OCTOBER 18, 2023
17 min read
From my experience, and based on the open statistics, around 75% of consumers today actively use fintech products like banking apps. No wonder they have high expectations for the services they get.
In that regard, most financial institutions recognize that digitization is critical to their long-term prosperity. As I could notice, they intend to automate financial operations and make them more effective and accessible to end-users. However, such companies usually require assistance with integrating innovative solutions into any existing business model. I determine possible reasons for that: sluggish legacy IT systems or lack of in-house expertise. That’s why businesses extensively outsource development services 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. Me and my team know well that fintech products significantly differs from other digital solutions in terms of features, architecture, and implementation approaches.
In this post, I’ll delve you into the types of fintech companies and the potential rationale behind launching a startup. We’ll also explore key advice on how to start a tech startup and learn major considerations related to this matter. Additionally, I provide examples of successful fintech startups, including the one that emerged with the assistance of DashDevs.
What Are The Types Of Fintech Companies?
Analyzing my solid experience in fintech product development and consulting services, I can distinguish the following fintech business models:
- Digital banks and financial institutions: Modern technologies allow users to use their mobile phones and fintech banking software to access all financial services. Now, digital-only banks can provide pre-paid and credit cards.
- Budgeting and personal finance management: Digital finance management systems allow users to collect all their financial data in one place, analyze it, and work toward better budgeting and planning. The introduction and proliferation of Open APIs, PSD2 regulation, and Open banking initiative assist fintechs with obtaining necessary information about transactions right from financial institutions.
- Lending: Fintech loan apps by lending companies simplify the money-borrowing process since users don’t need to visit banks. They lend money online, just through the KYC/KYB process check, verification, and credit rating assessment.
- Payment and international money transfer: Fund management has quickly become the top niche for fintech companies and financial service providers. Such businesses introduce new solutions that allow users to transfer money cost-effectively and in real time.
- Equity financing: With the help of such companies, every individual can use a fintech crowdfunding platform and become an investor of a promising startup to help it raise finance in a company for future development.
- Insurance: Such companies provide insurance coverage of health, property, etc. Modern insurance startups in fintech are more flexible than traditional insurers, and they offer better user experiences.
- Robo-advising: The investment process often turns out to be tedious and confusing for a simple user. 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 probably the most overlooked direction. Currently, people can use peer-to-peer exchange platforms, wallets, crypto-based cards, and other solutions by blockchain and cryptocurrency companies.
Piece of advice: when founding your company, you can stick to only one specialization of fintech business or opt to provide multiple services, as most top fintech companies do.
Remember that your intended business won’t be a standalone provider of services or products. It will be a part of the wide ecosystem, the overview of which you can get from the following infographics:
Why Start a Fintech Startup?
From a technological point of view, the modern fintech niche provides new entrepreneurs with solid opportunities to enter the market. I distinguish three main aspects here:
- Scalability of cloud technologies: Now, companies can freely use cloud infrastructure for their apps. It is easy to maintain, scale and set up. Cloud service providers like AWS or Microsoft Azure offer vast capabilities, support your growth, and require less initial investment.
- 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, the Payment Card Industry Data Security Standard (PCI-DCC) reduces fraud and builds confidence among bank and fintech customers.
However, the only thought of choosing a thriving niche with the prospect of creating a profitable business is rather simplistic. It’s hard to argue that the cornerstone of a company is its financial health. However, deeper intentions, ideas, and a vision should lay at the heart of the new business’ foundation. It’s also true for the software development company I’m in charge of.
Let’s define several rationales that can push toward starting a fintech endeavor:
- Complementation of an existing, non-fintech business: For owners of companies majoring in other domains, diversifying into fintech can bolster current offerings and enhance business value for existing customers. It can also provide a strategic edge, often leading to increased revenue streams.
- Making use of existing experience and expertise in the domain: Leveraging pre-existing knowledge in finance or tech can give a head start in the fintech world. It allows for more informed decisions, optimizing the path to success. From real-life experience, it’s pretty common for developers and other engineering professionals to start their IT business after spending considerable time in the niche.
- Personal satisfaction: Creating a fintech solution brings immense fulfillment, especially when it simplifies or revolutionizes traditional financial processes. Witnessing its adoption can be a source of personal pride.
- Social impact: Fintech has the power to democratize finance, reaching underserved communities or just simplifying the financial environment for customers. Through technology transformation, one can promote financial inclusivity, improve accessibility to financial services for diverse social groups, and just make the world a better place to live.
- Desire to innovate: The fintech landscape can provide quite an opportunity to express creativity. By starting an innovative fintech company, individuals can introduce novel solutions, setting new industry standards.
