Do you want to know how to start a FinTech company? Starting a FinTech company is not an easy feat. Unlike other startups, Financial Technology (FinTech) startups have twice as much work to do to establish a new company. In addition, since FinTech companies are both businesses and technology providers, these startups must ensure that they operate optimally on each end before they can successfully launch.
If you’re thinking about creating a FinTech company, there’s a lot of planning, research, and testing to be done in the early stages of business and product development. You’ll need to ensure that you have a firm grasp on all things related to the financial industry, the types of services you want to offer your customers, and the audience you want to market to, among other things. So it’s understandable if you are feeling overwhelmed. Fortunately, you can do a few things to better prepare yourself for the journey ahead.
Having partnered with several financial tech companies throughout the years, we here at Koombea know what it takes to make it as a small business in the financial world, especially if you are considering creating an app for your products and services. So, to help you get started, we’ve put together a list of key steps and vital information that all FinTech startups should know before starting a FinTech company.
How to Start a FinTech Company: The Process
To start a FinTech company, you must combine world-class software development with a novel business model that offers consumers distinct value. The financial sector is full of business opportunities, but developing new technologies is only half the battle of building a successful startup in the FinTech sector.
You will also have to develop novel business processes that provide clear and unique value to consumers if you want to separate traditional financial service providers from their existing customers. Building a successful FinTech startup is difficult, but it is not impossible. If you employ meticulous planning through the following steps, you can build a successful FinTech app and company:
- Develop an idea
- Validate your idea
- Have a clear understanding of both the finance industry and technology regulations
- Determine the FinTech services you’ll provide
- Get to know your audience
- Research your competitors
- Choose a web and app development company
- Prioritize security
- Secure funding
- Develop and improve
Develop an Idea
Every FinTech startup begins with a great idea. Take your time thinking about ways to disrupt traditional banks and financial institutions. Market disruption is crucial to the long-term success of your FinTech business. Brainstorm app and business ideas with your leadership team if you already have one, and remember, don’t be quick to dismiss ideas during brainstorming sessions. You never know which idea might be the most successful.
A great way to brainstorm disruptive solutions for the FinTech industry is to look at common pain points that other financial companies have difficulty solving. Once you and your team have identified these pain points, offer solutions that solve or ease them. Here are four great questions you can ask to perfect your FinTech development project and find a competitive advantage:
- What payment can be made more accessible?
- Is there an easier way to accomplish…?
- What can be improved by my FinTech app?
- Is it time to pivot?
What you need to keep in mind is that no idea in the FinTech industry is perfect. Everything can always be improved upon. If you are having difficulty developing an idea that you think will work, consider looking at other FinTech startups that you admire. Create a list of the services they provide and think about ways in which these services could be improved.
Even if the only improvements you make are to the customer and User Experience of the FinTech app, you will still have a valuable idea to drive your FinTech startup and attract users to your services and business.
Validate Your Idea
Once you have a developed FinTech idea, you need to know if it will work and if there will be market demand. Idea validation can be done through market analysis, research, user surveys, and more. The simplest way to validate the idea driving your FinTech startup is to use Google. Google has two valuable tools that you can use to help validate your app idea, Google Keyword Research, and Google Trends.
Google Keyword Research is more than an SEO tool. It can also be used to gauge product demand. You can search for phrases and words related to your product or service idea using the Google Keyword Research tool. The tool then shows you the number of Google searches directly tied to these words and phrases.
Google Trends is a tool that gives you a visual representation of search interest for a particular keyword or phrase. You can even use Google Trends to compare the search interest of multiple terms or phrases against one another. In addition, Google Trends not only graphs how search interest for a particular search rises and falls over a time period of your choice (you can choose to view interest graphs from 2004 to the present), but it also projects search interest into the future.
In addition to these two Google tools, savvy FinTech entrepreneurs use the Apple App Store and Google Play Store to survey what ideas and features are working with consumers and which are not. Check out the app stores to see how FinTech apps like yours are currently performing. What is working for these apps? What is not? App stores provide valuable customer reviews, which can give you unparalleled insight into what consumers are looking for in a FinTech app.
Before you begin FinTech app development, make sure that there is real consumer interest in what you will offer. If the idea you had doesn’t seem to have a lot of interest, brainstorm ways you could incorporate more popular features and services, think about how you are positioning and branding your app, or start brainstorming new ideas to validate.
Have a Clear Understanding of Both the Finance Industry and Technology Regulations
Anyone thinking of starting a FinTech company should be aware of the regulations governing the finance industry and tech software products, such as web and mobile applications. Financial information is extremely sensitive, and strict laws determine how this data is shared, stored, and transmitted.
As far as regulations are concerned, different countries abide by different standards. For example, FinTech startups in the European Union (EU) or those offering services to EU members outside EU territories must adhere to the General Data Protection Regulation (GDPR) legislation for the transmission of consumer data, particularly when that data is being transferred outside the EU.
The U.S. currently doesn’t have a single law regarding the transmission of financial data and instead sets legal standards depending on the type of data in question. For example, FinTech businesses that offer payment features must adhere to the Payment Card Industry Data Security Standard (PCI DSS). U.S. FinTech companies are also subject to individual state and federal laws. Many FinTech organizations are often required to register with individual agencies, including the U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTD), to name a few.
