How to Launch a Fintech Startup?
Globally, the fintech industry is expected to grow at a 26.2% CAGR from 2022 to 2030, reaching US$936.51 billion in revenue by then. This means that new companies can enter the market and expect to grow with time due to favourable conditions. So, if you are planning or already in the process of launching a fintech startup, read this article, based in part on the extensive fintech experience of the Profee team and other big fintech companies, to get all the necessary guidelines you need to start well.
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What is a Fintech Startup?
A fintech startup is a new and innovative business created to provide solutions to the payment, banking, or financial management needs of consumers through the application of modern technologies. It uses a strategic combination of digital systems to offer unique products and services that are better than those of traditional financial institutions.
Many fintech startups develop mobile apps and online platforms to streamline their processes, work without creating physical branches, reduce the cost of operations, and deliver fast and convenient services to personal and business customers. They exist and operate in several specialised forms, such as EMIs, neobanks, BaaS providers, EMT solutions, money transfer services, BNPL companies, credit or loan providers, crypto exchanges and crypto card issuers, NFT marketplaces, credit card providers, prepaid card issuers, digital wallets, m-wallets, checking and savings account providers, as well as payment processing services.
While most fintech startups fail to succeed beyond their first 10 years of establishment due to several internal and external challenges, many stand the test of time. Examples of fintech startups that have become successful over the years include but are not limited to the following:
Stripe (online payment processing and commercial solutions)
PayPal (digital wallet, money management, and more)
Paysera (global money transfers, IBAN accounts, and currency exchange)
Profee (fast global money transfers, virtual and physical card issuing)
Intergiro (all-in-one financial toolkit for businesses)
ConnectPay (all-in-one payment solutions, easy online banking, and payroll services for businesses)
VIALET (business accounts, SWIFT transfers, and free SEPA payments for e-commerce)
Binance (crypto exchange, NFT marketplace, and more digital products)
Revolut (one app for all things money, global money transfers, digital banking, open banking, cards, and more)
Paysend (global money transfers and digital payments)
Paxful (global peer-to-peer crypto trading platform, and digital wallet)
Ibandirect (IBAN account, instant money transfers, virtual and plastic prepaid cards, and crypto wallet)
Capital One (online banking, checking and savings accounts, credit card issuing, and loans)
Starling Bank (digital banking, personal and business accounts, loans and overdrafts, and money transfers)
Klarna (instalment or BNPL payments, online shopping, card issuing, and checking account)
How to Establish a Fintech Startup
There are a number of crucial factors to consider while launching a fintech business. In Profee we’ve been focused on the most important aspects in the beginning and later experimented a lot with additional features one may have in mind. Metaphorically speaking, build a bicycle and ride it first, don't wait until you make a car. It may take too long, and the vehicle will probably never get out of the garage.
When creating your startup and developing your business plan, the following are the fundamental things you must know and do to establish a foundation for success:
Carefully analyse the types of institutions and regulations
Starting a business begins with market research. Similarly, a good fintech startup must begin with an analysis of the various types of institutions and regulations in the country where they are to be established. It is important to remember that different laws, rules, and limitations apply in different countries when it comes to a fintech company's rights.
Making a choice between electronic money institutions (EMIs) and payment institutions (PIs)
In Europe, if you want to provide payment services to consumers, you must choose a licence. There are two options. You can apply for a licence as an Electronic Money Institution (EMI) or a Payment Institution (PI). So, which should you choose?
The most significant differences between an EMI and a PI in the EU are in their coverage and start-up capital requirements. While a PI licence will give you the authority to render payment services, an EMI allows you to add the issuance of electronic money to your payment solutions. Also, in terms of start-up capital, a PI licence will cost you about €125,000, while an EMI licence costs around €350,000”.
Choose a jurisdiction
The most popular jurisdictions or locations for establishing a fintech startup in the 2010s were the United Kingdom (UK) and Latvia. Entrepreneurs and investors preferred the UK to other countries because of its international influence and ability to collaborate with more EU members as well as other jurisdictions in different parts of the world. Although the UK left the EU (via Brexit) on January 31, 2020, its global influence as a startup destination is still very strong.
