Launching a Startup? FinTech is So Hot Right Now
If I were to launch a startup tomorrow, the niche I would name straight off the bat is Fintech.
The Internet and mobile technologies have already changed the way we shop, travel, plan our days and now the demand for change in money matters is higher than ever.
While banks and other traditional financial institutions were slow to accommodate the rising demand, savvier entrepreneurs have identified and grabbed the opportunity. The fintech revolution is here, isn’t it?
Fintech startups have already raised their bar to the unicorn status.
Lufax – a Chinese online trading marketplace gone international is now valued at $10 billions. Stripe – a US-based payment system allowing small businesses and private individuals accept and send payments is now estimated at $5 billions.
And there are still plenty of opportunities to pursue with consumers demanding simpler, more elegant solutions for:
- Payments and international money transfers
- Small businesses financials
- Data analysis and financial decision making
- Bitcoin and blockchain
- Personal finances
- And the list goes on…
So what exactly makes fintech so attractive these days?
Funding is Ripe
Venture capitalists, banks and financial institutions alike have already recognized the disruptive power of fintech market.
According to a joint report by KPMG Enterprise and CB Insights the global investment in fintech companies exceeded US$19.1 billion in 2015. The overall number of investments hit all-time highs as investors rushed out to buy into budding start-ups. In fact, US banks turned out to be among the most active investors with Citigroup’s fintech portfolio now accounting 13 startups backed from 2011 through 2015.Goldman Sachs comes second with 10 startups backed andJPMorgan Chase, having five companies in their portfolio.
Earlier in March this year UniCredit Bank – the largest Italian bank – has hopped on the bandwagon by announcing a €200 million fund to help mid-stage startups and established Fintech businesses develop further.
Berlin is now dubbed as the German Fintech capital even by Deutsche Bank. In fact, in a recent white paper they stated that 56% of German banks collaborated with Fintech companies for strategy and 80% of them were highly satisfied with the partnership.
Asian markets are coming close by with a record $4.5 billion investment into the financial start-ups last year. Chinese and Indian markets have experienced the largest growth in particular as billions of consumers in those regions prefer to use their mobile phones for all sort of financial services – from paying for goods to shopping for insurance.
The average global funding per company now totals $44 millions. The money is there and the investing interest is unlikely to abate in the next few years.
Fintech Incubators and Accelerators Boom
While funding is an important part of the deal, mentorship and strategic guidance is the second key element to your startup’s success.
If you have zero experience in seeking funding and quite a few connections in the industry, getting accepted to a top accelerator program can be your best bet.
Opportunities in major fin capitals like NYC and London seem endless with Berlin, Tel Aviv, Singapore and Hong Kongcoming close by.
List of Fintech Incubators and Accelerators
- Fintech Innovations Labs: headquartered in NYC, subdivisions in London and Hong Kong
- Barclays Accelerator: NYC, London, Tel Aviv, Cape Town
- Seedcamp: headquartered in London with regular programs and camps in US and major European capitals)
- Startupbootcamp: fintech programs available in NYC, London, Singapore
- Visa Europe Collab: London, Berlin and Tel Aviv as the next step
- Wayra: vast representation in South America with offices in Buenos Aires, San Paulo, Bogota, Santiago de Chile, Lima and Caracas. European offices in London, Madrid and Munich.
- Innotribe: offices in Belgium, London and NYC
- Village Capital: headquartered in Washington DC, programs regularly ran in multiple locations worldwide.
- Matchi: headquartered in Hong Kong, subdivisions in the UK and Australia.
- Life.SREDA Inspirasia: headquartered in Singapore, covers the U.S., Western, Eastern Europe and Asia.
Primarily USA Coverage
- YI Incubator: Silicon Valley
- Scivantage FinTech incubator: Jersey City, Boston
- Wells Fargo Startup Accelerator: San Francisco, USA
- The Hatchery’s B2B Ventures: NYC, USA
- FinTech Sandbox: Boston, USA
- Entrepreneurs Roundtable Accelerator (ERA): NYC, USA
- Plug and Play: San Francisco, USA
- QC FinTech: Charlotte, USA
- Coin Apex: NYC, USA (particular focus on cryptocurrency/bitcoin companies)
- Yodlee Ynext: Redwood City, USA
- Value Stream Labs: NYC, USA
Primarily European Coverage
- Level39: London
- Brightbridge Ventures: London
- Elevator: Tel Aviv
- Nordea Startup Accelerator: Helsinki, Finland
- Holland FinTech: Amsterdam, The Netherlands
- Kickstart powered by Idea Labs: Belgium
- Fusion Fintech Accelerator: Geneva, Switzerland
- Polytech Ventures: offices in Lausanne, Switzerland and the Silicon Valley
- FinLeap: Berlin, Germany
- Main Incubator: Frankfurt, Germany
- Launchub: Eastern and Southern Europe. Headquartered in Sofia, Bulgaria.
