How do I set up Fintech?
Fintech businesses are achieving significant increases by becoming an alternative to banks. Therefore, one out of three internet users now uses the alternative services of Fintech companies.
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The new generations of users are opting for this alternative, as they are usually very experienced with new technologies and also because they are very young and do not have large amounts of money, the banks do not consider them prospects to open bank accounts and provide services from them.
Therefore, low interest rates and new technologies are the two great challenges that banks present today. Hence, the Fintech, or technology finance companies, which are dedicated to participatory financing, which aim to connect the client, are forcing the industry to make changes.
Keywords: Fintech business, banks, technology, companies
Due to the rise of Fintech, many people are encouraged to undertake the creation of an SME in this sector, opening their own startup or company that puts into practice the recent innovations in the financial sector.
Fintech companies are currently operating in a changing scenario; however, there are some sectors that have greater potential and there are also different options for obtaining financing.
However, the startup of these SMEs is what could be more challenging since it requires an injection of capital and several hours of dedicated work, so results are not obtained in the short term. As the results may take several months to become evident. Some of the aspects that must be taken into account when creating a company in the Fintech sector are
Barriers to entry.
Two of them can be found. The first concerns competitors that change depending on the market niche. The second relates to competitors outside the sector such as traditional banks, which do not have a position with respect to Fintech startups, or banks that identify themselves as direct rivals and are already operating in the Fintech space.
It is important to have financing in order to be able to carry out each part of the SME. Since it may not be feasible to do the venture with personal financing due to costs. So you can resort to financing such as:
Business angels. These are private investors who may contribute sums of money to startups in their initiation phase, in exchange for a percentage of the company’s shares. In case you have to use this modality, it is recommended to keep as many shares as possible in order not to lose control of it, and that it passes to the hands of third parties.
Venture Capital Investments. They are a known source of financing, but it is required to review the agreement and conditions under which this capital is received.
Lines of credit with banks. Entrepreneurs are familiar with this financing because it is the most common and traditional, since until very recently, it was the only way to obtain capital to start an SME, apart from personal contributions or contributions from friends and family.
The Human Talent.
This aspect seems to be a challenge that entrepreneurs in the FinTech sector find in the initial phase of business, due to the difficulty in attracting qualified personnel. Because the entrepreneur goes through a stage of uncertainty in the start-up phase and also cannot offer competitive salaries to attract talent, he or she has difficulty consolidating a team.
Markets in which the Fintech area can make inroads
There are a number of possible markets in which you can undertake with Fintech. Such is the case with:
Payment methods with Fintech
The cash payment has been reduced significantly. Therefore, new payment methods have been increasing very rapidly and steadily over time. Through new technologies such as “contactless” which can be done by mobile phone or a wearable that are the new ways, increasingly used by new generations of users.
It consists of financing projects through a group of small investors that can be a niche that can be opened to other sectors, such as real estate investment, companies like Housers or also being co-owners with other property owners.
The Online Loan (online Lending)
These are small amount lenders that are placed on the web, such as moneyman, who give small loans of 50 to 300 euros without interest, returning it in a period of 5 to 30 days, with a network time of 10 minutes.
The order is given to execution of the transfer to the borrower’s bank account within 24 hours after the loan application has been approved, and the loan must be paid within 30 calendar days.
The daily interest rate applied to the loan is 1.1%, except if it is the first loan and the amount is not more than 300 euros, in which case the daily interest will be 0%. These loans have an annual percentage rate of charge (APR) of 3112.64%.
In the event of late or missed payments, the borrower must pay a fixed default fee of 30 euros on the second day, and 1% calculated on the amount borrowed, from the third day. Also, the borrower may pay the loan in full or in part before the deadline specified in the agreement.
Machine Learning Technology
This is another of the possible growth sectors of Fintech, which allows startups to improve phases of the business model, using artificial intelligence, in aspects such as customer service, scoring systems or data partitioning.
What are the requirements for a Fintech entrepreneur?
A series of conditions are required for a startup in Fintech, such as
At the time of making a startup from Fintech, it is required to have the ability to make decisions, identify errors and make corrections as quickly as possible. In addition, as a leader you must be prone to change, that is, to evolve in the same way the company does. Starting with a small team, but then learning to delegate when you have a larger company.
