90% of startups fail due to an inappropriate market fit and incompetent partners. Learn how to prevent your company from this fate.
The global fintech marketplace is a gargantuan digital-scape. As of last year, its total size was over $111 billion, and if the projections are anything to go by, then the fintech industry would continue its march to be valued at an estimated $191 billion by 2025.
Yet, with such rosy numbers, it is easy to forget the fact that so many fintech startups flounder and disappear into oblivion.
What are the possible causes of failure and how to avoid stepping on landmines that cause companies to crumble, we’ll cover the long and short of it today.
Why is Now the Right Time to Invest in Fintech
Fintech is one of the hottest sectors to get investors excited. Legacy institutions such as credit unions (69%) and banks (49%) firmly believe that Fintech partnerships are worth pursuing. But that is not the standalone reason why Fintech is worth a second-look for investment, we share a few more down below:
Fintech Technology is Acquiring Prominence
There are over 12,000 fintech startups in the world that combine to make the global fintech marketplace worth US$4.7 trillion. Fintech companies are considered bankable investments because they offer a sleek user experience. Low-cost entry barriers and scalable technology offer a promising investment outlook. Not to mention the ease of integration with associates domains adds to the luster and multiplies business opportunities.
Abundance of APIs
We have time and again talked about we pointed to the necessity and permutations for financial companies to collaborate more often than their current rate with fintech startups. Public APIs are one-factor precipitating such collaborations. Starting a fintech company subliminally means a technological need to use more and more open-source APIs to easily join hands with financial bigwig institutions. Although APIs are an effect rather than the cause, they nevertheless accentuate business opportunities for the overall financial services industry. Case in point, the following types of APIs have made lives simpler for users:
- Payment processing APIs – Engineers in the fintech application development space have devised solutions with these APIs so merchants can accept multi-modal payments.
- Lending Program APIs – They automate loan issuing workflows.
- Regulation Technology APIs – RegTech emerged from Fintech and offers app owners options to verify their users.
Rising Government Interest
The pandemic exposed inadequacies in the financial infrastructure used by federal institutions. Los Angeles was a prime example of it, wherein it failed to equitably distribute financial aid to needy communities. To overcome the same state authorities increased their investments in fintech and partnered with Master card. The latter lent support to collect donations via text messages and distribute the same to eligible recipients through debit cards. A digitized version of the future warrants more collaborations of the kind just mentioned.
Higher internet adoption rates and an increase in the rate of digitization has upped customer expectations for even basic banking services. 24/7 service availability is a must. People expect an instant resolution to their needs, especially when it comes to financial grievances, failing which brand loyalties go for a toss.
Being one of the dominant regional players for fintech app development, we at Appinventiv face a voluminous frequency of inquiries for such ventures. Our experience validates a long-held, industry-wide belief that people are turning to such apps for their comfort and factor.
A Pumped-Up Workforce
Fintech’s have proven more than a satisfactory place to work, putting it mildly, for employees. A study of Glassdoor reviews by fintech employees at 15 companies brought out a cumulative rating of 4.1 (on a scale of 1-5 with 5 being good and 1 bad) for fintech companies.
Whether you need someone with a background in financial service consulting or a virtual collaborator to work on your project, we’re sure you could do with some professionals who’re actually excited about their work and don’t just treat it as a 9 – 5 chore.
Why Do Fintech Businesses Perish?
The answer is not that complicated, to begin with. As per the Wall Street Journal, about 75% of venture-backed fintech startups fail. Analysts have debated the causes for such a high fintech failure rate, considering the casualties are lying by the wayside in hundreds. Below we mention some gleamingly evident causes for a fintech startups’ failure:
Timing Your Finances
It’s true that investments in the sector have grown over time but don’t mistake it with the notion that money is available when you need it the most. The misconception that an official hand-shake with an investor equals immediate fund-releases is baseless. It could take from 3 months to a year until the investor finally hands-over the monies.
Play it safe by planning at least six months to the actual juncture when you would need the money. The notable failure of fintech companies points partly to the fact that investors would rather wait for the right time to invest than splurge their capital on wannabes.
Ignoring Federal Rules
One of the solutions of fintech startup companies could lie in complying with the rules and regulations set forth by federal institutions in the US. Although not without its loose ends, the US is a beaming example of the guidelines laid for financial institutions and the consequences of delinquencies. Some of the largest financial entities in the world have been subjected to heavy fines for not complying with the law of the land.
A red tape exists not just on the operational end but also at the development end. Fintech app developers must ensure they use agreeable practices to achieve the business ends of the app. These could involve respecting local/international data/privacy laws.
