal finance app, provided by Intuit. The app combines a wide array of services, from account management, expense tracking, budgeting, bill pay, etc. So, instead of using several apps, you get everything you need to keep track of your money in one easy to use app.
The success of Mint lies in meticulous planning, strong market research, and expansive content marketing. Since a fintech business doesn’t naturally result in a viral product (unlike social apps), Aaron Patzer, the founder of Mint, rejected the iterative development approach and focused on perfecting the app before releasing it. He communicated with as many people as he could to get an idea of how well Mint was going to be received and what features resonated with potential users.
The company then invested heavily in producing articles, infographics, and other content that gave the target audience a sense of credibility and usefulness. In terms of marketing, Mint also highlighted the details that concerned users the most and provided solidly phrased reassurances, such as “bank-level security.”
Niche: investments and trading
Funding: $539M across 5 funding rounds
Robinhood is a zero-commission stock and cryptocurrency trading app. It presents an easy and free way to invest, opting to earn income through premium accounts and interests from stocks and cash holdings.
Among the top fintech applications, Robinhood is one of the most appealing investment apps for millennials. The company tailors its marketing and features towards the needs and values of the younger generation, providing a handy and highly personalized piece of software. Combined with the lack of fees and a clean interface, this approach allows Robinhood to trump the competition.
Funding: $892.5M across 7 rounds
Oscar Health is an outstanding representative of the so-called insurtech – insurance technology market. It is a new kind of health insurance company which is unlike the traditional solutions, in that it is extremely customer-oriented, simple, and affordable.
As a fintech startup, an application that focuses on healthcare has to go through a significant challenge of becoming appealing to users. Most similar services limit customers’ opportunities to gain more information and generally focus on selling the most extensive plans, shifting the attitude towards electronic healthcare into the realm of the necessary evil.
Oscar Health puts its users first—and not in name only. The company empowers people with dedicated teams of nurses and advisors who guide customers through their issues and help select the most applicable, rather than expensive, insurance options. The app also allows people to add and store their medical records, receive lab reports, make appointments, and get virtual health recommendations.
Niche: digital currency exchange
Funding: $225.3M across 8 rounds
Coinbase is a leading digital currency exchange platform. It allows users to easily buy and sell digital currencies, including Bitcoin, Ethereum, and Lightcoin, online.
A fintech company that handles cryptocurrency transactions is bound to sink if it’s not transparent, widely available, and cheap enough. Coinbase checks all three ticks. It works seamlessly in 102 countries, and the registration process is fast and smooth. Users also benefit from top-level security and the service’s straightforward law compliance policies.
You might have noticed that some of the common words used to describe all of the listed products are “simple” or “easy”, and it’s not a coincidence. Simplicity and availability of such products represent a powerful competitive advantage, which made it possible for the listed companies to compete with the established market leaders.
Instead of going to the bank to transfer money to another person, you send the required amount directly from your smartphone. It’s that easy.
You no longer need an accountant to make sense of your income and expenses. You just open an app on your smartphone and there is it, all the information you need, neatly organized. Isn’t it convenient?
As you can see, the secret recipe for the success of a fintech app is pretty straightforward. It’s the simplicity, convenience, and customer-oriented service that can make a difference and attract millions of users worldwide to your product.
As you can see, building a successful fintech startup is not rocket science. You just need to solve a certain problem your potential customers are facing or address just one of their needs (and do it better than your competitors). Yet, fintech app development has a number of pitfalls that you should be aware of.
Here is an overview of the important steps you need to take when starting a fintech company:
1. Get to know the regulations
Fintech and banking are highly regulated industries. As a result, you need to know the ins and outs of this highly complex sphere, including the regulatory authorities, laws, legal limitations and requirements. The latter has become especially important since the GDPR came into action.
The General Data Protection Regulation covers all businesses that interact with customers’ data. This policy is only the tip of the iceberg for companies in the finance industry. Typically, fintech regulations in the U.S. include anti-money laundering (AML) policies, Know Your Customer (KYC) compliance requirements, and adherence to the PCI DSS. You may also need to operate digital certificates and other standardized authentication mechanisms.
Take into account that the laws can differ from country to country (or even from state to state, within the same country). So, if you are planning a global launch, be prepared to deal with that. For instance, countries like Mexico and UAE require firms to apply for specific market regulations for fintech licenses, while the United Kingdom requires regular licenses.
2. Identify your niche
There are many fintech subdomains to consider, and here are some of them:
- payments and international money transfers
- personal finance management
- mobile banking
- trading and investments
- financial products for small business (e.g. accounting or tax services)
- data analysis and financial decision making
- cryptocurrencies and blockchain-based solutions
In addition to choosing a subdomain, your product can target a specific audience, e.g. a country or demographic group. However, it’s better to launch your startup locally first and expand to the global market later if needed.
3. Find your competitive advantage
As soon as you’ve chosen your niche, get to know your competition. This will help you find something that will distinguish your product from the existing solutions, a unique value or competitive advantage.
This can be a completely new product targeting a specific niche market (e.g. financial services for the underbanked) or simply improving the quality of an existing offering (e.g. fast and simple mobile banking).
At a glance, business opportunities in fintech are incredibly extensive. However, the industry is dominated by widely known giants like Microsoft and several extremely successful ventures (Stripe, Coinbase), making easy success unattainable for the newcomers. To make a break on the fintech market, you should—in most cases—bet on a stellar execution of your idea.
Dive into user satisfaction before even writing a single line of code. Share your ideas with as many potential customers as possible and try to unravel which parts of your future application resonate with users and which are redundant or broken.