Negotiation and marketing skills.
Commercial relations for the sale of products and services is part of the daily routine in the startup company. Therefore, you must also disseminate your business model to investors, also convince your employees, as well as offer products and services to customers.
Analysis and adaptation skills.
The Fintech sector is in a process of rapid change. A successful entrepreneur must therefore be able to analyse this sector and adapt to changes in Fintech.
What are the costs of a startup from the Fintech sector?
There is really no single answer to this question. The budget needed to run the company in the operational part will depend on the orientation of the business, the infrastructure required, the operations team, among other elements.
However, startups have their advantages, due to technology-based projects need less money than traditional ones. However, it is always a complex issue for entrepreneurs. Therefore, the following is recommended:
Start very low with a Minimum Viable Product (MVP)
To do this, it is important to know the customer’s relationship with the product or service and their willingness to pay, developing and offering a minimum viable product (MVP). This product must have some more basic characteristics, the minimum of the projected product, to reach a first group of users. With this, the production and distribution costs can also be known.
Cost estimation and cash flow
You must have a backup amount that allows you to operate the startup for at least six months. It is also important to make projections of possible scenarios to weigh the progress of the company.
Problems that can arise when starting this business
One of the problems an entrepreneur faces is getting a bank to become his partner and persuade him about technology and innovation. Similarly, there may be problems with regulation of startup in the Fintech sector, because it is a relatively new process and the rules are being adjusted to reflect the evolution of Fintech.
It is recommended that alliances be strengthened with larger institutions with which the support bases of the financial system can be established, in order to carry out cooperative work between both parties that will facilitate technological integration.
How to move from a startup to a larger company in Fintech?
Fintech startups are showing exponential growth in the medium and long term. Therefore, it is possible for them to make the leap to corporations. However, entrepreneurs, almost businessmen, must overcome new challenges, such as
The exploration of new markets
It means opening up to new markets by looking at the countries that have potential in the growth of the Fintech services on offer. Likewise, for this expansion of the company it is also necessary to weigh the fiscal, personnel and infrastructure costs, necessary for this development.
The consolidation of the leading team in innovative projects
An IT team of professionals must be consolidated, with
the skills to lead machine learning projects and to manage the Big Data properly.
Requirements to start in Fintech Business
Currently there is a new system, created to revolutionize the financial system, using technological tools and the Internet field, so that the fintech method in addition to innovative has become the future where the strongest finances could be focused.
First of all, it is necessary to investigate under which legal figure the fintech figure is regulated, since this technology is directly related to the financial activity which makes it susceptible to legal prosecution regarding the case, so one must be well informed about the legal content regarding the matter.
Choose the appropriate figure to regulate the business, because for this type of market there are specific legal frameworks. If you have a model that is not related or does not resemble the regulated one, the best thing to do is to rely on the law, under the figure of innovative models, so that the banking commission can monitor your system without executing legal proceedings or concepts.
Get capital to start the business, you can seek your own capital or that of relatives, if you do not have money you can try to avoid launching a fintech that requires authorization until you get the necessary capital.
Finally, organize an organizational structure, with technological construction and operation strategy, these will be vital and required to be authorized as a fintech, so it requires a good investment capital.
Advantages of having a Fintech business
This business brings very high profits once the system is put to work and its structure provides the service correctly. Furthermore, representing the future of bank transfers and financial bridges is a business that can lead to absolute economic freedom.
It is a new and varied business, with constant growth in multiple nascent services, product of the needs of the interactive user of the web, can give you multiple options for investment and growth, providing almost infinite possibilities against the services susceptible to exploitation.
Cases of success
One of the main success stories is Adyen, a recent company in the Fintech business, founded in 2006 by a group of entrepreneurs, with the vision of changing the financial systems that at the time were considered too obsolete to meet the needs of the emerging modern society, so they undertook the task of relying on Internet technology to facilitate this system, in order to profit while improving the payment system and services worldwide, giving scope to a series of new services based on the distance of the Internet.
The system that this company uses, adheres to the established financial system, working hand in hand with the official payment bridges without modifying them, in such a way that it facilitates the access to make the money arrive from the hand of the consumer to the businessman at a speed never seen before.