Does any of the listed reasons to found a fintech business appeal to you? If so, let’s proceed with figuring out how to launch one in the following section.
How to Get Started in Fintech?
Whether you are exploring a new domain or are a young entrepreneur, it’s essential to approach the fintech sphere wisely. After all, the niche is rather competitive and demanding to expertise. Here is a step-by-step guide on how to approach your first fintech startup:
#1 Identify Your Target Niche
Before anything else, it’s crucial to understand where you want to operate within the vast fintech landscape. My advice to all new entrants is to pinpoint a specific niche that aligns with your expertise and passion. Consider areas with growing demands or ones underserved by current providers.
To expose the significance of choosing the right niche, let’s take a look at the journey of Stewart Butterfield, the Slack CEO. The original niche he was attempting to succeed in was gaming. Then he switched to photo sharing. And only after multiple failures he tried his luck in business communications, leading to the birth of the worldwide famous Slack in 2013. Quite a story, isn’t it?
The specter of fintech companies detailed above can also be regarded as a scope of niches you may consider entering with your new business. So, from finance management and online banking to equity financing and robo-advising, what are you up to?
#2 Find the Right People
Assembling a strong team will help refine your idea, understand technical requirements, and ensure you have the skills necessary to execute. Here is the possible composition of a team:
- Developers: Tech specialists who can build and maintain the platform or app.
- Financial analysts: Finance experts who can ensure the viability and profitability of your solutions.
- Regulatory compliance officers: Those knowledgeable about financial regulations who can ensure your startup remains compliant in the legal environment.
- UX/UI designers: Professionals who can create an intuitive and user-friendly interface.
Having a diverse team can greatly influence the trajectory of your startup. You can opt for building an in-house team. However, the right call for most organizations would be to apply for outsourcing or outstaffing services from a trusted fintech development provider.
Besides, you should pay a great deal of attention to finding potential investors early on. That’s especially important if you or your existing businesses don’t intend to fund the new fintech startup.
#3 Research Your Competitors/ Market Research
By looking at existing solutions in your niche, you can gauge market saturation and identify potential gaps. Consider researching the following aspects:
- Market saturation: Gauge how crowded the market is. A highly saturated market might pose challenges in establishing a foothold, while an unsaturated one offers potential growth.
- Trending features: Understand the popular features and services in the current market, which can give insights into what consumers expect.
- Pain points: Identify common problems faced by users with existing solutions, offering an opportunity to position your product as a solution.
- Regulatory environment: Stay informed about the regulatory landscape to ensure compliance and anticipate future changes that might impact your startup.
Market research justifies the need for a business analytics specialist’s involvement. In some cases, a provider of fintech development services can offer you a paid market analysis, as a part of a product discovery phase. This is typically a two-week part of a bigger project devoted to creating a fintech product.
#4 Define Your Unique Selling Proposition (USP)
In the competitive fintech arena, differentiation is key. Your USP is the beacon that attracts and retains customers. So, take time to clearly articulate what sets your offering apart from the competition.
USP can be formulated in the form of innovative features, superior user experience, cost advantages, or exceptional customer support. By zeroing in on a compelling USP, you not only position your startup to stand out but also give potential users a compelling reason to adopt your solution.
#5 Study Relevant Laws and Regulations
Fintech often involves navigating a complex regulatory environment. It’s essential to understand these rules early to make a compliant product. Some of the international-level standards are GDPR and HIPPA. There are also other standards specific to a particular location or devices your software will be being distributed through. Additionally, to run a fintech business, acquiring the following licenses is required:
- A banking license: Legally required for any institution wishing to accept deposits and offer lending services. Without it, institutions can’t operate as banks, ensuring only qualified entities handle public funds.
- Electronic Money Institution (EMI): Mandated for entities wanting to issue electronic money for consumer use. Ensuring only approved institutions can offer such services protects consumers from potential fraud or misuse of funds.
- Payment Institution (AI) authorization: Necessary for businesses that intend to provide payment services but aren’t banks. This ensures standardized practices, safeguards consumers, and upholds the integrity of the financial system.
The initial software requirements specification should cover account structure, balance management, reports, and customer support activity. You may also consider the idea of using a limited liability company for legal purposes. Early comprehension prevents potential legal mishaps, and fosters trust among potential clients.
#6 Develop a Core Idea
Based on your research, the chosen niche, and the created USP, you can then develop a concept or product idea that addresses a specific need or gap in the market.
