The industry of financial technology products is moving into top gear with each passing year. The total fintech funding has already topped $8.3B according to the CB Insights report. Innovators and entrepreneurs come up with forward-thinking ideas for fintech startups, continuously identifying new growth opportunities.
The Dashdevs product development team receives requests for the production of new fintech apps almost every day. Since we’ve transformed from the ‘engineering-only’ firm into the fully-fledged digital ecosystem building company, the large majority of requests include everything starting from consulting to design, engineering, HR and recruitment, and testing services. Application development becomes only a small part of our everyday job.
Today many leads come from London as the current cradle of innovative financial solutions. Igor Tomych, with the Dashdevs integrated product team, helps numerous UK-based companies deliver hi-tech products to the market, acting not like outside labor, but taking full responsibility for the technical aspects and serving as an integral part of the team.
We collaborate with both well-established fintech firms and audacious fintech startups every day, and we notice recurrent problems from company to company. Consequently, we’ve decided to write a series of articles that will help newcomers make the big time, avoiding common pitfalls and material losses.
The first article in this series will cover the basics of fintech startups and define the approach to help you systematize your digital product development process.
What is a fintech company?
A financial technology or fintech company provides software or technology solutions for the automation of financial services for the business and customers. Thereby, fintech companies improve or create new ways for banking, payments, money transfers, investment, and money management. Nowadays, London overtakes New York and is about to steal the global fintech investment crown, becoming a fintech capital despite all Brexit uncertainty.
Fintech is not synonymous with a bank. Not all companies become fintechs because they want to morph into a bank. For instance, Uber has analyzed its registration flow drop off and figured out that a significant number of users stop the sign-up process when they are asked to add a debit card number. As it turned out, the majority of Uber drivers didn’t have an entrepreneur account, that’s why the Uber cab company has decided to help its drivers and consequently become a fintech company.
What are the types of fintech companies?
Analyzing our solid experience in fintech product development and consulting services, we can divide applications into the following categories:
- Budgeting and personal finance management. Budgeting and personal finance management software used to be a real challenge for users since it was fully manual and with awful customization. The introduction and proliferation of Open APIs, PSD2 regulation, and Open banking initiative assist fintechs with obtaining necessary information about transactions right from banks and financial institutions. Digital finance management systems allow users to collect all their financial data in one place, analyze it, and work toward better budgeting and planning.
- Lending. Fintech loan apps simplify the process of borrowing since users don’t need to visit offices, credit unions, or bank branches. They can lend money online, while the process consists of the KYC check, verification, and credit rating assessment.
- Payment and international money transfer. Fund management has quickly become the principal niche for fintech companies and financial service providers. Businesses introduce new solutions that allow users to transfer money cost-effectively and in real-time.
- Digital banks and financial institutions. Today individuals are happy not to visit their bank branches each time they need something, spend at least half an hour in the line to open an account, or reorder a card. We know the value of time, and that is one of the main reasons why high street banks are steadily moved aside. Modern technologies allow users to go through the KYC/KYB process anywhere and anytime, simply using their mobile phones and fintech banking software. Now digital-only banks can provide pre-paid and credit cards.
- Equity financing. Crowdfunding organizations are quickly gaining ground after the Kickstarter success. Every individual can use a fintech crowdfunding platform and become an investor of a promising startup to help it raise money for future development. Social and viral elements also come as parts of the fundraising process.
- Insurance. Although this sector was slow in adopting the innovation, users craved for changes since they didn’t want to spend hours or even days waiting for a quote. Modern insurance fintech startups are more flexible than traditional insurers, and they offer better user experiences. These days insurtech companies are more often not associated with fintech and seen as a separate business area.
- Robo-advising. The investment process often turns out to be tedious and confusing for a simple user, but if an application helps them to understand it, customers may earn billions. With robo-advising companies, individuals manage their assets efficiently and get a better insight into investing. Bots are available twenty-four-seven and ready to execute any required action anytime.
- Blockchain and cryptocurrency. Fintech crypto is the youngest and the most underestimated direction. Currently, people can find peer-to-peer exchange platforms, wallets, and even crypto-based cards, but this is only the beginning of the revolution. More and more banks are considering the use of blockсhain in their bank infrastructure to boost security.
