A fintech company is a startup that deals with financial services, such as lending or payment, or generally any service that comes to mind when you think about banks. Fintech is the new wave of financial service delivery technology, and it’s here to stay.
What is a fintech company?
Fintech is a catch-all term for all financial technology. It’s not just the obvious stuff like money transfers or credit cards, but also more advanced products like robo-advisers and virtual assistants that help you manage your finances. Maybe, “banking on steroids?”
Some examples of fintech companies include banks and insurance companies that have gone a step further to digitize their services, away from the traditional banking halls. However, they can be startups as well such as Paylend or Eccoba. We’ll be looking at starting a fintech company from a startup point of view. Without saying much, grab a cup of coffee, and let’s start by breaking down some of the types of fintech that exist, shall we?
Types of fintech company
- Insuretech: Insurance companies are known for their conservative approach to risk management and long-term investments. They can be considered a fintech company because they use information technology to manage risk, but this is not the core business of most insurance firms. Some insurance firms deliver their services directly to consumers through mobile apps or via USSD.
- Lending fintech companies: These businesses provide loans or other financial services to individuals and small businesses digitally. They have credit scoring mechanisms that leverage AI and data analysis to understand the creditworthiness of their clients. They also take advantage of technology to remotely verify user identity and asses their risk levels.
- Payments: A payments company provides money transfers between users’ accounts in real-time using software applications like Venmo or PayPal. This mode of payment moves people from using physical cards and cash money to paying digitally using apps or even sim cards as experienced in east Africa through M-pesa.
- Digital cards provider: Some fintech companies major in issuing digital cards. This is a solution that enables users to pay internationally while using digital cards. It is a service that can be offered by other fintech companies as an add-on to its clients.
It is worth noting that these are not the only types of fintech companies that exist. There are many we have left out including group savings, group lending, investment fintech, and trading fintech companies. The list goes on and on.
What does it take to start a fintech company?
To start a fintech company, you’ll need to have a creative idea and be able to execute it. Having an idea is the easiest part. Anyone can come up with brilliant ideas. Execution is what separates the successful from the failures. It takes proper planning and execution for the idea to work. Take your time, to punch holes in your idea and plan until you come up with a masterpiece.
You also need to have strong team members who are passionate about what they do and committed to making it happen. If the team is weak and not committed, you can only do much. Like any other startup, the road will be tough, especially in the early days. For this, you will need a resilient team that is hungry for success and believes in your dream. Do not entertain mediocrity.
Additionally, you must be able to pivot and change direction when necessary so that your vision remains clear in the eyes of those around you. If your vision doesn’t fit well with those around you or if people start questioning whether or not this is really worth pursuing, then there’s no hope of success!
Financial projections are another thing that should factor into any decision-making process as you start your company. You need to test your financial model and run it by a financial specialist to see if the idea is even viable. Factor in things like your target market, their financial abilities your markups, and turnover periods and see if it really makes sense. If it does, well and good. If it doesn’t go back to the drawing board.
Finally, understanding how regulations work in fintech is important. You’ll want someone familiar with the laws so they can advise on which ones apply to you. You will need a legal advisor to help you in compliance and operate within the set guidelines. They will even help you seize opportunities by taking advantage of what the law dictates. This is one area that you might want to overlook but it will always come back to bite you in the back. Before starting your fintech company make sure that you have a legal advisor behind you.
Where do I start as a fintech entrepreneur?
- Start with a business plan. Draw a nice plan and see if it makes sense. The best part is that you can be agile with this process. Iterate the plan until when you fill comfortable and then move to the next step.
- Get a legal structure in place: A company is a legal entity that can own assets and make decisions on behalf of shareholders. Make sure that you involve your legal advisor at this point so that you file for the correct licenses.
- If you are a tech person and intend to do the development yourself, create a minimal viable product and test it with real users. Is it working? Are the users enjoying your product? Does it solve a real problem? Are these users willing to pay for your product? If all the answers are “yes” then you are ready to form a team and move to the next level.
- Put a team together and delegate duties. It is now time to gain some traction. A little marketing and networking with potential clients/partners. Set up your company online. Buy a domain name and make your website your billboard. Most people will Google your company immediately after you make an introduction. I.e if they are interested. So you need to make sure that your online presence is appealing especially if you will move forward with the next step.
- Once you have enough traction and you want to scale, you are now ripe for funding. Note that funding is not necessary especially if you are generating enough money to sustain yourself. However, you can decide to raise funds if you want to scale fast. If you decide to fund rise, be ready to give out a portion of your company to the investors.
The next thing that you need to do is to consider the company leadership. If you don’t think you have the necessary skills to be the company CEO, you can always hire an experienced leader. However, you can also take up the role and learn as you go. After all, the company is still young and you are the vision bearer.