In Latvia, the structure for getting fintech licences was relatively straightforward. A similar development is in Lithuania, which is one of the most popular destinations for fintech creation. The country’s government establishes the conditions for starting fintech businesses by creating affordable licence fees, easy terms and conditions, and so on.
Aside from the examples mentioned above, take note that there are other jurisdictions with more challenging requirements. Therefore, no matter which destinations you are considering, make sure that your choice is based on adequate knowledge of what it takes to operate your fintech business there and the benefits it will offer you.
Know the regulations
The fintech sector is one of the most regulated. Hence, it is generally not an easy line of business. If you want to succeed, you must try to know and cooperate with the various regulatory authorities and comply with their rules and standard requirements.
In the UK, Europe, the United States, and many popular jurisdictions for fintech businesses, typical regulations include Know Your Customer (KYC) compliance, anti-money laundering (AML) policies, and PCI DSS (data security and payment safety) adherence.
Pick your niche
With so many fintech businesses and the sector becoming more congested, the significance of innovation and finding novel solutions has never been greater.
It is important to perform research and analyse the market, competition, and consumers before entering a sector and launching a fintech startup. Select a niche and understand the demographic qualities of your target customers.
You can choose from a variety of fintech subdomains. The options include payment processing, cross-border money transfers, budgeting services, mobile banking, crowdfunding, trading and investment, and digital-currency issuing and funds management.
Discover your competitive advantage
Get to know your competitors as soon as you have decided on a niche. This can assist you in identifying anything that will set your product apart from the competition, such as a unique value or competitive edge.
Fintech startups that are at the forefront of the competition in the industry today have created unique products and services that provide something distinctive to effectively disrupt the market. So, the need to establish your unique selling point (USP) cannot be overemphasised.
So, before writing a line of code for your digital or mobile platform, conduct thorough research on user satisfaction in your target market. Share your ideas with as many potential consumers as you can and attempt to figure out which elements of your future programme will be valuable to them and build upon that knowledge.
Successful fintech platforms require partnerships with other industry participants. This is necessary because there is hardly any fintech company that succeeds on its own. To be successful, you will need partners from the very beginning. As a result, while looking for experienced professionals and businesses to collaborate with, we advise you to try to find legal and business advisors who are reputable authorities in their fields.
You will need to be connected to two or more of the following to launch a successful fintech business:
- Traditional banks or neobanks.
- Payment service providers (PSPs).
- FX service providers.
- Payment card issuers.
- Platform-as-a-Service (PaaS) providers.
- Money transfer services.
- Payment processing and clearing systems.
- SWIFT and/or SEPA networks for international transfers.
It is good to collaborate with companies that have knowledge of payment infrastructures and modern technology. They can offer comprehensive services, such as advice on company licence and startup, operating guidelines, having a business account abroad, and opening a segregated account in a bank for the safe storage of clients’ funds.
Estimate and raise the capital
You must be financially prepared to launch and run a business, since launching a fintech start-up is not cheap. That is why you need to calculate the initial costs and raise the funds to meet them. So, you must think about fundraising and know how to succeed in doing it. For instance, you can raise money from family and friends through crowdfunding and venture capital.
Besides, to help your startup become properly structured, you must first create a business plan; you might need to hire a professional for this task. Your licensing costs and start-up capital should also be in the plan.
Another factor to consider is the initial years' capitalization volume. Also, rapid business growth, acquisition of new technologies, and new partnerships with other stakeholders may also result in an increase in operational costs.
Recruit a good team
One of the requirements for a successful company is having the right employees. You will need skilled and experienced people to help you with developing your business and making your products and services available to your target market. While it may be difficult to recruit top financial app developers and expand your team locally, especially if your country has a small but talented workforce, you can consider hiring remote employees in cheaper markets. You may need the assistance of your advisers in finding your team.
