How to start a FinTech company 101: the practical handbook

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Back in 2017, the CEO of PayPal said that until 2022 the world of finance would change beyond recognition. And he was right. The market of finance started its digitalization and moved to the point when the masses barely understand even the basic concepts of finance. Well, 2022 is almost here, and it is time to plan the upcoming half a decade to stay on top of the trends. So let’s dig deeper into FinTech and see how to start a FinTech company and conquer the market.

What is a FinTech startup?

What is FinTech?

You might not know the definition of FinTech, but you are likely to be using one of the FinTech apps without even noticing.

  • Do you have a banking application?
  • Do you transfer money via Venmo, PayPal, or any e-wallet?
  • Do you pay for anything via an application or through a web platform?

If your answer to any of the above questions is “yes”, then you already know what FinTech is.

FinTech stands for financial technology as an umbrella term. In this article, when we use FinTech, we mean the industry of financial technologies that incorporates the current technological advancements to facilitate and/or improve financial operations for end-users. In most cases, FinTech would be understood as a financial application used to send and/or receive money. But there is much more to the world of FinTech than simple payments, especially if your question is how to start a FinTech startup.

Types of FinTech companies

Digital banking. These companies may come in two options: one would be a brick-and-mortar bank with online solutions and applications to improve their customers’ experience; the second one would be a completely online bank, like Atom Bank.  The latter is expected to be used 34% more within the next three years. So if you consider building a FinTech startup today, getting into the market of digital banking is a smart move. You can develop a white-label product and then sell subscriptions/licenses to it for many years to come with hundreds of customers.

Payments and money transfers overseas. Traditional and well-known online payment apps and extensions are also a part of the FinTech innovation. Money-transferring solutions like TransferGo or TransferWise are from the same category as well. People don’t want to pay extra fees or go in-store to buy some goods; everything can now be done online or offline in-app, and with close-to-none fees. It is where FinTech is thriving because it is the most widespread and commonly-used application of this technology so far.

Deposit and lending. With the new solutions, one doesn’t need a physical branch to deposit a check to the account or transfer funds. There are also no more waiting hours to get approved for a loan and no more impossible rates that drain your accounts. Microloan solutions with get-now-pay-later options and perfectly adaptable systems guarantee the most beneficial conditions for both lenders and lendees.

Trading and cryptocurrency. This world still holds an undiscovered abyss of potential that the masses are yet to learn about. FinTech apps make it easier to buy, trade, and learn about cryptocurrency, or use e-wallets/special crypto-cards in daily life. The complete anonymity, speed, and safety of crypto payments draw attention to the global services like Coinchange and Coinbase that are of great value to the newcomers of this crypto world.

Insurance. Traditional insurance companies are thriving in the US. Yet, last year the global InsuTech industry received $1.5 billion in investment. Transfer of the traditional insurance services into applications and user-friendly online platforms allows companies to save thousands of dollars on the workforce. Moreover, FinTech helped many enterprises to offer insurance for a couple of hours or customize the provided coverage to the unique needs of an individual client, disrupting the insurance market once and forever.

Capital raising. You must have heard of crowdfunding; you might have even donated something to a good cause. This process is possible thanks to FinTech as the collected money is handled via a platform or app that connects thousands of donors in one place. Moreover, if you think of how to start a FinTech company and how to fund it, remember that the ICO way of finding investors is another incredible way to get your funding fast and efficiently.

Finance management. Besides spending, lending, trading, and depositing, there is another aspect of the relationship people have with money – management. Some have poor skills, while others are brilliant in saving and spending at the right time and the right place. FinTech apps like Mint or Zeta help monitor and manage your money received and spent in order to plan a budget or save for a particular cause. These apps help young adults learn about wise investment or everyday expenses to become more competent in money handling.

Note that while we presented only seven categories of existing FinTech development areas, each of them covers a wide range of services, technology implementations, problems, and solutions. Keep in mind an important tip from our startup product development company – do not repeat the history! If you see some idea on the list, cross it out of yours. The FinTech industry is still at dawn and holds thousands of brilliant concepts and viable solutions. Be a unicorn,  think about how to build a FinTech startup from scratch and not by reinventing the wheel.

Why start your FinTech business now?

