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The United Kingdom has already seen the emergence of mobile-first institutions that have won regulatory approval for a banking charter. It is only a matter of time before they invade the U.S. market.
December 15 -
All participants in financial services will have to start behaving, thinking, organizing themselves as technology companies and focus on three things: technology, data and customer (or, better yet, user) experience.
October 29
You have a great fintech business plan. So you assemble your team and create your startup. Here are 10 common mistakes you should avoid if you want to have a chance to live another day.
Ignoring the licensing process
You think you are a tech company. You think you are only building software. But if you are focusing on a business-to-consumer model, chances are you may require some type of license. At the very least, you may need to talk to your local regulator. Many startups have tripped up by forgetting that the financial services industry is heavily regulated. Make sure you understand the regulatory laws and licensing requirements. Do not be shy. Ask a law firm specialized in regulatory work. Heck, upfront homework may actually save you time and money later on and may help you make your business plan smarter.
Weighing the drawbacks of taking bank capital
You have decided to raise money from a bank or an insurance company. Financial services incumbents are regulated entities. They have to abide by very tight rules. If you are raising money from a financial services incumbent, do your homework and ask if regulatory approval is needed and plan accordingly. Prior to closing an investment from an incumbent, ask what type of reporting they will need, what type of governance and what type of ongoing information they will require. They work
Disregarding compliance as a pesky annoyance
If you are late hiring a compliance officer and/or late to developing a compliance rule book that you abide and operate by, you may end up dead meat. Be smart, realize compliance can be your friend — this includes anything that has to do with anti-money-laundering rules and know-your-customer rules.
Not choosing a venture capitalist with fintech experience
If there is one industry where experience matters, it is the financial services industry. Venture capitalists with an understanding of the industry are invaluable. Shun them at your peril.
Assuming that fintech disruptors are like other startups
Money is a weird concept. Individuals care about their money, yet at the same time they are less engaged with their finances than they are with their social networks, friends or the passionate causes they care about. Incumbents care very much about money and are risk averse, whether the risk affects them or their clients. Regulators care about individuals' money and the health of the enterprises they regulate. In other words: if you think the laws of scaling a business apply in exactly the same way in any given tech industry as they do in fintech, think again. Understand psychological behaviors around money, credit, savings, payments, both at retail and institutional levels, and you will be better off.
Most that fail to study these cautious behaviors end up feeling surprised by how slowly they gain traction either because growing a retail customer base is much more expensive than they originally thought or because selling to incumbents takes much longer than they thought.
Putting too much faith in your low prices
Many startups come up with business plans that provide financial services or products at a cheaper price thanks to modern technology. Payments startups and robo-advisers are prime examples of this. But if you focus too heavily on cost, you may fail to understand that incumbents have massive scale advantages and will wipe you out when they finally move into action. They can race you to the bottom while undercutting you on cost. So find a real differentiator other than just lower cost enabled by "better" technology.
Thinking that intellectual property can be easily protected
There are two lessons worth noting here. If you have come up with some technology you think is defensible from an IP standpoint, chances are a) an incumbent already has something similar in its intellectual property portfolio and b) your tech can easily be tweaked by anyone without much effort. I bet this holds true for other industries. In fintech, it holds especially true and if you base your business model on your IP alone, then you will run into trouble.
Thinking that payments are easy
Payments is the easiest financial services sector to enter. It is the most difficult to succeed in. Many startups mistake ease of entrance for ease of success, and as a result, many startups fail. Think of how difficult it is to sell to customers in any industry. Now, multiply that by two or three in payments. You may have to sell multiple stakeholders: users (retail or corporate), merchants, processors, banks and networks.
Overlooking legal issues
Certain financial services sectors are ultraspecialized when it comes to the legal world. Think of securities law in capital markets. Think of laws protecting borrowers. Think of privacy laws when applied to personal data. Legal is sometimes different than compliance. So make sure you also cover legal aspects when developing your business plan.
Ignoring business cycles
Whether the economy is expanding or contracting will have an impact on your business. This goes without saying, but doubly so in fintech. Let's take the example of alternative lending platforms. If an alternative lending platform's management team has built its business model off of low interest rates and related assumptions regarding default rates, the team will have a rude awakening when interest rates start to rise. Building a business model in fintech off of where one is in the current business cycle is short-sighted. Think of credit downturns, interest rate cycles and monetary policy, and start scenario planning.
Pascal Bouvier is a venture partner with Santander Innoventures. He was formerly a general partner at Route 66 Ventures. He can be reached on