Make data protection a priority
One of the most urgent fintech security and safety problems is the disclosure of sensitive information that might be exploited for theft, extortion, or more fraud. Ensure the security of your product and the encryption and cloud storage of all important data, especially your customers' information. Therefore, do thorough testing to look for any system vulnerabilities in the source code. Apply transport layer security (TLS) to all network connections, stop unauthorised API connections, and use an HTTPS SSL certificate to secure the information of your clients.
Furthermore, put in place multi-step authentication on the client's end and have users use strong passwords that are often changed with time. In addition, include biometric security options for face and fingerprint scanning to combine convenience with advanced data security.
Select the necessary tech stack
It is also necessary to choose the tech stack for developing your mobile app or digital platform for the operation of your fintech startup. Custom software development is not easy, and you cannot always rely on existing third-party platforms for all your transactions. Besides, most ready-made tech solutions may not meet the needs of your startup as having a custom one would. So, it is either you subscribe to a personalised solution from fintech giants like Stripe and Intergiro or you build yours from scratch.
So, what tech stack should you consider? You can choose a mix of the following popular options:
- Frameworks (Spring, Node.js, React, and Django).
- Databases (Oracle, MySQL, PostgreSQL, MongoDB, and Redis).
Build, launch, and continue to improve
A smart way to enter an industry as crowded and competitive as fintech is by starting small and improving your product with time. Begin with the minimal viable product (MVP) after working with the other aspects mentioned above. Launch your fintech business and do your best to see it grow.
It is okay to create the very minimal set of functionalities necessary to test your fintech product at this stage. However, make sure you collect user feedback and use it to improve your product; this should be a continuous process for as long as your company exists. It will help you to always satisfy your customers. There is no better way to start making money with your fintech business than to make the needs of your customers a priority.
7 Reasons to Start Your Fintech Business Now
If you have an idea for which to start a fintech company, now is a good time to make it a reality. The following are the advantageous reasons why you should start your fintech business today:
- Enormous development opportunities
The worldwide fintech industry is estimated to reach USD 936.51 billion by 2030, growing at a 26.2% CAGR between 2022 and 2030. Fintech industry development will be driven by a variety of factors, which include increased internet usage and more investments in technology-based solutions.
- Growing demand for fintech solutions
Starting a fintech business involves meeting the demands of millions of prospective customers. More and more people are finding the solutions that the current digital financial sector offers quite helpful. Besides, the fintech industry is a bubble that is still growing. Consumers desire a clean, all-in-one interface that they can always have with them so they can feel in charge of their finances.
- High adoption of fintech products
In addition to their growing demand, fintech products are receiving a high rate of adoption among individual and business consumers. It is being used to automate and simplify financial operations and business management.
Moreover, most smartphones have fintech apps, such as Google Pay, Samsung Pay, and Apple Pay. Besides, conventional financial institutions, including lenders, traditional banks, and insurers, have widely adopted fintech.
- Increasing expertise and knowledge sharing
Software development professionals now have greater experience with fintech. Additionally, they frequently release more specialised toolkits to integrate products from third parties. To learn more about the inner workings of financial systems, programmers can also contact fintech consulting services. Thus, they create synergy to promote expertise in fintech products and services.
- The shift to online business
Due to the COVID-19 pandemic, many businesses have shifted to the use of models that allow them to operate more online than offline, if not even totally online, like online-only banks. This tendency is unlikely to reverse itself any time soon. Therefore, starting a fintech company with businesses as your primary target market has the potential to be extremely profitable.
- Cryptocurrency is advancing
Despite the abundance of trading and investment applications in the cryptocurrency industry, none of them has a customer satisfaction rate of 100%. This means that there is still a need to be met. So, in the fiercely competitive fintech industry, you might try to release well-built, affordable, stylish, and secure software to attract customers and gain their loyalty.
- Lucrative technological options and favourable tech trends
Trending technological advancements like the Internet of Things, artificial intelligence, machine learning, blockchain, big data, cybersecurity, robotics, and microservices are widely used in the financial technology sector today. You can adopt any of these technologies to develop a useful fintech solution and start making good money from it. For example, you can make money off of cryptocurrency (blockchain technology).
