February 8, 2016
At LTP we love to engage with FinTech startups. Its incredible to see some great ideas and talk to some exciting teams. We have written about and covered 2000+ startups in our articles. I personally get to meet/talk to entrepreneurs in this space quite often and share ideas with them. And yes, we also meet with bankers, incumbent FIs and other actors in the eco-system as well and learn from them as well. The important thing is that I get to learn and meet several people who are either planning to start their own FinTech company or have already started developing some sort of a FinTech product/feature. One common trend is that they need help (not too much but at the right moments), lots of encouragement and some advice. I felt that it was important to identify the things that they should consider so that they become successful in the long run.
[Note: These are just plain simple advices based on what we are seeing and I could be wrong.]
- The big problem to solve: If you are going to spend the next 2–20 years of your life running after an idea, it better be big. In 2014, the US insurance industry wrote new policies worth $1.1 trillion in net premium. That’s big. As they say, Go big or go home.
- Where technology can do miracles: Gone are the days when a company would win by re-packaging products (smaller sachets of shampoos or bigger mouth of the toothpaste tube) or finding a new distribution method (multi-level marketing). From business models, the world is moving to IP stacks. Disruption is being brought not by payments experts, but by technology experts and people passionate to utilize technology for a better experience for end-users. Innovation is coming from techies rather than business professionals—companies like Venmo, Square, Stripe, Braintree and many others to name a few. Those disruptors came from a tech background and wrote a lot of code to make their point.
- Where incumbents don’t offer a fair deal: High interchange fees; no loans to people who don’t have a file or who don’t have credentials; almost every area of insurance has complex fee structures that are difficult to comprehend for consumers.
- Where there is no given loyalty: The churn is at an all-time high in many financial services. Less sticky ones are good targets.
Progressive banks have shown great interest in FinTech. They don’t consider FinTech to be a threat in all cases; instead, they feel that working along with FinTech firms can solve some major issues that exist in the system. Today, banks are engaging with the FinTech startup community through several engagement models:
- Investment: Venture units of banks are investing in startups in various areas such as blockchain and robo-advisory services.
- Hackathon and startup contests: Banks are conducting hackathons to identify teams that can help them with fresh ideas, to reduce cost and can help in improving end-customer experience.
- Partnership with startups to serve customers: Banks are partnering with startups to reduce the complexity of processes.
- Acquisitions: Today, banks are also looking for acquisitions. Banks have shown clear intentions of acquiring FinTech firms that will help them to reduce costs related to settlement and international money transfers.
- In the form of a client: Several banks that are not looking to acquire or invest are ready to work with FinTech firms.
Whatever might be the engagement model, banks can work with FinTech firms in several categories. The below-mentioned diagram illustrates the fact that there are new capabilities that banks need to attain, and for building these capabilities, FinTech startups can help.
Source: McKinsey Analysis
FinTech firms operating in B2B and RegTech are expected to see a surge in demand. B2B payments are known to be inefficient and expensive. There is an immense need for streamlining settlements and reconciliation of business commerce. At present, the major challenges are international B2B payments, working capital optimization, zero cash visibility and friction in buyer-supplier relations. So B2B startups have immense opportunities to streamline it. A few promising companies in the B2B segment are TraxPay, FinexKap, Kontox, Fundbox and Hummingbill.
Banks and carriers are looking for next-generation analytics, consumer experience, remittance and credit products, and fresh ideas in many other areas of FinTech. Do you have those? Go and talk to banks or come and ask us for help.
RegTech refers to a set of companies and solutions that address regulatory challenges across industries, including financial services, through innovative technology. Some banks like HSBC and UBS spend up to a billion dollars on regulatory processes and systems. The complexity and cost need to go down. Also, the flow and exchange of information with regulators needs to become faster and smoother. Here are a few promising RegTech firms: FundRecs, Trustev, TradeFlow, Vizor, AlgoDynamix, IdentityMind Global, KYC Exchange, OSIS, Suade, Tradle, Trulioo and AuthenticID.
As you’re dealing with money, you need to be cautious at every point. Startups need to be always updated regarding licenses. While you are dealing with money transfers, you need to be especially careful about AML and anti-terrorism acts. You can read more about it in some of our other articles. And people have written extensively about this topic.
APIs are the answer to the question of how FinTech leaders are able to build products faster these days. There are currently more than 600 APIs catering to financial services. In the days of a great variety of APIs powering all kinds of financial services, there is no need to invent the wheel again. Before building any financial product, each FinTech startup needs to make sure it leverages some insanely useful APIs to offer the best solution and save time and resources. Considering the amount of APIs present in the market today, it is very important to recognize what we are exactly looking for. The important factors to consider while choosing an API include functionalities, services and pricing. The API allows developers to integrate the functionality into existing apps and platforms. Developers look for certain functionalities while choosing an API. These APIs also target some selected markets based on the functionalities they provide.
FinTech startups find it difficult to understand the industry dynamics. Consultants are expensive. In such a fast-growing industry, it is difficult to keep track of your competitors and partners. MEDICI, powered by Let’s Talk Payments, helps startups in better positioning and outreach to the FinTech community in general and investors in particular. Your next meeting with a bank or a VC could happen through MEDICI. Visit https://medici.letstalkpayments.com/ and claim your profile.
I agree that there is a growing breed of accelerators. Each of these platforms provides the startups with a specific time frame, committed membership, mentorship, and sometimes, capital & development efforts, making the startup concept ready for the market. Look for those that help you grow revenues, get customers (banks, FIs) and help you with mentor capital; check the partners on board.
In today’s world, it is very difficult to let the world know about your product. The attention span is at an all time low. People are not waiting for your product to hear your story. You have to reach them and make sure they notice you. Therefore, it is very important to make your presence felt in the media. You need to make your brand popular even before you actually go to sell.
Try reaching out to popular big traffic media outlets and then, some FinTech exclusives as well. FinTech portals like Let’s Talk Payments will help your story reach the right kind of people in the ecosystem such as banks, regulators and investors.
What should be the strategy? Publish your story and developments in the media on a monthly basis; don't lose momentum. Invest in content: Adyen has been running their Mobile Payments Index successfully for the last few years. It has become an industry benchmark. Crunch your transaction data, draw insights, sanitize it and come up with cool infographics that can be shared with the world. This will surely become great content for people who can't see your data.
LTP has published articles on Adyen’s MPI every time it has been released.
Digital marketing is a must in today’s world where the market is competitive. An effective digital media strategy will help in increasing the visibility among your target audience. Look at companies such as PayTM, Square, Revel Systems, Payoneer and others and how they do it. For FinTech firms, digital marketing is a must.
FinTech startups should look at attending some meaningful events. You can find the details of FinTech events at Let’s Talk Payments. Apart from LTP, you can also find information related to FinTech events at ConferenceTracker.com. Set up meetings beforehand and don't just wait for serendipity; engineer the serendipity.
Companies operating in the B2C segment should also think about organizing road shows and fun/cultural events and make people use their products.