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How to Start a Finance Company and Make it Successful?

How to Start a Finance Company and Make it Successful?
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17 min read

75% of consumers today use fintech products, and they have high expectations for the services they get. They want faster payments, lower-cost services, and other specific solutions. Fintech (short for “financial technology”) now refers to start-ups as well as small and medium-sized organizations (SMEs) that use cutting-edge technology to deliver financial services.

Many financial institutions recognize that digitisation is critical to their long-term prosperity. Their goal is to automate financial operations, make them more effective and accessible to end-users. However, most banks tend to experience difficulties integrating innovative solutions into the existing business models, caused by their sluggish legacy IT systems or lack of talent in-house, that is why they extensively outsource these functions to third-parties.

If you also wonder how to start a finance company, it is important to learn about the peculiarities of fintech product development, since it significantly differs from other digital solutions in terms of features, architecture, and implementation approaches. Moreover, the process requires a solid understanding of banking processes and regulations. In this post, we’ll delve into the company types and industry drivers, fintech ecosystem and start with an idea: its elements, market validation, and problems you may face during the implementation.

What’s 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.

To start a fintech company isn’t the same as to start 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’re 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 and made starting a finance company much simplier. 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 not the best way to start your financial services company.

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, but data science and data modeling progress allows business owners to understand their customers better and improve their products accordingly.

If you want to make sure that your new fintech idea is viable, verify it with a short checklist:

  1. It addresses actual user pain points or simplifies their life;
  2. It isn’t a one-time problem;
  3. There are no similar solutions on the market;
  4. The application helps users become better;
  5. The idea drives you personally.

6 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 it’s a good time to start a new financial company:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. Expertise. Fintech has become very popular, and the industry grows in expertise. Now it’s much easier to find developers who understand the difference between money and balance movement, or payment flow and transaction monitoring process. Moreover, there’s 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:

  1. 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.
  2. Team. A fully-fledged application cannot be delivered successfully to the market by one person. Typically, there are 3 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.
  3. 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’re going to cover these three dimensions of a fintech company in more detail.

What Makes a Successful Fintech?

Fintech solutions aren’t provided by new enterprises, as is often believed. Traditional institutions as well may dive into technology. Here we have few ideas of what makes fintech successful:

  • a smart mix of expertise;
  • a great knowledge of the finance sector;
  • top-notch tech team.

How Does Expertise in Finance Help a Company Become Successful?

Financial knowledge improves short-term performance, while reduced interest and finance expenses improve long-term success. Here are some examples of how financial expertise may help your organization grow:

  • You may get the finances required to keep your company running and creating income on its own.
  • You keep an eye on fees and interest rates to keep expenses down.
  • You know when to invest in expansion and when to save resources.
  • You employ a number of repayment options to strike a balance between cost and convenience.

How Does Knowledge in the Finance Sector Help?

This element may have contributed to the success of fintech. It is because of the proclivity to correctly fulfill client expectations. They often do this by ‘disaggregating’ the services. Disruptive technologies of fintech API companies are also being employed to enhance the services provided by traditional banks.

Cncentrate on the areas where the consumer is most irritated and in pain. Customers may now access banking services. In reality, a thorough knowledge of the financial industry is essential. It has an immediate influence on the local and global economies. Furthermore, it requires a deep understanding of financial problems. It considers the financial services and products required by companies and individuals.

How Does Success Depend On the Team?

To start a business finance company, you need a strong developers team. Engineers and developers serve as the glue that holds everything together. Programming abilities are required for these products and services. For example, for robotic process automation in financial services.

In addition, a deep grasp of AI and Blockchain technologies is required. Engineers and developers must be able to work with features. Cloud-based services, cybersecurity, and fraud detection are all examples of linked technology.

Gaper, for example, offers authorized and chosen engineering. It also provides financial consumers with access to in-house development resources. Is there anybody out there that is interested in programming languages such as Python, JAVA, MATLAB, C++, and Java? They are used in analytical procedures, quantitative tools, and pricing models. Aside from that, they can handle massive volumes of data in a timely way.