The domain has a broad spectrum of possibilities. You may consider fintech startup ideas like:
- Digital wallets: Such apps or even fully-fledged platforms simplify online transactions and money transfers.
- Personal finance management tools: These instruments help users manage their savings, expenses, and investments.
- InsurTech solutions: InsurTech products like APIs, apps, cloud platforms, etc., leverage technology to revolutionize the traditional insurance industry.
- Payment gateways: Such encryption systems ensure seamless and secure online payment processes.
You also should draft a 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.
#7 Define the Scope of Your Minimum Viable Product (MVP)
Before investing heavily, consider creating the most basic version of your product that can be launched to test the market and gather feedback. It should help in the following ways:
- Core features: Help identify the must-have functionalities that address the primary user need.
- User experience and usability: Ensure that the app can have an effective user interface that facilitates interaction.
- Product-market fit: Determine whether there’s a genuine demand for your product in the market.
- Business Model Validation: Test the willingness of users to pay for your product or service.
- End costs: Make a more accurate estimation of the total project costs.
The MVP serves as a stepping stone, allowing for market validation without overextending resources. Don’t forget to share your MVP, test it on a group of target users, and gather their opinions. Many trusted software development companies consider creating an MVP an obligatory stage of most projects, especially when they are innovative ones.
#8 Determine the Fintech Services You’ll Provide
Once you’ve validated your MVP and understand the landscape better, you can decide on the full range of services your fintech startup will offer within the range of the intended software solution’s capabilities. Examples may include the following:
- Financial advisory: Offering automated or personalized financial advice.
- Lending services: Providing personal, business, or peer-to-peer loans.
- Investment services: Allowing users to invest in stocks, bonds, or mutual funds.
- Remittance services: Enabling cross-border money transfers.
The decision will help in fine-tuning your product suite and crafting a comprehensive business strategy. It’s especially significant when you stick to the idea of a fully-fledged fintech platform and can decide on providing a broad spectrum of services.
#9 Prioritize Security
Given the frequency of cyber threats, particularly in finance, building a secure foundation is not just advisable but imperative. Employ best practices, use top-tier encryption, and regularly test your systems for vulnerabilities to uphold user trust and ensure a resilient business framework.
How Does Success Depend On the Team?
For a successful fintech company, you should have expertise in this niche, as it’s rather specific and not like any other. Alternatively, you may consider engaging partners with a proven experience in fintech.
If that’s not followed, a company may face issues operating. For example, OnDeck, an online lending platform, faced challenges due to its inexperience in credit risk management, which affected its financial standing and valuation. It was sold later on. Now you know the score.
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, robotic process automation in financial services, and fraud detection are all examples of linked technology. You will likely need expertise in some of them or others to build a modern company, thriving in a competitive environment.
Here at DashDevs, a software development company, we specialize in creating fintech solutions for startups to SMBs. With more than 12 years on the market, over 500 projects successfully delivered, and a top-rated international team, we can help you get your business up and running.
Things to Consider Before Starting a Fintech Company
There is a range of aspects you should consider and take care of before you invest a first dollar into your business. As a person having my own venture, that’s largely involved with fintech niche, I distinguish the key matters here as:
#1. Building a network
Engage with industry professionals, attend fintech events, and join online forums. Connections lead to mentorship, partnership opportunities, and potential investor introductions.
#2. Own the expertise
Master your domain. Deep knowledge of fintech processes, technologies, latest trends, and market dynamics is critical for the business to stay ahead in the fast-paced business environment. Continuous learning and industry updates ensure informed decision-making.
#3. Don’t start by developing an app
First, validate your concept through market research, an optional product discovery phase, and prototypes. Understand user needs and demands to prevent costly, premature app development. Then, you can build a fintech app that will be able to fill the detected market gap.
#4. No tech co-founder is still a go
While having a tech-savvy co-founder is beneficial to the overall expertise and the project’s chances to succeed, it’s not mandatory. Outsourcing or hiring technical talent is a viable option, as long as you maintain a clear vision and control over your product’s direction.
#5. Patient and persistence
Fintech often involves navigating regulatory challenges and fierce competition. Dedication, resilience, and long-term commitment are essential for success.
Are you looking for an experienced technical partner for your project? Request product development services by DashDevs.
Things to Avoid When Launching a Fintech Startup?
At the same time, there are common pitfalls you should be aware of. Don’t fall into the trap of:
#1. Hiring mediocre employees
Quality talent is crucial. Hiring underqualified staff can reduce efficiency, hinder growth, and negatively impact company culture in the long term.