What makes a good fintech CEO?
- Good communication skills
- Visionary and innovative
- Leadership ability
- Strategy and market understanding
- Strong team player
- Time conscious
- Strategic thinker
While a CEO should exhibit the above characteristics, it does not mean that lacking in some of them or all is a limiting factor. So long as you have the will and ability to learn, nothing should stop you. The important thing is to understand your strength and weaknesses. This is important so that you can capitalize on your strengths and work on your weaknesses.
What does a fintech company need to get funded?
We briefly mentioned funding earlier. It is a topic that you can’t avoid as a startup especially if you don’t have all the capital beforehand or if you want to scale quickly. Getting funded is a headache for most startups, leave alone fintech. Only one out of ten startups get funded and survive to the series A stage. This should tell you how keen investors are while picking a startup to invest in. Several pointers can be considered while preparing for fundraising:
- Your business plan needs to be solid. But don’t just focus on the numbers and projections. You also need a clear vision of what kind of company you want to be, how it will operate, and why people should care about your product or service. This is where having a good team comes in handy. You’ll want them all working together on this project from day one.
- You will also need to prepare your legal documents too, in case the investors need them for due diligence. Company ownership documents and any other licenses that you might have acquired will be necessary.
- Ensure that you always have a presentation deck ready. The presentation should clearly state what problem you are solving and the solution that you are offering. Show how unique your solution is, compared to the rest. Don’t forget to include your ask. Else what is the point of the presentation?
- A clear financial plan will set you apart from your competitors. Make sure that you have your budget in place. Show how you will spend the money that you intend to rise. Additionally, make sure that you have your financial projections with you.
How can I find the right advisors for my fintech startup?
Finding the right advisors for your company can be a challenge. You need someone who has done it before and has a proven track record of success, as well as someone who is a good fit for your business goals and values. Make sure that the person you choose doesn’t have too many other commitments so that they can dedicate time to helping you build your fintech startup into something successful.
Such people do not seek you out. You need to make an effort on your end to reach them. Luckily, they are quite many on LinkedIn. All you need to do is reach out and explain yourself. Also, you can network with your potential mentors on network events. Attend as many events as you can in the fintech space and pick the right advisors for your company.
How can I protect my ideas from being stolen?
While you may not want to patent your ideas, there are other ways to protect them. You can use non-disclosure agreements (NDA) or confidentiality agreements with employees and clients. These types of documents allow you to keep the information confidential, as long as it doesn’t violate any laws or regulations. For example, if a company wants a list of all the patents currently held by your company and what they’re used for, then an NDA would likely be required before providing this information to them.
Make it a habit to safeguard your ideas through patents. Have an advisor on the same if necessary. Your intellectual property today can be your biggest asset tomorrow. Handle it with the seriousness it deserves.
How long should my runway be as a fintech startup?
While it’s important to have a solid business plan, you should also consider how long you can survive without funding.
In the case of fintech startups, funding is vitally important because they need money to get started and continue operations. It’s estimated that there are more than 5 million fintech companies worldwide today, but only about 2% of them will actually survive beyond their first five years in operation.
If your company doesn’t have any revenue yet, think about how much time it would take for your product or service to become successful enough that people would pay for it—and then build up from there. Do some research on existing products in this niche area and see if those businesses are profitable enough. Compare the findings with your company to see if eventually, you will be profitable enough once customers start buying regularly from you.
The baseline is, after all, is said and done, you will need to budget accordingly. A 12-month budget is a good place to start if you are fundraising or making profits. However, you should always consider the worst-case scenario.
The finances of a fintech startup are crucial
The finances of a fintech startup are crucial to its success.
Fintech companies often have higher burn rates and lower margins than other startups, which means they need more money in order to grow. This can be tricky for investors who want their investments returned quickly. However, it’s also important for the company’s survival because if you don’t have enough cash on hand then your business won’t be able to keep going.
It is important to know that Fintechs are highly regulated in terms of how they invest and how they use money that they collect from the public. A keen eye should be put on the finances else you will find yourself in trouble.
From the start, you’ll need to find advisors who can help you navigate the complex legal landscape of fintech. If you have a great idea but no access to capital, don’t worry! There are plenty of ways to get funding even if you don’t have an MBA or fancy business degree. If you do want access to capital, however, consider speaking with investors who specialize in early-stage startups like yourself: angel investors or seed funders. See you in the unicorn startup world!!
I know I have left out a lot of information regarding fintech startups and how to start one. Feel free to add your views in the comment section. I also hope you believe in sharing as much as I do. If you find this information valuable, kindly share! Share! Share!