Start with Defining your Fintech Startup Idea

It’s critical to know your target audience, so allow enough time to discover their needs and expectations, as well as to figure out ways to address them. Based on our experience, an accurate time-and-cost estimation can take up to four months since it involves certain artifacts to be taken into consideration prior to development:

  • Product vision. This document describes the purpose of the product, articulates the issues it should resolve, and the actions to be taken for its achievement. It should explain a bigger mission and inspire every team member to do their best.
  • Product scope. It defines all the elements of the future product along with its functionality and appearance. Clear product specifications are must-haves to assess the required amount of effort as accurately as possible. We recommend agreeing on the scope at the initiation stage to avoid unnecessary costs and complications throughout the development process.
  • Visual design. Working with successful fintech startups for over six years now, we can claim that most people are visual learners, so they need wireframes, designs, and prototypes to be able to shape their vision of the product. Design requires less investment than the actual product elaboration and can serve as a proof of concept, demonstrating the feasibility of the idea to a focus group.
  • Regulation checking. Fintech products differ from standard applications, like social media or shopping solutions, since they have many requirements from the regulators and organizations controlling their business. The initial software requirements specification should cover account structure, balance management, reports, and customer support activity.
  • Architectural design. Having a good grasp of user-centered features, sophisticated visual techniques, and regulatory requirements allows the development team to build scalable and robust architectural solutions essential for seamless future updates. Business continuity is crucial to start a financing company and maintain it, as its customers are fully dependent on apps providing access to their accounts.
  • Single source of truth (SSOT). One key concept of this strategy is that all team members should be working toward the same goal and utilizing the same facts when making business decisions. This kind of database minimizes the need for staff to compare information from many sources, lowering the chance of misinterpretation.

Proceed with market research: will fintech products and services meet the demand?

Fintech started to grow already a decade ago. As soon as you have decided on the idea, don’t rush to put it into practice. We always recommend taking additional steps to be sure that the product-to-be is competitive enough to carve out a niche and appeal to potential customers.

  • Research the market. First, check if there is a high demand for the product or service you are going to deliver. Then get acquainted with competitors’ offers, learn about the strengths and weaknesses of their products to figure out whether you can come up with an advanced solution.
  • Validate the idea. As soon as the first graphic prototype is created, get an impartial focus group to test if starting a fintech firm is a good idea. They can point out weaknesses and make suggestions on what improvements can be made. We don’t recommend involving friends or family in the process, as they may be positively biased and, consequently, fail to assess your idea objectively.
  • Adopt a customer-focused development methodology. This approach implies getting to know your customers’ actual needs and preferences before starting the development. Having identified your potential audience, you should decide on the best channel to reach them, pricing tactics, actions related to product delivery, and others. In other words, it is the process of discovering, testing, and validating your business assumptions. It would be wrong to think that if customers have not appreciated the product upon its release, you would be able to prove its usefulness with the explanation.

Typical issues in fintech product development and how to solve them

Now let’s move to the problems you may face when embarking on building successful fintech companies.

