Financial technology, or “fintech,” is one of the more active niches in the startup world today. According to CBInsights, 12% of all unicorns (private companies valued at over $1B) are characterized as fintech businesses. The third-largest unicorn is Stripe, which is currently valued at $56B.
Entrepreneurs are attracted to fintech for many reasons. It’s an extremely fast-growing space with tons of disruption potential. Fintech businesses everywhere are challenging long-standing models around how money is exchanged, borrowed, and managed in the global marketplace.
In 2020, nearly two-thirds of global consumers use fintech products or services, up from one-third in 2017. And 96% of global consumers are aware of fintech offerings.
Adding an interesting dynamic to the equation is the fact that many non-financial service organizations are entering the sector. Companies like Apple and Uber are offering credit cards, thereby altering our conception of what a financial institution is.
However, being a fintech startup does not guarantee you success. There are challenges to growing a successful business in this area, some of which are out of the founding team’s control.
If you are a fintech startup or are considering starting a fintech venture, always keep the following four realities on your radar.
1. Pivoting is Common
It’s not uncommon for fintech businesses to pivot or tweak their offerings to align with demand. There are many possible areas for disruption, but not all are equal. A founding team might set off to solve a problem for one specific target market and realize there is an even bigger unmet need elsewhere.
Don’t be scared to reevaluate your initial business thesis . As you learn more about the space, technological possibilities, and consumer desires, you may find your energy is better spent in a different, but related lane.
2. Regulatory Changes Can Change the Game Overnight
Government regulation can impact fintech startups significantly. As the global economy adjusts to new dynamics in this field, officials have to update laws to protect private citizens. How officials go about implementing changes can make or break certain business models.
As a founder, you must engage with regulators in your markets to understand their priorities and goals. Build collaborative relationships with leaders and share your expertise in a way that moves the sector forward. Don’t try to circumvent existing laws or design an offering to exploit a loophole that will likely be addressed in the future.
By taking a seat at the table with public entities, you can make sure your voice is heard in any conversation that could impact your business dramatically.
3. Relationships Matter
Because the nature of fintech is to disrupt the status quo, there will be forces actively working against you. Don’t expect incumbents to simply roll over and accept defeat. Be aware of who your business model will affect and how.
Think carefully about how others might respond if you directly threaten their existence. A wall of resistance can come up quickly if established companies with lots of cash work together to keep new entrants out. In many situations, it may make sense to partner with existing players, in which case, you might want to tread lightly when you first enter the scene.
Relationships always matter. In fintech, especially, leaders need to be thoughtful about how they approach the opportunity in front of them.
4. Premature Launches Are Tempting
The iterative software development approach makes it easy to deploy updates and improvements once offerings are already on the market. As a result, it is tempting to launch fintech products prematurely. On top of that, founders want to get to market before a similar, disruptive service beats them to the punch.
As a founding team, you should always set goals and timelines. But, it’s okay to push dates back if it means making crucial improvements to your product so that you can enjoy a stellar launch.
If you come out with a half-baked, buggy application, you’ll quickly lose confidence in your investors, the media, and the public. You only get one shot at a first impression, so make it count.
Prepping for Big Investor Meetings?
For founders looking for funding support, Funded.club provides consulting services to help teams prepare for crucial investor meetings and presentations. We’d love to discuss how we can set your venture up for success, whether you operate in the fintech space or another exciting area.
To learn more about our service packs, visit Funding page.
Ray Gibson is founder and CEO of Funded.club. He brings 20 years of experience in recruiting across Europe, North America and Asia and 5 years running his own startups.