Facing little in the way of disruption over the last 20 years, financial innovators are taking advantage of technological trends such as big data, machine learning, artificial intelligence and global interconnectivity to devise new technological solutions, often providing similar, if not better services to financial consumers, at reasonable price-points, or free in some cases. Technology and regulation, among other things, seem to provide additional challenges for fintech entrepreneurs especially, that, if overcome, can lead to game-changing success. CityFALCON CEO and Founder Ruzbeh Bacha shares some of the complex challenges that fintech businesses must overcome to appeal to potential investors and unlock potential success within the sector.
Building a true fintech team
Behind every successful fintech company is a well-diversified and agile team of forward-thinkers. Given the limited resources available to startups, every employee counts, and therefore it is critical to find employees with a combination of relevant skills and experience for fintech companies. Even if you find relevant talent, they will often command higher wages as their opportunity cost is very high. It isn’t always easy to find them, but there seem to be motivated individuals out there who have this necessary experience, and are motivated by other factors (work environment, involvement, company ownership etc.) unique to the startup culture. If you invest in the right people, the ROI is massive.
Higher costs of running a fintech startup
If you look in the business section of any newspaper, it would seem that every month you see a new fintech startup receiving huge funding at very high valuations. When you hear of these big fundraises, also remember that there are several other fintech companies who are struggling to justify their high costs of building and operating to investors, as these result in much higher valuations. Apart from the relative high cost of people, the cost of data and other services can also increase your monthly burn rate significantly. In the investech sector, you’d be surprised, for example, how much it would cost you to add stock quotes, and fundamental stock data onto your site. As the costs rise and funding becomes more challenging, fintech firms are working on tighter budgets pushing them to adopt lean business models that enable them to run more efficiently and force them to get creative in the way they operate.
Marketing and selling to a less tech-involved and busier audience
The target market for the average fintech company is the broad financial services sector which is a sector that tends to prioritise security and reliability, and at times prefers inertia over innovation. Therefore, any significant changes come with potential risks in the eyes of this sector. While we have seen so many other industries adopt technology at a quicker pace, the pent-up need for innovation has only recently resulted in the recent explosion in the number of fintech startups. These new companies have an uphill task of converting financial service professionals – their target market – so need to let go of their familiar processes and adopt more efficient technological methods.
Old legacy IT systems make integration of new tech difficult
Most financial service companies adopted legacy software years ago. These programs have become such an integral part of their operations that they are hesitant to make any changes. Integrating new technology into the work atmosphere in this case is challenging, as compatibility between old and new systems remains a systemic industry problem. For the few that manage to figure out how to mesh new technologies into an old ecosystem the opportunities are vast and lucrative as it’s a barrier to entry that is just too high for many to even consider.
Difficult to explain value proposition to investors, press and others
There are many different fintech offerings nowadays, however the majority tend to be service-based and are therefore are arguably intangible. Unless you are speaking to a technologically and financially savvy investor, it’s often difficult for startups to portray the value proposition and more explanation is required than in other industries. This requires you to really know your product and nail down an efficient way to tell your story for anyone to understand early on which is really helpful long term for marketing and PR strategies.
Running a fintech startup is very different from running your average tech startup. Every day we are faced with numerous challenges that threaten the nature of our operations. However, the fintech industry still doesn’t have its Facebook, Google or Amazon equivalent, so if you’re willing to put up with the risks and the unconventional difficulties of finance then the potential rewards are incredible.
CityFALCON is an award winning financial news and curation platform currently campaigning on Seedrs. Check out the campaign at www.seedrs.com/cityfalcon. Remember, when investing in businesses your capital is at risk.