Fintech has been one of the hottest sectors in the startup world for over a decade. But with all that hype comes a lot of pressure to succeed. Pressure that can lead to product-killing mistakes. And while there’s no surefire recipe for fintech triumph, there’s definitely a list of common pitfalls that founders should avoid to give their startups the best chance to compete.
1. Not understanding the problem on a deep level
Many fintech startups originate with a great idea for a new product or a service, but don’t really understand the core of the problem they’re trying to solve. For example, moving money around the world is a difficult process built on top of technology that was created in the 1980s. The issue you might be solving most likely isn’t about giving people access to financial services or making the payment process better. Instead, you need to solve problems with legacy technologies or endless bureaucratic procedures designed to protect users from losing their life savings.
Just take a look at one of our clients – Cledara. Many companies have attempted to tackle the problem of ballooning budgets for SaaS products and expense management of subscription services. But Cledara understood that the problem lay elsewhere. They understood that the problem wasn’t just in listing all the payments customers were making, but in how budgets, approvals, and blocking of transactions for unnecessary subscriptions was managed. Ultimately, the brilliance of their solution was to use spending management on virtual credits to empower businesses to fully control their cash flows. And they utilized partners so they can solve the problem with focus. Cledara worked with partners like Railsr (previously Railsbank) and Bond to offload a lot of the heavy lifting so they can spend their time on the needs of their customers.
Before getting excited about an idea for a fintech company, it’s important to do your research and make sure you have a deep understanding of the problem and the market.
2. Underestimating the importance of a multi-faceted team
Another common mistake among fintech startups is not having the right team in place. To become a successful fintech company, it requires you to have a team with a mix of technical and business expertise. Then, having that team of experts in places, it’s also important to make sure that your team is cohesive and can work in tandem. The interlocking expertise of technical, business, and design know-how has brought some of the best products to life.
To see the power of a great team in action, one only needs to take a look at our India based client Galgal. This new banking app combines the best of branding and product design, and leverages unique data insights that are refined for the local market to help users budget. Without the seamless communication of teams, complex features like this run the risk of being less than optimal.
3. Letting regulation sneak up on you
The fintech sector is highly regulated and for a good reason – you wouldn’t want your customers to lose their money through a simple mishap. Many startups get so excited to execute their idea, they overlook the importance of compliance or get blindsided by how much regulation varies from country to country. In many scenarios, their original idea of launching a global fintech app is almost impossible. Even the decentralized world of cryptocurrencies is undergoing extensive scrutiny from lawmakers and regulators worldwide.
There’s no need to let these complex regulations discourage you, your competition has to deal with it too. Just set aside the time or find a partner to conduct thorough research into the regulatory landscape of the market you want to build in – then start to build your fintech product from there. And there is a bright side: limitations can encourage creativity, not necessarily stifle your big ideas. Let them become your guideline for a specific market, country, or culture.
4. Forgetting you need customers
Yes, it is entirely possible to get so excited about your business plan that you forget the most crucial element of software products: customers. In the early days of a startup you often get immersed in the product development process and forget about the countless other steps to a successful launch.
So how are you supposed to build a customer base for a product that doesn’t even exist? First, try to resist the temptation of taking the easy way out and giving your end-user cash on sign-up. Instead, build a multi-step marketing plan with solid claims and a timeline. Once it’s in place well before your launch date, you can use it to build up hype for your growing product. Learn how to utilize testing and QA to your advantage: beta releases, early access, waiting lists. All of this can get you the early users you need to not only verify your product, but get a small following excited about what you’re building and sharing it with the world.
Take Daylight as an example. They are a challenger bank tailored for the LGBTQ+ community in the USA, with clear incentives and features built for their needs. Some of their first customers turned into your brand ambassadors and couldn’t wait to talk to the community about this new bank.
5. Unrealistic budgeting
Last but not least, one of the most common mistakes made by fintech startups is simply running out of money. It’s vital to not just have a solid financial foundation, but hold onto it long enough to get your product off the ground and bring in revenue.
Make sure you have a clear understanding of your burn rate and plan your finances accordingly. You don’t need complicated excel files at this stage, just start off with a simple calculation. If it doesn’t add up and you are not showing any signals of profitability, don’t burn yourself out on your dream.
Avoiding these mistakes can put you on the right track to building a successful fintech startup. But this is just the beginning of the wonderful challenges, opportunities, and lessons you can learn building up a fintech product.