Learn like a Fintech

As part of Fintech program at Finacle, I have been fortunate to interact with hundreds of Fintechs over last few years. It has been terrific learning, with some do’s and don’ts in the exciting new world of Fintechs.

1.    B2C could be tempting but very difficult to monetize

Do you have an idea of an app that can help customers pay their bills easily? Or a financial management tool that can manage the customer’s finance? These are low hanging fruits and look quite tempting to start. In all probability you might have even come up with an excellent app that some consumers would have already downloaded and have given excellent feedback. But don’t underestimate the monetization challenge of B2C apps – the customers expect them to be free just like emails.

A better approach could be to make it a B2B2C application. Instead of directly creating the app for the customers, route it through the financial institutions. It is easier to convince the banks to pay for your application rather than innumerable customers. The banks have a fairly matured way of generating revenue from direct and indirect means. In case of financial products, trust and reliability is the most important factor that a customer goes by, difficult for a Fintech to create in early days.

2.    The last mile is the longest

It is really good that your product is liked by many banks and they have asked for the proof of concept. However the distance between the successful PoC and issue of purchase order is sometimes the longest. The real test of the viability of idea is only when someone is willing to pay for it. So if there are too many PoCs happening without the purchase orders, may be it is time to go back to the drawing board.

The point is there is big difference between someone ‘liking an idea’ and ‘paying for an idea’.   

3.    Keep the product centric approach in mind

The Fintech world needs a product centric approach. Incidentally many of the Fintech founders come from the IT services company who have inclinations of generating services revenue. The new Fintechs need to solve specific problem with minimal customization or development. The product should ideally have zero implementation cost.

Some Fintechs have done well to choose the implementation partners early on. The easy thing to check is if your revenue model consists of subscription fees (ideal) or license fees. Any services revenue should be a red flag.

4.    Focus on specific problems rather than generic approach

The Fintech world is all about identifying and solving a specific problem end to end. So if your idea is to create a platform that provides some capability that can be used in multiple use cases, it may not appeal to the banks.

For example if your Fintech is working on a credit evaluation system, you may not want to focus on all the segments and all types of customers. That makes the problem too generic and complex. A better approach could be to identify one or two segment that is currently not served by the banks due to lack of data or distribution cost and tailor the solution.

A generic solution solves little bit of problem for all use cases but a specific solution caters to limited use cases end to end. Fintechs would benefit more by focusing on specific ideas. Even something like localized/vernacular solution for standard banking services may have good uptake.

5.    Just because your Fintech is agile, don’t expect everyone else is

After a successful proof of concept a bank might have liked your idea and given it a go ahead. “We will have to onboard you as a vendor” – the IT manager could have said this innocuous looking statement. However the vendor onboarding process in large organizations is a very bureaucratic and time consuming process. It may be frustrating for Fintechs.

The key thing to enquire is, if the onboarding and contracting processes in the bank are tuned for the Fintechs? Has the bank created a shorter version of contract and changed the partner onboarding process for the Fintechs? If not, then be prepared for a long arduous process.

6.    Choose your participation in Fintech/startup programs carefully

Fintechs are the buzzword these days. Every bank wants to be part of this with various incubation and connect programs. Many banks, I have seen have created a separate Fintech team. So the good thing is that the Fintechs have lot of option today to engage with banks. The flip side of this, is that your small startup may get burnt out by participating in numerous bank and industry events. The thing to keep in mind is that few times these are just PR events and may not add value to your Fintechs.

One of the Fintech that I met had got around this problem well. The founder said “We never involve our core product development team in these events. We deliberately do not participate in many events as it consumes our bandwidth.”

7.    ‘Proprietary’ technology is not necessarily an advantage

I recall how one Fintech founder went on to explain the benefits of his product but excused from talking about the specifics of the technology as it was supposedly a ‘proprietary knowledge’. I think the Fintech world is different from established technology companies who primary bank on their company IP. For Fintechs, openness and willingness to participate in the ecosystem can yield better results.

The point to note is that Fintechs are low on trust initially (due to being new in banking) and hence sharing more information and transparency can help generate that trust.

8.    Know your story well

Most companies engage the Fintechs not only for the current solution but their ability to have a vision and tell a convincing story. Fintech is all about idea selling much before the actual product. The strength of a Fintech is ideation and agility compared to traditional players who rely on scale and customer trust.

As a Fintech you need to keep you elevator pitch ready always. Fintechs do not have the luxury to say “we will check with our experts on this and get back to you”.

9.    Use the new technology only if the business case demands

I have come across some Fintechs who use Blockchain because it is the talk of the town while the use case could have been met with a traditional solution. Similarly I have seen few Fintechs claiming to use machine learning technique for something that could be better done using rule based ones.

Force fitting of technology can be an attention grabbing trick but it may not hold the attention of your customer or investor far too long.

10. Finally, be prepared for the roller coaster entrepreneur journey

Finally, Fintechs like startups are prone to failures. The media reporting has a survivor bias that may set wrong expectations of quick overnight success. Like all entrepreneurship journey Fintechs go through the initial euphoria, fear of failure and valley of despair before finally turning the round corner. A useful help could be to read books on personal journeys of those who have already travelled this path. 

P.S. -> Finacle Fintech connect program helps your Fintech scale up by reaching out to large number of Finacle clients. For more -https://goo.gl/WZE1ub