These regulations are in place to protect both consumer and business financial data. However, these laws (including privacy laws) don’t just apply to the data being transmitted between banking industry players or payment processing companies; they also apply to the data being accessed on web and mobile apps. For these reasons, FinTech startups should ensure that any software offered to the public is extremely secure, especially regarding web and mobile applications. In addition, FinTech companies should encrypt all transferred data, set up two-factor authentication systems for logging into accounts, and continually monitor systems to prevent and address potential data hacks.
Determine the FinTech Services You’ll Provide
FinTech is a broad term used to describe a wide range of technology products and services that facilitate financial transactions or the management of an individual or company’s finances. Because there are so many financial solutions available to consumers and businesses alike, it’s very difficult for a single company (especially a startup) to provide every type of FinTech service to customers.
If you have considered building a FinTech company, it’s important to narrow down your services to a specific niche, such as general banking or lending. That way, you can focus your time and resources on this area and work toward becoming a leader in this niche. Below are some of the different types of FinTech niches to choose from:
- General banking
- Personal finance management
- Investments and trading
- Lending
- Payment services
- Money transfers
- Cryptocurrency trading app
- Currency exchange (including electronic currency)
- Tax services
- Mobile banking
- Payroll services
- Credit reporting and monitoring
- Data security
- Market research
Regardless of the FinTech services you provide to your customers, it’s important to ensure that you offer something innovative. You don’t have to reinvent the wheel, but if you want to stand out, ensure your startup provides a solution to a user’s needs in a way that hasn’t been done before. This can be accomplished in several ways, but for startups, the best way to stand out and attract customers is by offering a specific service to a specific audience, such as an app that provides financial planning tools to single mothers or a mortgage lender comparison service for veterans.
In addition to focusing on a specific FinTech niche, it is also helpful to start small in terms of scale. You shouldn’t be focused on global service at the beginning of your project. Instead, start with size you know you can manage. Many of the best FinTech startups begin providing their service locally, local to their city, state, region, or country before they expand into global markets.
When you start a FinTech startup, you likely have global aspirations, but make sure your product works and is popular with a specific niche market before trying to expand. For example, suppose you can successfully capture users on a local or regional scale. In that case, your FinTech startup will attract venture capital and other institutional investors to help your business grow and go global. Remember, you must walk before you can run.
Get to Know Your Audience
Determining the types of FinTech solutions your startup will provide goes hand in hand with the audience you will serve. Knowing who you are marketing to is important because not everyone will find a specific FinTech product useful. For example, if you provide retirement finance services, your target audience will be more mature. On the other hand, if you provide mortgage rate comparison services, your audience can be a bit broader.
Once you set your target audience, you can also design your FinTech web and mobile app accordingly. This is crucial to the success of your business because just as some financial products don’t necessarily resonate with certain demographics, many app features will not be attractive to your target market either.
Younger audiences prefer vibrant and animated graphics and can navigate more complex functionalities in their apps. More mature audiences tend to prefer simple app features and straightforward information. Knowing your target audience concerning their financial needs and technology preferences is a vital step when creating a FinTech solution. Choosing the wrong audience to present your product to or offering an app they will not find useful can hinder you from gaining loyal customers.
The best way to narrow down your ideal user audience is to do market research on your FinTech service. A little market research will go a long way and help your business understand the people most interested in what your company has to offer. For example, who is most likely to use a personal finance app? The FinTech market benefits from the ubiquity of financial transactions. After all, everyone uses money and has bank accounts, but if you want to succeed, you must thoroughly research the people most likely to use your app and market to them.
Research Your Competitors
How can you improve upon the services of other FinTech businesses if you don’t know what they are doing? After determining your services and audience, the next step is to research your competitors. Competitor research can be very valuable to your business as it navigates the development process. Plus, getting in-depth information about your competition and the app and services they provide is very easy.
Check out some of the top FinTech companies in your area to see how they are positioning their brand and designing their FinTech apps. You can use app store reviews, company websites, marketing software, or even just download competitor apps for yourself to get detailed insight into what your competitors are doing well and where they are failing. This will give you a general idea of what you are up against and the current FinTech trends your prospective customers are looking for.
Sometimes the most valuable information you get from competitor research is what not to do. Thanks to user reviews, you can see where your competitors are coming up short and design solutions to address these gaps. You can also see where your competitors are pricing their services and look for ways to provide more value to customers. Competitor research will also help you narrow down the audience you should be targeting if you are still having difficulty doing so.
Choose a Web and App Development Company
By now, you’ve probably already chosen a team of professionals for your new FinTech startup. However, selecting the right web and app developers is equally important to ensure your software is optimal and provides a great User Experience (UX). Only a world-class digital product will ensure your startup’s success. As a result, hiring the right software development team is critical to the longevity of your business.
Each development company has preferences regarding its tech stack, meaning the programming languages, frameworks, and databases they use to create websites and apps. Therefore, it’s important to choose a development team with experience building FinTech applications, so they know the best technology for your particular product and the specific privacy regulations your software will be required to abide by.
