A Complete Guide on How to Start a Fintech Startup

Financial Technology or Fintech is a popular term for it has been in use for a while. The digital transformation technology has improved the way the financial sector responds to consumers’ needs, for it’s the technology they use to process their financial transactions. When you use your credit card to purchase goods or stocks online or pay for services, subscriptions, or make investments using Google Wallet, PayPal, or ApplePay, you’re using fintech. So fintech is in your day-to-day life.

Actually, fintech has been growing at a brisk pace. The Global FinTech Market Size, Status and Forecast 2018-2025 report says that “the global fintech market will hit $124.3 million by 2025 at a Compound Annual Growth Rate (CAGR) of 23.84%.” For that reason, there are substantial investment opportunities for fintech startups.

Starting a fintech startup in 2023 can be an exciting and challenging endeavor. With the rapid advancements in technology and the growing demand for innovative financial solutions, the fintech industry offers immense opportunities. To help you navigate this competitive landscape, here is a comprehensive guide on how to start a fintech startup in 2023.

Quick take : Top ten points to watch

1. Identify a Fintech Idea

To begin, it is crucial to identify a unique and viable fintech idea. Look for gaps or inefficiencies in the current financial services sector and think about how technology can address these issues. Research market trends, analyze customer needs, and consider emerging technologies such as blockchain, artificial intelligence, or mobile applications.

2. Conduct Market Research

Thorough market research is essential to understand your target audience, competitors, and industry regulations. Evaluate the size of the market, assess customer preferences and pain points, and identify potential revenue streams. Keep an eye on the latest fintech news and trends through reputable sources like Startup.info to stay informed about the industry.

3. Develop a Business Plan

Create a comprehensive business plan that outlines your fintech startup’s vision, mission, target market, competitive analysis, revenue model, and marketing strategy. Include financial projections and milestones to guide your progress. A well-crafted business plan will not only help you secure funding but also serve as a roadmap for your startup’s growth.

4. Assemble a Strong Team

Building a talented and diverse team is crucial for the success of your fintech startup. Look for individuals with expertise in finance, technology, marketing, and legal matters. Collaborate with skilled professionals to complement your own skills and ensure a well-rounded team capable of executing your business plan.

5. Secure Funding

Fintech startups often require substantial capital to develop and scale their products or services. Explore various funding options, such as angel investors, venture capital firms, crowdfunding platforms, or government grants. Prepare a compelling pitch deck and business plan to attract potential investors.

6. Develop Minimum Viable Product (MVP)

Focus on building a minimum viable product (MVP) that showcases the core features of your fintech solution. Iterate based on user feedback and continually refine your product to meet market demands. Ensure that your MVP complies with relevant regulations and prioritize data security and privacy.

7. Obtain Necessary Licenses and Compliance

Navigating the regulatory landscape is crucial in the fintech industry. Research and understand the licensing requirements and compliance standards specific to your business model and target market. Consult legal experts to ensure you meet all regulatory obligations.

8. Build Strategic Partnerships

Form strategic partnerships with banks, financial institutions, or other fintech companies to leverage their expertise, infrastructure, and customer base. Collaborating with established players can help accelerate your market entry and increase credibility.

9. Launch and Scale

With your MVP ready, launch your fintech startup and start acquiring customers. Implement a robust marketing and customer acquisition strategy to generate awareness and attract users. Continuously gather feedback and iterate your product based on user insights. Focus on scalability and plan for future growth.

10. Stay Updated and Innovate

The fintech industry is rapidly evolving, so it is crucial to stay updated with the latest trends, technologies, and regulatory changes. Regularly follow reputable sources like Startup.info to learn from industry experts and stay ahead of the curve. Embrace innovation and continually refine your offerings to meet evolving customer needs.

What is a Fintech Startup?

A fintech startup is basically a company that applies technologies to fulfill consumers’ financial management needs. A fintech company competes with traditional financial service providers because they offer efficient solutions or superior experience to the existing problems.

Since consumers are embracing fintech at a fast pace, you can build a fintech company and application. Nearly 96% of buyers across the world have at least one fintech app on their mobile. Also, you must have noted that banks, insurers, lenders have created apps for their users to streamline their processes. Similarly, your business has the opportunity to build and profit from fintech apps. Therefore, this is the best time to get your fintech startup project underway.

The complete guide will give in-depth information about the fintech industry, how you can start a fintech startup and why you should build a fintech application for your business.

