Starting a fintech is a great thing, especially with hundreds of millions of risk capital flowing into the industry. All the more reason then that fintech entrepreneurs should take these ten tips seriously.
The Spanish bank Santander is one of the financial institutions in Europe that recognized the potential in fintech very early. Among other things, Santander founded the Innoventures Fund in London and equipped it with 100 million dollars.
Among the venture partners is Pascal Bouvier (pictured), an seasoned hand in the field of venture capital.
Santander Innoventures has been active since 2014,and has run the rule over hundreds of promising business ideas. Here are Bouviers 10 points, which can potentially lead a fintech into the abyss.
1. You Forget the Licenses and Authorizations
Many fintechs see themselves as an actual tech startup, the core activities being the programming of software or algorithms. However, as soon as they are used in the area B2C, i.e. for end customers, it needs permits and licenses.
Many brilliant software engineers may not be aware that the financial sector is highly regulated. Those who do not know the respective regulatory environment have not done their homework - and then lose a lot of time and money to make up for the failure.
2. They do not think of the effort to get investments from strategic partners
A fin or insurtech who wants to get the capital of banks or insurance companies must be aware of what this means: these investors cannot leave anything to chance, otherwise they have a regulatory problem.
Governance, reporting, flow of information and - of course - licenses and authorizations are all topics that have to be clarified and punctured. In addition, fintech entrepreneurs should be aware that such investors have a completely different background and business culture.
3. Consider compliance as an annoying evil
Failing to comply with the rules often means the death sentence for a fintech. The regulator sees it this way: If the compliance in a startup does not «comply», the startup does not have the intention to become compliant. Investing early in appropriate staff is a key to the future.
4. Choose a risk capital investor who has no idea of fintech
In every industry there is one thing: experience, experience and experience. The financial industry is no exception to this rule in its complexity. Risk capital providers with financial experience are therefore incredibly valuable.
5. Evaluate a fintech like an ordinary startup
A so-called «serial entrepreneur», who is now trying to find a start-up in the fintech sector, will be heading for a world with its own rules: the world of money.
Money is the center of a highly regulated and also psychologised triangular relationship between customers, banks and regulators, in which the interests often do not correspond. It is incredibly harder to build an independent digital wealth manager than an online fashion shop.
6. Race to the bottom
A driver in the digitization of the financial sector is the constraint on cost reductions. Many fintechs therefore believe that they have already won with better technology and cheaper prices for services and products. This works in the fewest of cases.
Due to their huge scale and existing customer base, established banks have a much longer lever in gaining a long-term price war.
7. A patent does not provide the hoped-for protection
A fintech has developed a technology or a software component, which it considers as its intellectual property and wants to protect it.
Unfortunately, this is mostly useless: competitors in the financial or fintech sector have already seen something similar in the pipeline or the corresponding technology can be optimised without much effort - by others. Intellectual property is not a basis for a business model.
8. The payment area is the easiest to crack - not exactly
The Payments area - offers the lowest entry hurdles for fintech. However, it is the most difficult area to be successful. This is not about selling a product to a customer. In the Payments area, users, dealers and banks must be convinced.
9. Don't ignore the complex legal system
The financial world is incredibly complex in terms of rules and laws: capital market laws, credit market laws, consumer protection, privacy protection, etc. In a fintech business plan, these aspects should be given a lot of space.
10. Ignoring the laws of the economy
Every entrepreneur knows: The development of the economy and its cycles have an enormous influence on the development of one 's own business. This is particularly true of fintechs. For example, Crowdlending platforms: Many of fintech's business ideas have arisen due to the low interest rate environment.
But what happens when interest rates rise again? Is the business model still competitive in this cycle? Considering all scenarios in the business model is therefore of enormous importance.