#2. Overlooking the actual needs of your niche market
Misunderstanding or ignoring market demands can result in irrelevant products and missed opportunities. The product and service you intend to sell should be for your audience’s liking, not for yours.
#3. Getting distracted
Maintain focus on core objectives. Diversifying prematurely or chasing every opportunity can dilute your efforts and strain resources. The common mistake in that regard is when an app doesn’t work properly when user activity is scaling. It happens, for instance, when necessary resources for development aren’t allocated because of prioritizing marketing.
#4. Not listening to feedback
Again, customer insights are invaluable. Ignoring feedback can prevent product improvements and limit your user base. When it’s hardly possible to implement the external visions, you can still modify and adopt them somewhat to make them a part of your own strategy.
#5. Not having proper financial planning and a monetization strategy
Financial health is the backbone of any startup, especially ones that don’t have mature businesses behind them. Make sure you understand your expenses and potential earnings and have a clear plan on how you’ll make revenue. This means knowing what you’ll charge users for, how much, and when. Having a good grasp of financial flows is what helps get through the tough times of market adoption.
#6. Product copycatting
While it’s tempting to mirror successful products, it’s vital to bring something new to the table. Simply copying another product won’t set you apart from the competition. Instead, focus on what makes your solution unique. It could be a feature, user experience, or addressing a specific need others haven’t catered to.
#7. CEO dependency
It’s unproductive to rely heavily on one person only. Encouraging a culture where everyone feels a sense of ownership and responsibility not only distributes the workload but also fosters innovation and creativity. This also ensures that if the CEO is unavailable for some reason, the company can still run smoothly.
There is no universal recipe for building a thriving fintech startup. Yet, managing to succeed in the most key aspects and avoid common mistakes can make the most of the success.
Examples of Successful Fintech Startups
Here are some examples of fintech businesses that rose from the ground up. The fintech solutions they offer became fairly demanded on the market.
Mint — a personal finance management tool. It offers users a comprehensive view of their financial health. Launched in 2006, it quickly became popular. To the success contributed its user-friendly interface and ability to aggregate financial data from various sources.
Mint delivers insights into spending habits, budgeting tips, and savings possibilities all in one platform by combining bank accounts, credit cards, loans, and investments. Its simple dashboards and notifications make it easy for customers to remain on top of their money.
The business model of Mint is a budgeting and personal finance management tool. It makes money through premium subscriptions, paid advertisements, and affiliate marketing.
Among the top fintech startups is Stripe — a payment processing platform founded in 2010. It was built with developers in mind and offers a range of tools for businesses of all kinds to collect payments, manage subscriptions, and handle other financial activities online.
Stripe’s adaptability enables it to support e-commerce sites, subscription services, and mobile app connections. Stripe has been a favored alternative for organizations seeking seamless, secure, and worldwide online transactions because to its robust API and attention on user experience.
The business model of Stripe is a payment and international money transfer company. It makes money through charging payment processing fees or charging one-time or subscription-based fees for using its vast range of fintech products.
Coinbase — a cryptocurrency exchange established in 2012. It provides a platform for buying, selling, and managing a diverse range of cryptocurrencies.
Coinbase’s user-friendly interface has been essential in introducing the general public to the world of digital money. This provider, in addition to its trading platform, offers a wallet for users with which they can store their digital assets safely. This feature improves the position of Coinbase in the crypto sector.
The business model of Stripe is a digital banking platform. It makes money by charging trading fees and subscription fees, providing custody services, offering fintech products, and through affiliate marketing.
Pi1 — a modular white-label banking platform developed by DashDevs. It provides a vast array of banking products and services tailored to each individual’s preferences.
As a cloud-based BaaS platform, Pi1 offers a variety of back-office solutions for banks and fintechs, as well as progressive built-in analytics. It combines best-in-class fintech technologies into a single API for end-to-end digital financial services and provides white-label solutions out of the box.
The business model of Pi1 is a Blockchain and cryptocurrency platform. It makes money by offering integrations with its fintech solutions for other businesses.
At the end of the day, fintech development is a complex process that requires taking specific steps at each of its phases. The challenge of building a long-term in-demand product is complicated by regulations specific to the fintech domain, overall competitiveness, and demand for strong expertise. Nevertheless, it is worth the effort, as Investment in such a digital transformation can help both financial and non-financial startups become more competitive. It will also enable them to provide the most advanced services, resulting in increased revenue potential.
Partnering with the right provider of development services is half the battle. Here at DashDevs, we not only can develop a market-winning software solution for you but can also assist you with matters of business analysis, product discovery, and more.
Contact us today to discuss the opportunities of your fintech business. Your project matters. Trust it to the best.