In depth 6 Steps in Starting a Fintech Startup

The best fintech apps are those in digital payments, digital lending, digital banking, digital investment, and consumer finance because they either help users bank, pay, save, spend, invest, borrow, or make money. They have identified the potential problem customers are facing and are seeking to address it.

Here is how you can go about starting a fintech startup in 2021

Know the Regulations

It’s very important to know the ins and outs of the fintech and banking industries since they are highly regulated. There are many laws governing the industry, such as the anti-money laundering (AML) policies, Payment Card Industry Data Security Standard (PCI DSS), Know Your Customer (KYC), and The General Data Protection Regulation (GDPR).

Many other government financial bodies regulate fintech companies based on their jurisdiction. However, the top regulatory bodies are the Federal Deposit Insurance Corporation (FDIC), Commodity Futures Trading Commission (CFTC), Consumer Financial Protection Bureau (CFPB), and Office of the Comptroller of the Currency (OCC).

You should learn about these laws and how they will impact your business if you plan to launch a startup accessible globally. Remember, these laws vary from one country to the other or state to state in the case of the US. Fintech companies can apply for regular licenses, but in the UAE and Mexico, they must apply for fintech licenses.

Identify Your Niche

The following questions can help you choose the specific niche for your fintech startup.

• What is the subdomain in the fintech industry that you want to step into?
• Who are you targeting? Is it a certain demographic group, specific country, region, or it’s a global product?
• Do you want to launch the fintech company first locally and then globally?
• What is your specific expertise in this industry?

Some of the popular niches in the financial market are:

• Investment management
• Lending
• Mobile banking
• Global money transfers
• Loans and advances
• Insuretech
• Blockchain-based solutions
• Crowdfunding
• Financial products

Get to Know Your Competitors

Now that you have identified your niche and the location, you need to study the competition. You are entering into a market with existing solutions, and therefore your product should be unique and address a specific gap in that subdomain.

For example, the financial service is a broad niche market, but can you identify a certain gap in it. You may think of the underbanked category and provide a solution for them.

Alternatively, you may fail to introduce something new but improve the quality of what is already there. Take, for example, mobile banking, with your new product, you can make it fast and simple compared to what other companies are doing. You can also collaborate with companies selling farming equipment, beauty shops, holiday destinations, or fitness equipment and provide online payments to their target customers.

This is because the fintech industry is expansive and growing, thus a lot of business opportunities. Most of its leading players are giant companies and successful ventures; however, with a relevant idea, you can create an incredibly personalized and convenient solution with your startup. This will make you relevant to your target audience and help you to beat competition from Microsoft, Apple, PayPal, Pioneer, Stripe, or Coinbase.

Build a Team

Fintech or Financial Technology has two parts; finance and Technology. While both parts are important, having an experienced team of technical experts will help you to create a unique fintech app. This technology partner should be within your budget, not too expensive nor too cheap.

You may choose to work with an app development company from a more cost-effective location but with top technical experts. These offshore financial app developers will work with your on-site team to create the software or application at a reasonable cost.

Choose Your Funding Options

There are many ways of getting money for your fintech startup. These include crowdsourcing, bank loans, venture capital, angel investors, startup competition, among others.

However, you need to have a minimum viable product (MVP) that serves as a proof concept. The funds from MVP are enough to build software or app for your target market. Actually, most of these fintech giants started that way.

Build and Improve

Development is the final step now that you have the first 5 steps in place. Unlike the previous steps, it’s an ongoing process that stretches forward into the future.

It involves launching your startup, starting its operation, improving its processes and products, adopting new technologies and trends as well as embracing change from time to time.

The best path is to start small and keep on improving your product in order to reduce the risk of rushing into this saturated and highly competitive fintech market.

What to Avoid When Launching Your Fintech Startup

While launching a fintech startup is not rocket science, it also not a walk in the park. There is no single formula that guarantees you 100% success. However, most entrepreneurs say that success depends on your decision-making, knowledge, and expertise.

Since the fintech industry has its own risks, pros, and cons, just like other business sectors, you can increase your success rate by learning about the risks and common pitfalls that can hinder your success.

Here are specific mistakes to avoid when building your fintech startup.

Overlooking the Actual Needs of Your Niche Market

Businesses are not built on opinions and instincts but on a pain point or specific need that you want to address. Thus before taking the first step into the financial technology industry, ensure to validate the need that you want to fulfill actually exists, and users are looking for a solution like the one you want to provide. Otherwise, your business is set to fail.