What are the Types of Fintech Apps?
Knowing the various types of fintech apps on the market is useful in choosing a market niche, selecting the right features, and costing your digital platform development. As you work to build your fintech product, try to study the categories and examples below for some guidance and inspiration.
The following are the main categories of fintech apps to familiarise yourself with while launching your fintech startup:
Customers' financial transactions can now be processed quickly, securely, and easily thanks to digital payment applications. Some of the well-known digital payment fintech companies are PSPs like Wallester, money transfer services like Profee, TransferGo and Wise, e-wallets like Skrill and ecoPayz, and all-in-one payment solutions like Stripe and Intergiro.
Nowadays, due to the growing competition in the industry, both traditional banks and neobanks provide digital banking apps to enable customers to have access to their accounts using their computers and smartphones. It is also common to find them issuing debit and credit cards, including contactless physical cards and virtual cards. Examples of digital banks include N26, Monese, bunq, Monzo, Atom bank, and Curve.
Retail and institutional investors today have access to a wide range of assets in every kind of currency and jurisdiction. Through digital investing platforms, you can make short or long-term investments in the stock market, cryptocurrencies, and precious metals. The same systems enable you to get relevant data and insights about your portfolio. Examples of digital investment fintech companies include eToro, Binance, Kraken, Coinbase, Gemini, Choise.com (formerly Crypterium), and Mercuryo.
Digital Lending (credit lines and loans)
Loan provision and application processes have been revolutionised by digital technologies. There are now several straightforward and instant loan applications, physical credit cards, and even virtual credit cards in the financial sector. Hence, you can get personal loans, vehicle loans, mortgages, and other financial products using completely automated online platforms instead of going to a physical office. Examples of fintech companies in the digital lending category are Nexo, Neon, Chime, Klarna, Monzo, and N26.
Consumer finance and budgeting
With the aid of fintech applications, users can now plan their spending in advance. There are several free budgeting applications available online that you can connect to your bank accounts, credit cards, and other apps for electronic payments. Examples of them are Monzo, Monese, and Revolut.
Regtech refers to new technologies that assist in efficiently managing regulatory issues. Nowadays, businesses can automate KYB, KYC, AML, and other compliance checks in connection with fintech operations. Additionally, they can ensure that ongoing operations are compliant with regulations by digitally monitoring them. What’s more, they have also been able to reduce the likelihood of human mistakes.
The primary goal of insurtech, which is a type of digital insurance, is to streamline the administration of insurance policies and claim processing. The use of digital technologies to file and handle insurance claims has reduced fraudulent activity.
Fintech Startup Launching: Things to Avoid
The following are the common reasons why many fintech startups fail after a while, and you must avoid them so that yours will stand the test of time:
Neglecting the needs of your market
Businesses are not founded on ideas and gut feelings, but rather on a problem or a particular need that you wish to solve. Therefore, before entering the financial technology sector, make sure the demand you intend to fill genuinely exists and that people are seeking a solution similar to the one you want to offer. If not, your company is doomed to failure.
Fintech is a broad technology field full of prospects and fresh concepts. When you choose your specialisation and enter this market, you must maintain your concentration. You ought to design a strategy and see it through to completion.
Not hiring skilled and experienced workers
The founding workforce of your business is crucial to its success. Finding the ideal staff, nevertheless, is difficult for startups. Although the right talents can be expensive to recruit, you need to invest in and work with them to succeed.
The Bottom Line
The fintech sector is expanding as more businesses create their own applications. Given this, you ought to be a pioneer rather than a follower if you have a concept that may address customer demands in the fintech sector.
Now that you are knowledgeable about how to launch a fintech startup, seize the first opportunity you come across and join the revolution.
Even though this is not really the simplest market to break into, you can create a successful fintech firm and app that will survive any pandemic or inflation with the help of this article, a strong team with tech expertise and relevant industry knowledge, and expert financial management.
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