Mint, Robinhood, and several other companies that we’ve discussed earlier focused on creating incredibly personalized and convenient applications, eventually beating the competition with relevance to their target audiences.
4. Hire the team
Having the right people by your side is one of the ingredients of a successful startup. Yet, attracting top financial app developers and growing your team on-site might be challenging, especially if your location has a limited talent pool. An additional point which can’t be overlooked is the simple fact that experienced engineers in the USA don’t come cheap.
For a startup, the best decision is to hire a software development team offshore, and to consider a more cost-effective location such as Eastern Europe. This can help you build a really strong team or even find specialists with specific domain knowledge or relevant experience, all at a reasonable cost.
5. Choose the tech stack
Custom software development is a must for heavy-weight fintech products. You can’t rely on third-party CMSs or frameworks to handle all the transactions. Plus, you will need the performance no ready-made solution can provide.
The tech stack that most software providers use for fintech app development include the following:
- Java, and
- Redis, and
Another important aspect of the fintech app development is data safety. Make sure your product is secure and that all the sensitive data is encrypted and stored in the cloud. Leaked sensitive information that can be used for theft, blackmail, or further fraud is one of the most pressing fintech security concerns.
To ensure top-level fintech cyber security for your startup, run extensive testing to check the source code for any vulnerabilities. For all network connections, apply transport layer security (TLS), prevent unauthorized API connections, and protect your clients’ information with an HTTPS SSL certificate.
You should also pay close attention to how you build your infrastructure and consider a cloud platform, such as AWS, that offers a strong defense against DDoS attacks and backs up the data to get back online in case of any network disruptions.
On the clients’ side, instill multi-step authentication and require customers to use complex passwords that are changed frequently.
6. Get funded
There are multiple ways to get money for your startup: from bootstrapping to bank loans, from crowdsourcing to venture capital, etc. You can even enter a startup competition or get money from your family or friends.
Regardless of the path you choose, it would be nice to have something to show to your potential investors. Thus, building a visual prototype is a great way to prepare a powerful pitch deck that can get you funded.
7. Build and improve
As soon as you get all of the above-listed aspects of building a fintech startup, you are good to go with the development. However, we strongly recommend starting with the minimum viable product (MVP) first.
Build the minimum required scope of features to try the waters and test the idea, collect users’ feedback and improve. There are many pitfalls you need to avoid when building an MVP. Yet, starting small and growing your product, later on, is a smart way to reduce the potential risks, especially in such a saturated and competitive market as fintech.
This year has been turbulent for businesses across numerous industries. Many entrepreneurs choose to wait the pandemic out before taking on new ventures, and this decision is sound for many fields except finances. In money management technology, demand and prospective benefits have only been growing.
Let’s take a look at several reasons why the upcoming 2021 is the best time to start a fintech company.
The modern electronic finances industry presents solutions that more and more people find extremely useful. Personal money management applications, insurance technology, and easy investment—fintech has gathered every niche imaginable under its umbrella, and this bubble keeps expanding. Users want to feel in control of their finances, and they want to do it through a sleek all-in-one interface that’s always in their pocket.
Launching a fintech company now means responding to the pressing needs of millions of potential users and getting the attention startups rarely receive on other markets.
Building a fintech app will also be easier in 2021. Developers gain more expertise in designing this kind of software, and more specialized toolkits to integrate third-party products are released regularly. Programmers can also seek advice from fintech consulting services to get an idea of the inner workings of financial systems.
Furthermore, banks and governmental institutions in most countries support the digitalization of the finance industry and have gradually started tailoring their services and activities to help fintech businesses prosper.
3. Insurtech is getting immensely popular
Among the fintech applications, insurance technology is receiving a lot of interest for its data-driven predictive capabilities. Insurtech uses artificial intelligence to process a person’s criminal and medical records whenever legally acceptable, as well as credit history, open social media information, and other factors to reduce the risks for companies and suggest the most cost-efficient options to customers.
4. Enterprise accounting
Starting a fintech company and focusing on businesses as your target audience is potentially an incredibly lucrative endeavor. Enterprises have already made a huge shift towards online operations due to the COVID-19 pandemic, and the trend to rely on various technologies to boost operations is unlikely to die down. The niche of enterprise fintech software is highly competitive but also rewarding.
5. The rise of cryptocurrency
Digital currencies are no longer a buzzword—people trust decentralized applications to handle their money and seek the most convenient and reliable platforms to do so. Although the cryptocurrency market is overflowing with all kinds of trading and investment apps, none of them have 100% user satisfaction.
While it might be impossible for a fintech startup company to battle industry giants like Coinbase, a well-made, low-fee, sleek, and secure app can certainly attract users and help you gain customer loyalty.
Fintech isn’t the easiest industry to target. With all the pitfalls you need to consider, it takes time and effort to develop a successful fintech app. Yet, everything’s easier with the right people by your side. A team with strong tech skills as well as solid domain experience will help you build a truly great product.
How to get started?
The product discovery phase is the best first step you can take to lay a solid foundation for the development of your app. It includes a functional specification, UX/UI design, and a visual prototype that will give you a clear vision of the end product. On average, this phase takes 4-6 weeks.
The product discovery phase can help you:
- define a full scope of work and develop a roadmap for the project
- set a realistic budget for your MVP and plan your resources
- test the waters with your audience using a visual prototype
- craft a convincing investment pitch
- get to know your team
From industry leaders like Western Union to dozens of startups worldwide, we at Eastern Peak have built a number of successful fintech products. That’s why we know exactly how to start a fintech company from scratch.
If you are looking for the proven domain expertise as well as a trusted software development provider, contact us now.
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