Getting Distracted

As mentioned above, fintech is an extensive technological domain filled with opportunities and new ideas. You must remain focused when you identify the niche and step into this industry. You should have a plan and follow through to the end.

Hiring Mediocre Employees

Your startup’s success is pegged on its founding team. However, finding the right team as a startup is not easy. You must invest and work with the right talents, which can be hard to find or expensive to hire and retain.

According to successful Fintech founders, startups should hire budget-friendly offshore software developers to work with their in-house team until a time when the entrepreneur can afford to pay the high salaried top financial app developers.

The offshore team, especially from more cost-effective locations, will form a strong founding team for your fintech startup.

Types of Fintech Apps

It’s not an easy task to build a good app that can scale your business up. You need to think about the fintech market niche to focus on, the cost of building a fintech app, the technology, and the features to choose. For your fintech app to be successful, you must have the right development direction in place.

The following are the main fintech apps categories that can give you the right direction on where the fintech market is headed.

Digital Payments

The largest branch of the fintech industry is digital payments because they made it easy, faster, and safe for customers to process financial transactions across the world.

Digital payments solutions comprise of digital currencies, online payment systems, and e-wallets. PayPal and Payoneer are some of the popular platforms that deal with digital payments. Try to learn from them as you set out to develop your fintech startup.

Digital Banking

The go-to option has made it easy to transact at the comfort of your home, office, or when traveling. You no longer need third-party help, for you can use digital-only banks and online mobile to quickly perform a financial transaction.

Because of growing competition, traditional banks have created fintech app which customers use to perform their banking transactions. You can now have a contactless debit card and mobile app that allows you to verify transactions with a PIN, access cryptocurrency exchange, perform global purchasing as well as international money transfers.

Digital Investment

Today, retail and institutional investors can invest in various types of assets in any currency and jurisdiction. You can invest in the stock market, cryptocurrency, minerals, and precious metals through digital investment platforms. You can also receive relevant data and analytics through the same platforms.

Digital Lending

Digital technology has transformed how lenders process loans and customers apply for loans. The financial market is crowded with simple loan apps.  Through comprehensive automated platforms, you can apply and pay for your personal loans, car loans, mortgages, and more.

Consumer Finance

Users can now plan their expenses and spending in advance with the use of fintech apps. The internet is full of free budgeting app which you can sync with your bank accounts, credit cards, and other digital payments apps.

Insuretech

Insuretech is digital insurance whose main objective is to speed the insurance industry’s policy administration and claim processing. Digital technology has helped to reduce fraudulent activities when filing and processing insurance claims.

Regtech

Innovative technologies are helping to solve regulatory issues. Businesses are now able to automate KYB, KYC, AML as well as other compliance checks. They can also monitor ongoing processes while ensuring compliance with regulatory requirements. It has also helped them to minimize human error risks.

Major Technology Trends in Fintech App Development

A successful fintech app arises from business objectives that are rightly matched with the appropriate technology stack. It also involves having deep insight into major technology trends at your fingertips.

The following are the world’s innovative trends that you should keep track of as you undertake your fintech development project. You can learn a number of things from them.

Artificial Intelligence

AI recognizes and analyzes real-time data and then makes recommendations of the appropriate actions to be taken. For that reason, AI has a broad application in solving fintech challenges. For instance, it can be used to detect fraudulent activities in Insuretech, regtech, digital banking, and more.

AI can help you brainstorm on how you can build a sharp and reliable fintech application.

Blockchain

Blockchain is a highly reliable technology that teaches fintech entrepreneurs to build fintech app that is transparent and trustworthy. The reason is blockchain contains time-stamped block series of data that you can’t edit or delete. This data is stored in a decentralized manner that guarantees its security.

Big Data

There has been rapid growth in the usage and availability of different electronics in recent years. This has caused the amount of data that is produced and gathered to rise as well. Through data analytics, companies now have a lot of in-depth insights into business development opportunities.

You can use the example of big data to anticipate customer behavior and create purpose-driven marketing strategies, thus making your fintech app the only go-to option for your users.

Cybersecurity

Data security is an ever-increasing concern in the digital world. Thus fintech apps should be concerned about how they store and process customers’ sensitive data.

Your team should employ different security techniques to mitigate security breaches and data theft. They should build a fintech app that is more secure and reliable.

Microservices 

With this technology, an application is structured as a set of interlinked services. The fintech app becomes a distributed system that has decentralized data management. And now, you can easily integrate any new solution that you create into your infrastructure. Following microservice, AI, and blockchain trends will reduce the cost of developing your fintech app.

