A lot of changes are happening in the financial services industry. In the wake of the Covid-19 outbreak, more and more people are preferring contact-less cash transactions. Financial technology or Fintech has become a vital part of our daily life.
Some common examples of fintech that we are all familiar with are mobile payments and online banking solutions. It can be seen in a neobank, which is a digital bank that operates entirely online, without any physical branches. Other applications of fintech are in bitcoins and stocks.
The number of fintech start-ups globally has grown from 12,131 in 2018 to 20,925 in 2020, a stunning growth of 72%. The ones that act as payment processors are helping banks in modernising their payment systems. In this article, we will guide you on how to establish a fintech start-up.
1. Have Experience
You can’t just roll out of college and start a financial technologies company in India. You need to have work experience in financial services and should understand the challenges that bankers face. Even then, it is challenging.
Ideally, you should spend a couple of years working at any good institutional bank or a brokerage firm. Investment banks are also great training grounds. You can also join a fintech start-up that you admire, and which is in the same space that you want to be. Find out what the business is all about. Learn about competition, regulation, and most importantly, technology. See how the entire banking process from cash transfers to opening FDs, is done through mobile applications. You also learn how to work on Excel sheets and mini-presentations.
When you work in a financial services company, you get to face day-to-day challenges. You can get a lot of new ideas on how to make things better, out of these experiences. Find out what the customers want and then take the step to do your own business.
2. Know the difference between what’s cool and what makes money
Some business ideas may sound fantastic but may be very difficult to monetise. Try to find a solution to make money as soon as possible. Try and build something quickly, and rapidly convert it into a prototype. Then figure out, if it is meeting any demand.
In the capital market fintech space there are lots of opportunities for digitisation. This industry may give rise to some very profitable and potentially scalable start-ups with attractive exit opportunities. Alpha Capture is a well-established strategy in investing that tracks trade recommendations, and it is widely used by investment banks. On the opposite side of the spectrum, there are social trading websites, where traders discuss their investment strategies. You can combine these two ideas and create a platform for individual traders with a top-level user experience.
3. Know the regulations
It is very important to know the regulations and laws within the banking and fintech companies. Many bodies are governing the industry such as the RBI, SEBI, and the Ministry of Information and Technology. It is also regulated by the state governments.
If you don’t understand the regulations, you won’t be able to do a lot of things that you would like to do. It is also possible to do something illegal, inadvertently.
4. Identify your niche
Identify new business ideas that can solve a problem your potential customers are facing. You need to do research in the broad fintech services vertical. While choosing your niche, consider the following:
- The country you are targeting.
- Category of users you are targeting.
- Your expertise in a specific field.
If you want to know whether your fintech idea is viable, verify it with a short checklist:
- There are no similar solutions in the market.
- It is not a one-time solution.
- It can address your customer’s needs better than your competitors.
- The application is personalised and simplifies the user’s life.
5. Study the competition
As soon as you have chosen your niche from the many start-up ideas, study the competition and find your competitive advantage. What are they lacking? Financial services is a broad market with existing solutions. You have to find something disruptive that will distinguish your solution - and improve the quality of mobile banking.
You can also collaborate with, for instance, online groceries or fitness centers, service research, and facilitate online payment for their customers.
6. Have a well-defined product strategy
Think about the product and quickly validate it. Have a well-defined strategy to pack it into a mobile or a web application. Get some people to try it, and analyse their feedback. If something is redundant, get rid of it.
If you don’t have enough funds to create a complete fintech app, you can ask your tech team to build a Minimum Viable Product (MVP). You can show this as a proof of concept to potential investors.
7. Get Money
There are numerous ways to get funding for your fintech start-up. These include bank loans, crowdfunding, or venture capital. You can even ask your family or friends.
8. Hire the right people
To create a successful fintech start-up, you must have a great team by your side. Hire a software development team with specific domain knowledge and relevant experience. Other people you would need are talented financial app developers and engineers.
9. Establish trust
Historically, people trust banks with their money. It is difficult for a start-up that does not have an established brand and a strong track record to gain that level of trust. Trust has to be earned for people to come in with their money. For that, you have to work hard and be committed to the market. Show the market that you are advertising and building your brand, and you are here to stay.
10. Think global
Don’t aim to operate in a tiny vertical. You can target the people who do not have access to a formal banking system. This is a huge category, across the world, and the opportunities are vast.
There are many cases in emerging markets where Asia is leapfrogging, and fintech is playing a major role in financial inclusions. Online payments and micro-lending are two growth areas that you can look into.
11. Invest in technology
As a technology company, you should get your hands on all cutting-edge technology like AI and Blockchain. Blockchain is a revolutionary computing architecture that powers cryptocurrencies like Bitcoin. It eliminates third parties in financial transactions and simplifies the processes. Find the perfect, cost-effective technology partner for your needs.
12. Don’t underestimate the challenge
Fintech is a very difficult industry, and some entrepreneurs underestimate the amount of hard work they have to put in. The industry is dominated by giants like Microsoft, and some successful start-ups like Coinbase and Stripe-so, getting a break for a newcomer is tough. That is why you need to have some cash balance that can act as a buffer.
According to a report by Valuates, the global fintech market will reach $124.3 billion by 2025, growing at a CAGR of 23.84%. For this reason, there are good opportunities for entrepreneurs wanting to invest in this small business. We hope that our fintech start-up guide will help you make a mark in the financial technology sector.
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Q. Can I rely on third-party frameworks to handle the financial transactions of my fintech start-up?
Ans. It is advisable not to rely on third-party software providers, and instead go for custom development. Ready-made solutions can’t provide all your requirements.
Q. Which is the most popular fintech app?
Ans. The most downloaded fintech app is undoubtedly digital payments that are easy, fast, and safe for consumers to conclude financial transactions across the world.
Q. What are the things, a fintech product is commonly integrated with?
Ans. A fintech app doesn’t work alone, but alongside card payment processing systems, investment platforms, or banking technologies.
Q. What are some promising niches for my fintech startup?
Ans. Some of the lucrative sectors are insurance, online fund transfer, and stockbroking.
Q. Which are the major areas of the operations of a fintech company, does the RBI regulate?
Ans. The RBI mainly monitors activities like lending, cryptocurrencies, and payments.