Don’t rush the process of choosing an application development partner. You need to ensure that the company you choose treats you like a partner, understands the complexities of FinTech development, and has built similar apps in the past. Choosing an inexperienced development partner can lead to difficulties with regulatory authorities, design issues, and problems with development. In the long run, partnering with a company like this will cost you more since you will need to fix development errors.
Many people recommend that FinTech startups use an offshore software development team to reduce costs. However, outsourcing the development project that will be the bedrock of your FinTech startup to India, China, or other eastern countries is not a good idea. Offshore software development might be cheaper, but the time difference and language barriers will make it difficult to communicate in a timely manner.
A cost-effective development option that FinTech startups should consider is nearshore software development. Nearshore software development outsourcing is cheaper than onshore options, but the developers work in the same or near your time zone, they speak your language, and there is a shared cultural background. Many startups are discovering that nearshore software development in Latin America is effective and cost-friendly.
Before you choose any development partner, make sure they can clearly articulate their development process and show you examples of similar projects they have worked on in the past. App development is a significant investment. Don’t rush to choose a development team until you are sure they are the right fit for your business and its goals.
Prioritize Security
Before development begins, security needs to be prioritized. Hopefully, you chose a technology company that integrates security into every phase of the development process. If you haven’t already discussed security and privacy concerns with your development partner, you need to make sure that security is a priority from day one.
Fraud, theft, and blackmail are the largest concerns driving security in the FinTech market. Ensure that all sensitive data your company collects and stores is encrypted following the strictest industry standards. You should be running security testing during every stage of app development. Not only does this ensure that errors and other flaws get caught before deployment, but it also helps your business reduce costs. To further strengthen your security posture, consider incorporating penetration testing as a service (PTaaS) into your development process. It offers a flexible and cost-effective way to continuously identify and remediate vulnerabilities in your applications.
The longer it takes to find and fix an error, the more expensive it is to fix. FinTech startups cannot afford to be wasting financial resources as they fight to gain a foothold in the market. If you prioritize security and promote strong standards from day one, your startup will save money during development and have a secure product.
Secure Funding
There are several different ways to secure funding for your startup. You could bootstrap, which essentially means you raise all of your own funds without taking money from investors. Other popular funding options include venture capital, crowdfunding, traditional banking loans, private financing (such as funding with 7(a) loans), and ICO (initial coin offering). With traditional banking loans, it’s crucial to determine how much loan is needed. Using an online business loan calculator can be a great help in this aspect. Many FinTech startups will likely employ several different fundraising strategies to raise capital and build their product.
No matter which funding strategy you choose, make sure you understand the requirements. For example, if you take money from venture capitalists or other investors, you will likely have to cede some of your control over the product you are creating. Some FinTech entrepreneurs might not like the idea of giving an outside investment group control or say in design, development, and business matters. Another important aspect to remember is that different sectors and industries might require unique approaches to fundraising strategies. For instance, nonprofit organisations often use different nonprofit fundraising plan strategies compared to traditional FinTech startups. These might include donor management, event-driven fundraising campaigns, corporate sponsorships, and volunteer-led initiatives. Even though your FinTech startup will, perhaps, have a different business model, understanding a diverse range of fundraising strategies can be valuable. It not only broadens your perspective but can also lead to innovative cross-sector ideas for raising capital.
All startups require funding. In some fashion, you will have to raise funds, and you will likely have to do it in multiple rounds. Having something to show potential investors can be helpful in securing funding. Many startups develop prototypes or MVPs to attract additional investment funding.
Develop and Improve
Once you have considered and done the previous steps in this post, your startup is ready to begin development. Once again, many startups choose to build a Minimum Viable Product (MVP) first. By building an MVP, your startup can validate key features and services, collect valuable feedback from your users, and make improvements to your product.
The best approach to app development is to start small and improve your FinTech product over time as you collect feedback. The FinTech market is full of great apps. The best way to be competitive in a saturated market like FinTech is to reduce your risk. Starting small and making development improvements and additions over time reduces the risk of your startup while it is in its most fragile state.
No matter how innovative your idea is, you won’t displace traditional banking services overnight. Even if you decide that developing a full-fledged application is a better strategy than beginning with an MVP, your project doesn’t end with deployment. If you want your FinTech startup to succeed, you have to invest time and financial resources into continuous improvements and additional development.
FinTech is a competitive industry. Your business needs to have a mindset of continuous improvement. Even after deployment, it is helpful to continue brainstorming ways in which your digital product and services can be improved. The development process will not end until your app is decommissioned and shut down. If your startup is successful, your app will likely be in service for decades.
Final Thoughts
You don’t necessarily have to do every step previously listed prior to the development of your app. However, in our experience, the most successful FinTech startups follow these steps. however, they may work on some of these tasks in a different order. For example, many startups begin raising funds as soon as they have a solid idea to work on.
Deciding to create a FinTech startup is a big decision. There are a lot more regulatory issues to consider compared to other startups and projects. If you need help determining how to start a FinTech company, reach out to an experienced app development partner who can show you the ropes and guide you through a complicated process.
