If you told me in 2010 that a financial startup called Stripe would be worth nearly 9 billion dollars 8 years later, I would have said you were crazy.
Stripe had a simple proposition: Make it as easy as possible for products/companies to accept payments on mobile and web. How simple? Just a single piece of code was needed to start accepting payments. It was hugely successful and Stripe was one of the first financial-related startups, now referred to as the fintech industry, to really wake incumbents up to the reality of tech.
The financial industry used to be considered one of the most stagnant industries and incapable of being affected by disruption. Because of strong regulations and institutions with massive staying power dominating the field, the barriers to entry were just too high for nuanced creativity and innovative products to emerge.
Now, with apps like Venmo and Zelle revitalizing the way payments are made, several third-party apps are looking to become more relevant in the coming years, and several have already changed the way consumers think about their finances for the foreseeable future.
We went from having one way to pay people online — PayPal — to having hundreds seemingly overnight. Payments are just one slice of the entire fintech pie. The reality is that the fintech industry is up for disruption in many areas.
Companies currently disrupting the fintech space are mobile apps such as: Penny, Spendee 2.0, Robinhood, Betterment, and Acorns. So this poses the question, what makes these fintech applications so successful and how can new companies compete? For this article, I’m going to dive into what can make a fintech app disruptive.
The following is a basic list of rules for what every successful fintech company must employ if they are to be seen as a contender, based on what we’ve observed about a majority of fintech applications.
We’ve worked with several companies in the fintech space who’ve been able to develop their companies into successful enterprises. As a result, we’ve compiled a list of standard best practices for other emerging companies to use as a model for gauging their own success.
Penny, a personal financial application that was recently acquired by Credit Karma, positioned itself as “A personal finance coach that’s simpler than Mint.” Their strategy was to identify the pain points in Mint and build a more friendly, intuitive experience.
The strategy seemingly worked as a user’s comment posted on producthunt.com reads, “Huge fan of how simple Penny is to use; my problem with most PFMs is that they take a ton of work to customize, categorize, etc before they actually become useful to me. Penny was one of the few that I tried that was immediately relevant (especially the side by side month comparison spending).”
Even with complex information such as this being delivered to the user, it is important to consider that simple is better. A clunky UX is cause for deleting the app, which can dampen your chances of success as a budding application.
Context is king. In the financial world, spreadsheets run rampant. And of course these spreadsheets have tabs and tabs of numbers and formulae which don’t make sense for a majority of “normal” users.
We helped one of our clients, Fidelity, a global asset management company, create a simple to use iPad application that tells them what they need to know about their investments in one single tablet dashboard.
The power of getting information quickly for fintech applications can help applications grow faster than their competitors.
Take a look at Wealthfront’s advertisement:
The reason why the financial industry took so long to be disrupted was because it was too boring, too complicated, and there were too many regulations to fight through.
The reason Wealthfront and Betterment work really well is because they make most of the decisions for the user. A typical consumer couldn’t tell you the difference between mutual funds and doesn’t know how to diversify their portfolio to reduce risk.
The more your users have to input on their own, the bigger the bottleneck, and the higher the barrier to usability. Wherever possible, successful disruptive fintech apps eliminate manual processes and make it easy on the user to succinctly enter in anything that can’t be bypassed through automation.
Wizely, a one-of-a-kind fintech solution to help millennials save money, was built as an automated AI platform to make decisions at the transaction level. This was deeper than any other fintech platform on the market, which deeply enhanced the user experience. RapidValue automated the Wizely user experience based on bank-level history, which goes deeper than anyone else. Its competitors are all manual-entry only.
More automation coupled with a proactive saving module using gamification means Wizely will scale and help its users get real results faster than their competitors.
Rather than trying to build a company with low operating costs and high product price, the blueprint of successful fintech companies tends to run towards a low-profit margin. Instead of making more money on each sale, the goal should be to acquire more transactions with a small cut of each.
This replicable model has worked well for several fintech companies. By going for volume and keeping margins low, it will cover operational costs while still producing revenue.
However, quickly growing user base is what leads to partner-backed VC money, which is the most expedient route to success as an emerging fintech company.
Even if you’re building a blockchain app, it doesn’t mean you can go rogue with no rules. When it comes to money, you have no choice but to invest in cybersecurity and follow (most) of the rules.
Coinbase is a great example of this. They were one of the first blockchain/Bitcoin startups to go to market, and they were simply one of the most trusted companies during the Bitcoin boom.
