1. Finance

A Complete Guide on How to Start a Fintech Startup in 2022

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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.

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.

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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.

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.

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