Again, you are likely to know the answer yourself – FinTech is the future. The apps and ideas from the previous point go around the industry’s novelty. Since something new always excites end customers, it also has a positive impact on investors. So if you think about how to start a FinTech startup and how to fund it in the 21st century, it should not be an issue, especially in 2021.

Besides believing in the greatness of FinTech this year, it is worth saying that the general tendency of investments is to grow year by year except for the 2020 setback caused by the global pandemic. The increasing number of young companies joining the ranks (almost 20,000 startups at the beginning of 2021) is yet another proof that the industry is expanding and developing rapidly. The numbers and constantly increasing investment plans for FinTech companies and startups demonstrate that the world is ready to be changed with online banks and more innovative payments, so building a FinTech startup today is a smart investment in your future success.

But setting aside the numbers, let’s also consider the technological readiness of the market for the new FinTech force. Cloud services take the reins and transfer all business operations into a faster, more secure, and significantly more efficient location. Cloud storage requires less maintenance and much less investment at the beginning, which cannot be appreciated more by young financial entrepreneurs. SaaS solutions also help bold businesses go bigger. Today, you can build a low-code application with a brilliant concept behind it while having no knowledge and/or experience in programming languages. Open APIs, market readiness, and the global need for digital transformation make these times the ultimately perfect period to move away from the physical financial institutions into the brand new world of financial technologies. 

All these changes are also reflected on the market needs. The speed of life increases and demands more flexible, fast, and efficient solutions. So a possibility to cut down on time and effort when buying a product, sending a bank transfer, or getting approved for a loan is welcomed by the ultimate end-users of new technological advancements.

Top 3 things to know when building a FinTech startup

Starting a new company with an innovative idea in the fast-developing industry is always a challenging task. Proper research and discovery stage for a startup are the essential components. But they are the same for every young entrepreneur. Here we would like to focus on the specifics for financial technologies.

  1. Know your field. Most people would call it a ‘niche’, but we are saying a ‘field’ on purpose. Earlier in the article, we talked about the types of FinTech companies existing today, and we also highlighted that you need to be unique to make it in the field. Well, before you can become unique, you should know what is already available in the market, what people want, what technology allows for, and what is missing. All this makes up for the “know your field” statement. Do thorough research, read online forums, pay attention to the field studies, and know your competition. Only after understanding the ambiance will you be able to start a truly useful and successful company.
  2. Know the regulations. FinTech still has a long way to being completely clarified and regulated in most parts of the world. Cryptocurrency is still something alien to most governments, and open banking continues to pose some regulatory complications. Since each startup begins from discovery and MVP development for a limited market, you need to understand local laws and regulations that will impact your idea. Ensure that you learn not only about the labor law or the insurance plans but also the laws that will protect your end customers and your team should anything go south.
  3. Know your advantage. You know what people do, and you know what the government allows you to do. You know what you want to do, and you know what customers expect you to do. By finding the middle ground between these four components, you will develop your brilliant idea and answer the question of how to start a FinTech company. Take your time defining your future startup’s competitive advantage that responds to the market need and local regulatory bodies to stay in the white area while delivering top-notch financial services.

How to develop a FinTech app?

The development of a FinTech app is not that different from traditional mobile application development. It also consists of three main stages: prototype development, MVP creation, and project scaling. Now, traditionally you would see the repetition of these stages and detailed explanation of each. However, we do not want to waste your time on common knowledge, especially since we have explained all three in detail before. Click on the link below to learn about specifics of every stage:

  1. Product discovery for a startup
  2. MVP development
  3. Project scaling

If you have any questions about any of these stages, contact us, and we will be happy to consult you on the details. In the meantime, let’s get back to the specifics on how to start a FinTech startup.

Success components of a FinTech startup

The success of a FinTech company entirely depends on its wise management and skillful team. The management will be dealing with the investors, markets, customers, and any other element of the daily startup life to let the experts do their job.

When it comes to the team for building a FinTech startup, there are two key elements of a perfect candidate: knowledge in finance and skill in technology. While it sounds obvious, it is rarely the case in the market. There is a great shortage of software and app developers with the experience in finance technology, which makes them hard-to-find staff. For a successful project, you need to have these people on board; otherwise, you risk making even more mistakes with your future product.

Note: A skillful team is a crucial aspect of each successful startup. But it is also a tough-to-get one. So if you are only planning your startup development, consider also going with an outsourced model for developers to cut the costs and onboard the talent you need to get running.