With any emergent tech comes the risk of something going awry. The risk of fintech is real, but equally so are the rewards if it works well. Regulators and innovators alike must work within the laws and regulations in order to find the sweet spot between what works and what takes things too far.
From small lending companies to payment processing apps making financial decisions as easy as swiping, or pushing a button, this isn’t your grandfather’s financial services world. For example, in terms of regulations, cryptocurrency companies blur the lines on what is acceptable and what is not. Most recently, some companies have been investigated for money laundering due to the many gray areas associated with the blockchain.
Alternatively, companies looking to break into fintech must work on meeting regulations and coupling that with increasing their innovative approaches. However, stepping over the lines could slow success down to a halt, which is something to keep in mind as tech-driven creatives begin brainstorming new solutions to old problems.
Now is not the time for an all-in-one financial application. That’s fighting too many battles at once.
One of our clients, Mitek Systems, makes it easy for financial companies to digitally verify identity. What does the customer need to do? They take a picture of their ID, Passport, etc. using their phone. That’s it. Mitek handles everything else for the consumer and the financial company.
Understanding your customer encompasses everything from knowing their financial habits to figuring out how they utilize other apps in other spaces. If your target market lives and breathes by apps on their phone, there is a good chance that introducing a new fintech app into their arsenal is a welcomed addition.
APIs are doing a lot of the heavy lifting for many applications. For example, Braintree (which was acquired by PayPal) is an API that itself is worth millions of dollars.
Having powerful connections as an emergent company can help you get to market faster and provide a better service with fewer onboarding hurdles for your clients. Thankfully, for fintech startups, there has been an increase in collaboration across the ecosystem fueled by customer demand and regulation.
For example. Open Banking in the U.S. is a voluntary market-driven initiative whereas it is a legislated requirement in the European Union, Hong Kong, and Australia among other countries.
The financial services ecosystem includes governments, traditional financial services companies, and fintech startups. A successful fintech application must be able to integrate with the greater ecosystem in order to be adopted by a high volume of users.
One of our clients, a large health insurance provider built a connection to health data to streamlined life insurance policy creation by integrating health data with the solution to avoid need for medical tests.
Because most fintech products need integrations with other platforms in order to access information through APIs, it is incredibly important that they be geared to integrate well within various ecosystems. The touchpoints in the ecosystems can vary widely and may include portfolio-management, banking, point of sale, and even the IoT (Internet of Things). For example, a fintech app is required to process the payment for a food purchase triggered from a smart refrigerator.
Companies like Finicity are improving consumer trust by bridging the gap between banks and third-party fintech apps. Capital One, Wells Fargo, JPMorgan Chase, and USAA are all using Finicity to provide more security and peace of mind for their customers.
Finicity is just one example of a data aggregator that will share data without providing customer credentials to third-party apps. Effectively, it functions as a workaround for consumers having to input their banking passwords and accepting the risks.
This is all good news for consumers because it will likely expedite the user experience of working with the apps, and also make the entire process safer and more tailored to the individual.
Being able to customize your applications to various ecosystems will increase your pool of potential users and will make it easier to acquire more customers as new regulations and innovations come into the market.
I know saying the words “zelle me” will never catch on, but the largest banks came together to form Zelle, which competes directly with Venmo.
In order to expedite the time to market, successful disruptors will need to increase their partnerships. Leveraging partnerships through banks, data aggregators, insurers, and investment management companies can help provide consumers with a better experience that is faster, more secure, and more powerful.
It is important for a new app to create a common middle ground between the innovative world of fintech and traditional institutions in order to entice banks and other partners to jump on board.
We helped our client, MicroInvest create a personal financial companion application that makes investing as easy as possible. How easy? Well, based on smart rules you define, MicroInvest will save money for you automatically.
You don’t need to remember to move over money to a savings account or other financial savings tool. It will do it all for you and provide you with easy to read reports to help you understand where your money is going.
The fintech world is prime for disruption, you just have to follow a few more rules and regulations than normal. However, if you follow the advice above, you’ll have a much higher chance of success.
We are witnessing movements which are bringing transformative and disruptive innovation to financial services through the application of new and emerging technologies which address consumer needs through automation. Embracing disruption enables you to examine the forces that are disrupting the role, structure, and competitive environment for financial institutions and the markets and societies in which they operate. The fintech world is prime for disruption, you just have to follow a few more rules and regulations than normal. However, if you follow the advice above, you’ll have a much higher chance of success.