There are 3 laws in particular that fintech app development should make special room for:
KYC – Know Your Customer guidelines of an app allow vendors to verify the identity of their clients and encourage people to be honest with their disclosures.
Anti-Money Laundering – In-built AML protocols make it clear to financial app users that misappropriation and illegitimate accumulation of funds, using an app is against the law and a punishable offense.
Payments Service Directive – This directive applies to all European Union member
countries and enlists provisions for inter-country payment transfer within the EU.
(Not) Understanding Money
In most industries the trade-off between a customer and a business entity is straightforward. You pay for a service/product and that’s about it. But finance is a different ball game, a fact that directly impacts fintech mobile app development increasing the risks for fintech businesses. Here money is the product, bending the conventional rules of marketing. Therefore, it is vital that business owners perceive the function of money either through scholarly work or by bringing on-board the right advisors.
Lose Cost Metrics
Often, the failure of fintech startups originates from the source wherein they are unclear about their revenue model. Launching a me-too app with cut-throat prices is not the way to build long-term trust and followership. Brands with strong product differentiators stand the best chance to beat the competition heat.
Lastly, before you patch up with a fintech software development company to put your financial app plans in full swing, you should consider studying the economic cycle the target country is under. The straightforward reason for this is that you don’t want to be in direct contradiction with the national economic policy. If the business cycles are all for digitized solutions, then you are sure to prosper.
Tips for Fintech Business Success
Empathize with the Customer
Modern-day customers have realized that online financial services are much too comfortable to not go for. Where traditional banks lack the organizational agility to shift gears and churn new fintech products overnight, startups carry an element of surprise. They can tap into the latest needs of their audience and bundle the services in a single pack, tacking crucial businesses away from legacy banks.
Services like mobile banking, digital wallets, instant payment transfers, and online lending fall right up fintech’s alley. This is what people expect from fintech companies, in the least.
Fintech software developers mustn’t overload their apps with unwanted stickers and peeping pop-ups. Keeping things minimal is often the best approach. You should model apps with intuitive functionalities that encourage users to be done with their objective ASAP.
Operations scale automatically when you match the frequency of your customers and continue delivering superfluous levels of customer service. But reputation is built only over time and can be thrashed in one instance. Create an aura about your brand that makes people automatically want to be associated with you. Virally market customer success stories as online audiences are attracted to user-generated content on social platforms. There’s no telling how many referrals business this could get you.
Blockchain, artificial intelligence, augmented reality and 5G are some of the technologies disrupting banking. Business heads need to be wary of such industrial shapeshifts and integrate as much of it as possible in their product suite. Ant Financial (formerly Alipay) is the prime example of this approach. What started as a single-offering payment portal is today a multi-billion dollar company leveling the likes of JP Morgan Chase and Goldman Sachs.
Take Inspiration From the Best Fintech Brands
While the tendency to learn the ropes of fintech persists, you should explore the likes of the following companies that have made it big. We’ll glance over the key contributors for their success.
Founded in 2010, within a decade, it has emerged as a formidable fintech giant with its SaaS payments platform for E-commerce websites. Though all-encompassing in the scope of its API, even today the platform is as easy to integrate with third-party websites as it was in its nascent years. Subscribers have the liberty to customize their plans as peruse, with Stripe having built a name for itself in customer service as well. It is valued at $36 billion.
Valued at $11.2 billion, Robinhood is a prime example of an incisive, focused approach keeping product design and marketing inter-operating with one another. A favorite among millennials, the app allows retail investors to invest without any trade commissions. The UI is simple and lets users self-direct onto making in-app navigational decisions. Robinhood’s primary sources of income include its Gold memberships and charged-interest on stock/cash holdings.
Officiated in China, Lufax is estimated to be worth $38 billion. Starting as a peer-to-peer lending platform, it has now diversified operations into subsidiary financial services. Its ability to harness big data and predictive analytics has propelled it to do 200, 000+ P2P transactions hitherto with more than 14m million platform subscribers.
Values at $16 billion, Paytm is an Indian fintech unicorn most known for its payment services. It has strived forward at warp speed to act as the leading aggregator for all kinds of payments, P2P or business. Among its recent flagship products, is the Paytm Payments Bank that is gaining traction. The reason it struck a chord with the people of India is due to the “essential” nature of its services and the have-it-all marketing attitude.
Rounding it All
Failures happen all the time, but so do success stories. Being one of the well-acknowledged fintech app development companies in the region, Appinventiv commands the collective expertise of 600+ technocrats who put in colossal shifts to turn mere projects into front-page headlines. We have the chutzpah to turn fintech ideas into million-dollar earning companies, the question is do you have what it takes to get there?
Let’s connect and find out!