Fintech is a financial services sector that uses innovation and technology to gain an edge over the competition. The competition in this case comes from well-funded and established industry players. So, to a Fintech, doing things better is more than just a business model, it is a matter of survival. Most Fintech companies are usually startups, so getting one on its feet is not easy. But, it is possible. Simply keep in mind the following things you need to know first.
1. Risk Management
To raise equity for your startup, always have a credible risk management team on board to undertake this difficult task. Risk management should never be an afterthought. In fact, if you rush to get equity without a qualified team, most lenders will decline your application outright. They will not even deal with you directly for most prefer to deal with a Fintech company’s risk management team.
2. Getting Capital
Securing capital from partners is not as easy as it seems. Most will have listened to well-crafted sales pitches from hundreds of Fintech owners before you enter the room. And unless you bring something different to the table, they will dismiss you like all the rest.
And if they decide to part with their money, it will be after 3 to 4 months of ironing out details with your legal team. But if securing funding proves difficult do not despair. You can still get secured and unsecured loans of up to £500,000 ($606,750) from companies such as money hub.
3. Licensing
Fintech companies that provide online lending services often use a funding bank instead of obtaining a lending or banking license. The funding bank leaves all the critical lending decisions to the Fintech lending platform. After the platform approves an application, the bank then sells the loan to it after 24 hours.
This lending model is called “rent-a-charter”. Financial lenders use it to avoid banking regulations and the costs associated with running a bank. Furthermore, lenders can “export” the funding bank’s interest rates to another jurisdiction.
It should be noted that different states and jurisdictions have different laws surrounding the rent-a-charter model. So, if your Fintech follows this model, do your homework well on the licensing regulations you need to adhere to. If you don’t, you could rub the regulators up the wrong way. Your firm will then take up to 6 months to recover from this regulatory fallout.
4. Innovation and Technology
As mentioned earlier, innovation is a survival issue for Fintech startups. Unless you can come up with a novel service that can sell, your startup is bound to fail. Securing funding will also be difficult. Remember, investors will only partner with your business if it produces results.
The “tech” in Fintech is just as important. Invest in a good IT team, especially during the early days of your startup. Startups take time and effort to get off the ground and Fintech companies are no different. You must be innovative and use technology to your advantage. Having a risk management team to offset your risks and negotiate with lenders on your behalf is also important. The hardest hurdle you will probably have to overcome is securing capital.
