Have you ever been standing in line, waiting to pay for a week’s worth of groceries, only to realize you’ve forgotten your wallet?
Now imagine you have it with you, but you hand the cashier your card and the payment doesn’t go through because your bank’s systems are down. Or you’ve scheduled a bill payment and your bank fails to pay it, dropping your credit score. Maybe you’re taking a friend out to eat, and for some inexplicable reason, your card is blocked.
Situations like these aren’t just a pain for customers. For fintech companies, they can also end up losing you business. If a social media or fitness app is down, people find something else to do. If a bank keeps messing up their access to money, that’s another story. When you’re building a product in this industry, it’s important to gain your customer’s trust and meet compliance requirements from the get-go.
Before joining the team here at Mooncascade, I spent five years helping Monese build its business from the ground up. Though it may be a successful fintech startup today, it didn’t get there without having to face its fair share of hurdles along the way.
Getting started in fintech isn’t easy. It’s even a little bit scary. But it’s also full of big opportunities. Just think of open banking, AI-powered financial products or blockchain. Want your business to succeed in this competitive market? Here are three things to know before diving in.
Find a niche
When we started building Monese in 2013, fintech was a piping hot topic. Monese was solving something banks couldn’t: offering a basic debit account for people who wouldn’t otherwise be able to, like new residents or people with a “thin file.” We were filling a niche for customers who had no other choice. And though the product was great from the start, it was fairly basic by today’s standards.
In 2019, in the debit account field alone, there are now plenty of other players in the field. Revolut, Transferwise Borderless, N26 and more have all made big headway in the industry. Monzo, for example, has raised £200M to date, which means that any newcomers will be facing some very well-funded competition.
In other words, a basic debit account product, lending platform, or cool way to manage your finances just won’t cut it anymore if you want to stand out. You have to find a real niche, something that has yet to be disrupted in the banking industry, rather than simply offering a more comfortable version of what customers already have.
This is for business reasons, of course, but also legal ones. Because the banking industry is so highly regulated, you’ll be facing huge fines and even jail time if your company messes up. So make sure your idea is worth the risks before you take the plunge.
Build reliable partnerships
Let’s say you have a great idea for a product, with the niche to match. Now you have to make it a reality. You probably won’t have the budget or a team big enough to do everything in-house from the start. The solution most fintech companies use? Find a partner to outsource your product development to.
There are plenty of B2B partners out there who can provide your business with product functionality (like payments, card manufacturing, or even regulatory processes) that just doesn’t make sense to build from scratch at the beginning. Put the effort you save into building your core business logic instead, because that’s what’ll give your business the competitive edge you need. Once you mature, you can start phasing your partners out and have your own team take on what makes sense for your particular business case.
That said, always make sure to vet your partners. You need proper service-level agreements, to guarantee high-level functionality and responsiveness. Remember what I said about your customer ending up stranded because they couldn’t access their money? It doesn’t matter if your partner has messed something up or you have, the customer will always see it as being your fault.
When I was at Monese, this is something Mooncascade did an amazing job of—it’s no accident that I chose to join their team once I felt ready to shift gears in my career. They built our first Android and iOS apps and helped fill the voids in our product development resources later on, too. Having a high-quality partner here allowed us to concentrate on our core business challenges, which included coming up with customer verification logic, building fraud detection systems, and getting approval from regulators.
Focus on your business and overcoming compliance hurdles
Meeting compliance requirements is key. It’s also time-consuming and expensive. At Monese, it took us two years to get a product launch going, mostly because you don’t really have a fintech business until you get a green light from regulators. So ask yourself if it makes sense to build an in-house development team when much of your early seed money and runway will have to go to legal consultancies and acquiring licenses.
Another thing to keep in mind is that the compliance dance never stops for fintech companies. Fraudsters learn your system’s weak points, regulators impose stricter rules on you as you grow, fellow fintech startups mess up and regulation changes, GDPR pops up out of thin air… You have to make sure your business is adaptable, and well-funded enough, to keep this back-and-forth up over time.
Finding a niche early on and outsourcing development to a reliable partner will help you do just this. With someone else working on the nitty-gritty of your product, you can focus on building a business your customers trust and regulators approve. Do this right and you’ll lay the foundations for a competitive business in a tough market. Do this well and you might just make (a lot of) money along the way, too.
Building a fintech product yourself?
We can help you to build a scalable, secure and successful product before your runway runs out. Drop us an email about your needs and let’s talk about what we can do for you.