- SIX Fintech Incubator: Zurich, Switzerland
Australia and South East Asia
- AWI Ventures: Australia
- iAccelerate: Australia
- Chinaaccelerator: China and South East Asia region
- DBS Hotspot: Singapore
- The Open Vault by OCBC: Singapore
- InnoChallenge: Malaysia, Singapore and South East Asia
- DBS Accelerator: Hong Kong
- Fintech Super Charger: Hong Kong
Active Governmental Support
Governments and financial authorities worldwide are being as supportive to fintech innovators as the private entities. The legislation and financial controls are being waved. Billions of dollars are being invested into various supporting programs e.g. cybersecurity and more attractive tax rates.
The UK officials recently doubled the tax relief for small businesses from 50% to 100% from April 2017. George Osborne, Chancellor of the Exchequer made quite an explicit statement saying: “I want the UK to lead the world in developing Fintech. That’s my ambition – short and sweet”. His words are backed up with actual actions as the UK government recently launched a £250,000 program for development of cyber security technologies to provide assistance to startups working in the field.
Singapore’s government has initiated numerous grants to schemes to boost the fintech startup scene and takes an active part in developing new accelerator programs and co-investment schemes for incubators.
Even Japan – a powerful economy, which is still majorly cash-centric – has started to realize and encourage fintech startup scene development. A new legislation bill is aimed to ease investment restrictions, which can free up the flow capital in an economy having around $9 trillion in individuals’ cash deposits.
The UK’s financial regulator has recently signed a co-operation agreement with the Australian regulator (ASIC) to promote financial innovations in both countries. This way both states will help innovative companies get regulated faster and help the startup scene flourish.
The global tendencies show that governments will continue to lure fintech companies with more attractive initiatives and further legislation and financial relieves.
Consumers are Eager To Adopt New Fintech Solutions
Without the demand the market would be flat. Yet, this isn’t the case with fintech as consumers worldwide feel highly interested in discovering and exploring new financial options.
Active mobile users used to settling all their needs on the go have long been waiting for an easy, simple and secure financial instrument. The always-on, always-connected consumer wants to pay bills, move their money, make personal investments on the go.
As traditional financial institutions are more hampered by regulations when it comes to innovation,fintech companies were quick to win a lot of hearts and wallets.
In fact, the lucrative segment of young high-earners were among the first to adopt new fintech solutions. According to a recent research by EY over a quarter of 25 to 34-year-olds said they have used two or more fintech services. In fact, 44% of fintech users have reported to earn about $150,000 annually.
Here are a few more reported reasons for choosing to use a certain fintech product:
- 43% like that it’s easy to open and set up an account.
- 15.4% said to discover better rates and less fees
- 12.4% like to have quick access to multiple products and services to shop around and compare.
- 11.2% loved the product for offering better online experience and functionality
- 10.3% mentioned overall better quality of services
- 5.5% stated that fintech products are more informative than those offered by traditional banks.
- 1.8% expresses a greater level of trust compared to traditional fin institutions.
Are There Any Challenges For Fintech Startups?
Ok, so most of the things mentioned above seem too good to be true, right? There must be a flip side!
And indeed, there is one.
The biggest challenge most fintech startups have mentioned so far is slow user acquisition.
The reason? According to the same survey 53% of respondents admitted they have never used a fintech solution because they didn’t know it existed. Among the other reasons were low trust in fintech solutions; the users didn’t see a need for one and preferred traditional service providers.
Based on the responses, we can assume that consumers need more education and further awareness about the advantages of fintech products. Rather than promoting the solution, startups should invest into educating their audience about the benefits, the security and the easiness to use their tools. Focus on building a stronger presence in users’ minds by adequately addressing their main concerns – security, privacy, trustability.
Another major area of concern is regulatory compliance. While governments worldwide seem to be accommodating with respective legislation and best practices, the rules surrounding anti-money laundering (AML) and know your customer (KYC) are still rather tight.
As David Sacks, CEO of Zenefits, puts it: “We sell insurance in a highly regulated industry. In order to do that, we must be properly licensed. For us, compliance is like oxygen. Without it, we die.The fact is that many of our internal processes, controls, and actions around compliance have been inadequate, and some decisions have just been plain wrong.”
Doubts aside the fintech ecosystem is ripe and booming. Funding is sufficient. Accelerators, incubators and pitch fests are regularly held all over the globe. Governments, financial institutions and venture capitalists are equally interested in developing the scene further and feel eager to support new solutions. Consumers don’t lack excitement either.
If you are planning to invest or launch a startup this year, fintech may be your best bet.
Fintech – yay or nay? What’s your take on the niche and how do you think it will evolve in 2016 and further?