  • Product copycatting. We often witness or hear about situations where business owners think of creating a copy of the product already present on the market to build a new functionality after a while. They believe that duplicating a product that has already proved its value to customers can’t but succeed. However, users are reluctant to switch to new digital products having no additional benefit in comparison with the ones in use. Thus, think of some unprecedented features to complement your product and so to make it stand out of similar market offers. Keep in mind that fintech products are integrated with other services, so this can be a source of inspiration for elaborating something truly innovative.
  • CEO dependency. The CEO is a success factor for fintech, as he/she acts as a visionary having a clear idea of what he wants to achieve. Design, marketing, and business strategies, along with the development roadmap, need the leader’s total involvement. Nevertheless, the team should be able to act independently of a CEO, as he is not physically able to approve of every member’s action. It can be possible only through practicing a single source of truth mentioned above.
  • Consistency of approach. Every department team leader should create internal guidelines for their teams on what procedure to follow when performing their job. For instance, designers need to agree on the usage of various elements, their positioning, and interaction styles. Each member’s piece of work should fit into the design ecosystem. Otherwise, even though each section color is the same, there will be no unified style, and the application interface will not appeal to customers. Another example is related to programming style and includes a set of rules for writing source code for a piece of software. Its expansion will enable programmers to write cleaner, more intelligible, and more maintainable code. As a consequence of this strategy, there is no longer a Frankenstein-like approach to application development.
  • Strategic alignment. Every solution is developed in line with product, business, and marketing strategies. They are aimed at building a product roadmap, strengthening business performance, and launching promotion campaigns, respectively. All the planned activities should be documented to avoid uncoordinated actions compromising the whole development process.
  • PoC and MVP synchronization. PoC illustrates some technical features but never includes all the characteristics inherent in the final product version. It is aimed at merely proving the idea feasibility to investors and has no robust infrastructure. The next stage refers to the development of the minimum viable product (MVP). It involves producing a version equipped with just enough features to get early customers’ approval and provide the team with feedback on further improvements. MVP covers end-to-end scenarios and emphasizes the key product identifier, as well as uses the same infrastructure that is planned for the final version but is rather small-scaled. A common mistake most startups make is related to building an MVP on top of PoC since changing the existing architectural solution may take even more time than developing the new one from scratch.
  • Figures tracking. After product releases, companies start the monitoring process. Here you understand if there is the planned success in fintech you created. Customer satisfaction and trustability become one of the most important criteria measuring the success of a fintech application. The number of monthly active users (MAU) and daily active users (DAU) shows how popular the software is. These and other indicators, like the acquisition cost and net profit, should be tracked too. Meanwhile, metrics criteria should be based on the strategies discussed above. In the case of low-efficiency performance, the company should respond immediately to change the situation for the better.
  • Underestimation of modern technologies. The use of innovations is sure to bring your business to a whole new level. The integration of data science technologies with fintech solutions enables advanced personalization and product analysis, whereas machine learning (ML) and artificial Intelligence (AI) can improve user experience. The good news is that you don’t have to develop anything from scratch. There are ready-to-install solutions providers, like Microsoft Azure or Amazon AWS, which have a comprehensive set of tools for businesses to improve their performance. Fintech has adopted some of the successful strategies specific to other industries. For example, there is a digital twin technology used for creating a digital copy of a physical entity, which is extensively utilized during the development process.

How Much Does It Cost to Start a Fintech Company?

The banking and financial industries rely greatly on upkeep and security. It is critical that Fintech app users see the security precautions in operation on a regular basis.

The expenses of maintaining a basic Fintech app will be low, but they are liable to change as banking and financial technology improves. Spending on security, user experience, and quality improvement may increase as a consequence.

The cost of developing a Fintech App is determined by the kind of app, the type of team, and the team’s location. Apps with advanced features, such as real-time credit score monitoring, EMI calculators, and data analysis, would be more expensive than anticipated.

The development team you choose has a significant impact on the project’s cost. The size of the development team also influences the cost of producing a banking app. If a mobile app development company lacks resources, it must acquire workers and address gaps in their team. The ultimate cost of a mobile app will reflect the developer’s commitment in resources.

Another important aspect influencing project costs is the location of the Fintech development company or freelancers. The cost is determined by the normal product size, moderate complexity, and the hourly rate of a team of 4-7 specialists (business analysts, project managers, developers, QA, designers), as well as the app’s development timeline of 9-12 months. These components are then multiplied by the price. Fintech mobile app development in Eastern Europe may be reasonable even for startups when compared to prices in the United States and other European countries.

Conclusion

As we can see, fintech mobile app development is a complex process that requires taking specific steps at each of its phases. The challenge of building an in-demand product is complicated by numerous regulations specific to the fintech domain. Nevertheless, it is worth the effort, as the move toward digital transformation is essential for financial institutions to remain competitive and provide the most advanced services. The next article will focus on third-parties involvement and the issues related to solutions integration. If you need any further explanation on the discussed aspects or seek expert assistance with your idea implementation, you can reach us via ourcontact form.

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