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 adoption of fintech globally has reached an average of 33% in 2017 (compared to 16% in 2015). Thus, there is no denying that technologies will continue to invade the age-old financial industry. Half of the executives surveyed by Capgemini consider the newcomers to be a significant threat to the traditional providers.
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.
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.
Niche: investments and trading
Funding: $539M across 5 funding rounds
Robinhood is a zero-commission stock and cryptocurrency trading app. It’s an easy and free way to invest.
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.
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.
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.
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.
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)
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.
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.
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.
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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