Reasons Why You Should Launch Your Fintech Startup Now

1.    High Rate of Adoption

Almost all smartphones have at least one fintech app, and there is a largescale adoption of fintech by the traditional financial players such as lenders, banks, and insurers.

Companies are also turning to fintech to help them automate and streamline their business processes.

2.    A Wide Range of Developmental Possibilities

The current market conditions have multiple opportunities; thus, building a fintech app now is prudent. It is projected that mobile apps will generate $935 billion or more in terms of revenues by 2023. This figure might be much bigger if similar entrepreneurs build their fintech apps by then.

3.    Incorporation into Corporate Infrastructure

Major industries will have to build fintech apps in the near future and even profit from them.

Launching your fintech startup now is an amazing opportunity that you don’t want to miss as the world leans towards mobile apps.

4.    A Wide Range of Technology to Choose From

The financial technology industry is full of state-of-the-art developmental trends and technology like the Internet of Things, Machine Learning, Artificial Intelligence, and Robotics.

You can use one of these technologies to create an effective and relevant fintech solution. The technology is also a solution in itself, thus making financial technology fascinating and profitable.

Best Fintech Startups and Applications

Some fintech companies and applications have been doing well prior, during, and post Covid-19. Many of them benefited when the traditional banks and lenders closed their offices, and the pandemic almost brought the world economy to a standstill.

Here are some of the outstanding fintech startups and applications in 2021.

     I.        Coinbase

Niche: Digital Currency Exchange

This is a top digital currency exchange platform that has made it easy for its users to buy and sell digital currencies online such as Ethereum, Bitcoin, and Lightcoin.

As stated the cryptocurrency technology teaches the fintech industry to be transparent. It has been operating seamlessly in 102 countries. You can register with Coinbase easily and fast, and the software has top-level security.

   II.        Stripe

Niche: Online Payments

Stripe is a $36 billion fintech. It’s a popular online payment gateway used by several ecommerce businesses ranging from startups to tech giants spread across the world. This fintech giant focuses on digital companies with added relevant development tools.

This internet payments infrastructure is successful because of its simple integration, thus easy to set up.

  III.        Mint

Niche: Personal Finance Management

Mint provides services such as budgeting, expense tracking, account management, bill payment, and more. With this personal finance app, you don’t need to install several apps because it can help track your expenses.

The company is successful because of its extensive content marketing, intense market research, and meticulous planning. It has invested in producing content, infographics, and articles, and its marketing phrase is “bank-level security.”

  IV.        Robinhood

Niche: Investments and Trading

Robinhood is a stock and cryptocurrency trading app that is charges zero commission. The fintech app provides easy and freeways of investing. The company earns income through premium accounts, cash holdings, and stock interests.

The company targets millennials with its appeal investment app and has tailored its features and marketing to meet the younger generation’s needs and values.

Further, the highly personalized zero commission software has a clean interface that has helped the Robinhood app trump the competition.

   V.        Oscar Health

Niche: Insurance (Insuretech)

The insuretech has gained increased attention in recent years, and Oscar Health has taken advantage of electronic healthcare opportunities. Through its app, Oscar Health has a highly customer-oriented approach and is also affordable and simple.

It empowers users through its dedicated team that helps them select the most appropriate insurance options and resolve their issues.

Through Oscar Health, a user can make appointments, receive lab reports, receive health recommendations virtually, and well as add and store their medical records on this app.

Other big fintech companies are Adyen, Addepar, Avant, Lending Club, Braintree, Commonbond, Wealthfront, Xero, and more.

Parting Shot

The fintech industry is thriving as more and more companies develop their applications. In view of that, you should be a forerunner but not a spectator.

Now that you know how to start a fintech startup grab the best opportunity that you can see in this industry and join this revolution. Your company could be one of the best global fintech startup apps in niches such as insuretech, mobile banking, mobile trading and investments, online payments and international fund transfers, personal finance management, crowdfunding, cryptocurrency, and blockchain-based solutions, among others.

While this is not one of the easiest industries to target, with this guide and a strong team with tech skills and solid domain experience, you can build a great fintech company and app that can thrive even during the Covid-19 pandemic and beyond.

Still, you can invest in some of the best fintech startups in the world, such as Stripe, Adyen, Robinhood, Braintree, LendingClub, Commonbond, and Robinhood, among others.