How to create a fintech startup that will thrive?
The main problem with modern startups is that they try to copy existing market leaders to achieve the same results. However, nine times out of ten, it is a bad idea.
The formula for a business success lies in the combination of design, technology, and business that leads to the behavioral changes of the users. This is the next step in digital product development.
The modern market requires entrepreneurs to be aware of the psychology of human behavior to help them make gains. This is hardly achievable from the beginning, however, with the implementation of data science and data modeling, business owners start to understand their customers better and can improve their products accordingly.
If you’d like to make sure that your new fintech idea is viable, you can verify it with a short checklist:
- It addresses actual user pain points or simplifies their life;
- It is not a one-time problem;
- There are no similar solutions on the market;
- The application helps users become better;
- The idea drives you personally.
Six reasons why now is a good time to start a fintech business
Fintech is a trending, dynamic, and truly progressive industry. Each day we can read more and more articles about fintech firms that become unicorns or get another round of investment. Here are some reasons why fintech companies are growing in popularity:
- Scalability of cloud technologies. Now companies don’t use on-premise solutions because they are hard to maintain, hard to scale, and they are slow in setting up a new environment. Cloud service providers like AWS or Microsoft Azure offer completely different experiences, support your growth, and require less investment at the start.
- Open APIs. Financial service providers and banks can promote collaboration and streamline the integration of services using public APIs and open protocols. In this way, they lower entry barriers for any company and enable it to offer financial products to its customers.
- PSD2, Open Banking, and other regulations. Unified standards for fintech services facilitate entrance to the market and improve the online shopping experience for users. Moreover, Payment Card Industry Data Security Standard (PCI-DCC) reduces fraud and builds confidence among bank and fintech customers.
- Platforms and fintech SAAS solutions. Many companies provide fintech platforms, orchestration layers, and ledger systems as fintech white label products. Consequently, they help new companies shorten their time-to-market and avoid unnecessary expenses.
- Users are ready. People eagerly opt for branchless banks and direct investments. Today users are always on the go, they want to be more independent, and so they agree to take risks.
- Expertise. Fintech has become very popular, and the industry grows in expertise. Now it is much easier to find developers who understand the difference between money and balance movement, or payment flow and transaction monitoring process. Moreover, there is a new business line — fintech consulting services — that helps companies improve or develop fintech products from scratch more time- and cost-efficiently.
You decide to open a fintech startup, what next?
As I’ve mentioned before, fintechs automate financial services and simplify them for end-users. A financial technology product consists of not only mobile or web application itself, so let’s take a closer look at the fintech ecosystem:
- Product. The value for end-users packed into a mobile or web application is a fintech product indeed. The entire product strategy should be well-defined and consistent; that’s why it’s important to create comprehensive descriptions of the technological architecture, functionality, key differentiators, and marketing strategy. Usually, a fintech product doesn’t stand alone, and it is integrated with card processing or payment processing systems, open banking technologies, issuing companies, or investment platforms. Additionally, fintech products require regtech and suptech solutions.
- Team. A fully-fledged application can not be delivered successfully to the market by one person. Typically, there are three teams you need to hire: a development team who will develop and maintain your product, top management with main executors, and customer support team. This is a bare minimum for a fintech startup.
- Financial and physical resources. Fintech startups are not cheap companies. Even if a company is outsourcing the entire product development as it was done by many successful companies according to the latest product development trends, it must have a budget for the office, facilities, marketing, promotion, partnership, and more.
In the next articles, we are going to cover these three dimensions of a fintech company in more detail.
Now is the right time for fintech companies to rise. The state of technology, users adaptation to the digital world, and regulations make it possible for entrepreneurs to build financial startups from scratch in a few months and be ready to launch as soon as possible. However, this is only the beginning. Business owners must hire a skilled team, develop a product, attract users, and turn them into loyal customers. After a few years in the fintech product development sector, I’ve started to recognize critical patterns that help us speed up the implementation process, all while ensuring maximum quality and compliance with product specifications and legal requirements.