What you should take into account to start your fintech business?

6 October 2017

Fintech startups are emerging exponentially with new ideas on how to improve payment experience and finance management of consumers globally. It seems like opening a company specialized in financial technologies is all about having a brilliant developer with a unique concept and attracting attention of respective people ready to invest in your business. Is it just that simple? Experts and specialists in the industry recommend considering the points listed below.

Compliance

Launching a financial startup requires understanding and knowledge of the current laws and regulations at place in a certain state or territory. Still, knowledge is not enough, and one individual cannot trace and address all arising and potential issues related to compliance with the legislation and standards. Companies need a dedicated staff of lawyers and accountants. Hence, having a developer on hand will not be enough to make a brilliant idea work.

While in the United States, Office of the Comptroller of the Currency took a shot this year to put the fintech industry in order by making it possible for financial services providers to apply for a chart to become a special purpose national bank, there is still a long way to go before a startup may be deemed as fully compliant. Based on the service categories companies may be subject to various regulations and regulating authorities. In the territory of the European Union fintech startups should comply with the Revised Payment Services Directive (PSD2) and local regulations varying from country to country.

Compliance

Meantime, Jaron Lukasiewicz, CEO of Coinsetter, a NYC-based Forex trading platform for Bitcoin, notes that hiring a lawyer is not what should be done in the first instance. A startuper may save several thousands of dollars if he/she spends some time visiting specific conference and workshops, where he/she may establish contact with knowing people.

Lukasiewicz says: “Attend a conference, make friends with compliance advisors or knowledgeable industry executives, take them out to drinks, and ask them all of your legal/compliance questions. Even though these topics seem distant to you, you will likely be asking very basic questions from their point of view. There are many people out there who will be happy to spend time explaining regulatory and legal issues to you in order to help you succeed.”

Performance

Many gurus of the fintech industry, however, say that compliance is not a top-priority question. They believe that security of a financial service or product is of paramount importance as many customers reluctantly try new technologies feeling uncertain about security of their sensitive information and money.

Customers usually have perfectionistic expectations with respect to financial solutions and products, as they want to deal with finished well-established service raising no doubts about its consistence, performance and reliability. A software firm developing applications for use in areas other than financial services may afford to launch an imperfect product with a view to upgrade it based on the user feedback. Usability problems with the financial technology mean an impending death for a startup. Relations with reputable agencies or companies inspiring trust and confidence are definitely an advantage, but customers come to a startup to deal with its unique and stable product, not its business relations.

Succession

Considering a great number of drawbacks featuring the current banking system which make customer repel it, some startupers believe that creating a brand new alternative to banks will be a good idea. They think that addressing the problems of the banking through the introduction of an innovative service absolutely not reliant on the existing financial institutions will pave the way for new trends and change the entire landscape of financial services. This may prove wrong, as the regulations finally turn many fintech companies into banks.

Experts recommend building a new product over the current banking system, not opposite to it. It is better to take some specific technological part of the banking services and improve it. A startuper may create a company developing some authentication solutions to enhance security of accounts and prevent identity theft. These solutions may be sold to banks.

Lukasiewicz notes: “For instance, instead of building the next peer-to-peer lending hub (which requires a banking license), build a company that helps regulated banks originate better loans through data analytics (unregulated for you).”

Succession

Experience

In some cases, it is recommended to put off launching a fintech startup and, instead, accept an invitation to a job in a blue-chip financial company. Experience provided by a high-profile firm, which is an undisputed specialist in the industry, is a valuable asset to go into business. With proper skills and knowledge of the market specifics from inside a startuper will better understand where to start from, how to manage the staff and address the risks.

“I personally think that in the very early stages of your career, unless you’re extraordinarily entrepreneurial, joining a large institution that has a graduate program, it’s probably the best thing you can possibly do,” said Conrad Ford, a founder and CEO of Funding Options, a UK-based online marketplace for SME finance.

Building a startup from scratch is more than just a unique idea or unmatched offering to the market. Among other things a startuper will have to address such questions as crafting an image, obtaining a license, thinking over the website design, media coverage, funding after all and a host of other issues. Your attempts will be meaningful, if you are absolutely sure that your innovations in the financial services industry can make some reasonable difference.

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