Another crucial component for startups of all kinds is money. Investment in FinTech continues to grow, so finding some money should not pose a big problem. Nonetheless, you will need to make your case to investors or work with crowdfunding to make your project move. Here are a couple of tips on raising funds with either option:

  • Incubators/accelerators exist to help startups  move and expand at early stages. You can go to a startup incubator for several weeks to meet new people, set new connections, and get funding, or you can work with an acceleration team that will push you in the right direction while helping with funding.
  • Angel investors are the individuals who fund a startup in exchange for share or equity ownership in the company. The perk with angel investors is that they know what they are doing and can act as partners in the complex decision-making for startup management.
  • Venture capital (VC) is yet another popular option for FinTech startup funding. VCs are harder to find and match to; yet, this is a perfect opportunity if you have found one. At ITM House, we have a Venture Studio that can help you with VC and lead you through startup development in the most efficient way.
  • Crowdfunding is not just a way to raise money from online donations but also a path to getting an angel investor on your side. Crowdfunding projects frequently act as additional marketing campaigns for startups raising awareness of their ideas and helping to earn a name for the company.

With the right management, enough funding, and a skillful team on board, your startup is bound to be successful! 

Fintech app development challenges

Not to rush you into the euphoria of great success, we have to warn you about the pitfalls that many young entrepreneurs face in the process of building a FinTech startup. Unfortunately, young companies often fail completely (about 90%) because of these small mistakes or lack of due diligence. We’d like you not to be a part of the sad statistics. This is why, consider the top challenges FinTech companies face and some tips on overcoming them.

ChallengeDescriptionSolution
Outdated technologyEven though FinTech is the business of future generations, you can still find lots of legacy apps, outdated code threads, and generally obsolete technology.Plan your application with the future in mind: think of the scaling and leave room for change once it becomes essential. Ensure that your architecture can be amended without doing much damage to the app data.
User privacy & securityWhile working with users’ personal data like bank accounts, birthdays, biometric data, etc., FinTech companies need to guarantee a high level of security and ensure that they comply with the users’ regulations on data storage.Learn the regulations as you have to store Canadian users’ data only in North America, for example. To secure the received data, write secure code, plan your app logic carefully, test every stage of the development at all times, and implement solid API usage.
Compliance with regulationsNot all countries have adopted regulations for FinTech teams, and those that have mostly rely on regulatory fees. Nonetheless, while operating on a global scale sounds the right thing to do, researching and complying with regulations for selected countries can be a challenge.As a startup owner, you will face many unknown legal tricks. If you have time and willingness to learn all the details, go for it and read the papers yourself. However, for green entrepreneurs, we usually recommend hiring some legal representatives for greater effectiveness. An expert in cyber and financial regulations can save a lot of time and money for a growing team.
Reluctance to use the solutionWhile the world goes forward, there is still a generation of people who used to live without phones and TVs. And even some younger people are still afraid to use the new technologies or new applications outside the traditional banks. This fear may lead to the lack of users and the eventual failure of a FinTech startup.To resolve the problem, you need to market smartly. Ensure that your UI is intuitive, UX has been tested with different target groups, and the service is polished to perfection. Only fast problem-solving app design and logic can guarantee customer attraction and retention in the long run. And do not neglect marketing campaigns on social media and in popular internet media.
Adaptation & relevanceWhat is new today can become history tomorrow. Failure to adapt to the market change and adjust your offer to the new technological advancements leads to the loss of relevance.Though it is hard, you need to keep your strategy up-to-date at all times. Conduct regular surveys and keep an eye on the competition around to update your FinTech solution and retain the users.

The challenges in this section are based on the goals set by our partners from Coinchange. They thought about how to start a FinTech company and required a simple, fast, and reliable service. On the way of creating an innovative solution to teach and adapt Canadians to embracing the power of digital assets, the company faced a lot of issues stated above. ITM House consulting team helped Coinbase streamline their ideas and develop a wealth-management ICO investment platform that makes investment accessible to the public. 

The bottom line

We believe in you and in your idea! Our team hopes that the pitfalls and small tips on their avoidance will help your company make fewer mistakes and grow exponentially. 2021 is one of the best years to join the FinTech ranks and begin conquering the world with your innovative ideas. Should you need any help, advice, or a dedicated team, ITM House will be thrilled to build a FinTech startup with you.

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