The world of finance and financial services is huge and, for the same reason, clumsy. Modern technology has taught people about speed, accessibility and convenience. Although classic solutions remain on the market, they require changes.
In the meantime, ordinary banks are calculating the risks of future changes, their place is taken by fintech startups: projects that solve problems in the financial and near financial sphere faster, more convenient and often cheaper than a bank.
The number of new fintech companies is increasing every month, and it is understandable: this is an entrance to a huge market rich in money and opportunities. You just need to get a license and ... and that's what to consider when creating a fintech project, we'll talk.
In this article, we draw on real experience both when creating fintech projects for ourselves and for our clients.
1. Choose a suitable jurisdiction for company registration
Let's start with the obvious, but for this very reason, the point is often overlooked when planning: where exactly to register a new company in order to create your fintech project?
There are many nuances here. Here are some:
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- Company maintenance costs versus potential benefits. The cheapest way is to open a company in a classic offshore and get a license for it. But you understand that it is difficult to open an offshore account, and all transactions will be constantly monitored, interfering with normal business. Sometimes it is more profitable to register a business in a high-tax country, but with an excellent reputation and other advantages.
Among the popular countries for Fintech startups, remember:
- Malta;
- Great Britain;
- Estonia;
- Lithuania;
- USA;
- Ireland;
- Hong Kong;
- Singapore;
- And others.
Even within these countries, you need to consider your target market and the specifics of your business model. What is profitable to launch in Malta is not the fact that it makes sense to do in Singapore. It depends, among other things, on the direction of fintech.
This is the next point.
2. Fintech direction: what exactly will you do?
Fintech is a heterogeneous field. Someone creates a replacement for a bank, someone makes money on cryptocurrency, and someone only needs to provide financial advice and provide accounting.
When developing your own project, it is worth deciding in which direction you will work. It can be:
- Electronic wallets and payment systems;
- Cryptocurrency exchanges;
- Currency exchange (including cryptocurrencies);
- Blockchain-based financial solutions;
- P2P lending;
- International money transfers;
- Insurance products and services;
- Protection of personal information;
- Electronic platforms for interaction of different types of customers and performers: from a freelance exchange to a search engine for investors;
- Own neobank;
- And much more.
Fintech startups can solve the same problems that classic banks solve, but in a different way, cheaper or more convenient; and they can also create new niches and cover those needs that banks did not offer before or the service was offered to a narrow list of clients. For example, personal financial advice; investments in stocks and bonds in small amounts, etc.
3. Decide on a license
A license is a document from the authorities of a country that allows you to legally work in the field of finance. There are many types of licenses, some of which we will indicate below.
The choice of a specific license depends on:
- Price;
- Amount of preparatory work;
- The range of services that you can provide.
For example, the well-known EMI (Electronic Money Institution) license, which is issued in the countries of the European Union, requires you not only to hire specialists and a clean reputation, but also to have a company's statutory fund from 350,000 euros. But the list of services you provide is also impressive.
Types of financial licenses
Several examples of licenses that you can obtain in different countries. Some will have a longer list, some will have less.
- Cryptocurrency exchange license - allows you to change fiat currencies to cryptocurrencies and vice versa;
- License to create electronic wallets - in addition to exchange, you can create wallets for storing electronic currencies;
- Financial Institution license - you can choose from a list of activities, including brokerage services, client consulting, leasing, and so on.
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- Payment Institution license (PI) – , , , .
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When creating a fintech startup, always keep in mind the goal and the resources that will be needed to achieve it.
Perhaps at the start it makes sense to get a simpler license, and then expand it. Or maybe you don't even need your own license and the task can be solved using third-party services at prices ten times lower than the cost of a license.
Many fintech projects want to get an EMI license, for example, to have their own card products - although this is not the main offer of the company. In this case, there is a great chance that until the project receives a license, competitors will outstrip it and the relevance will disappear.
That is why we recommend communicating with professionals who understand fintech: they will suggest solutions that you can purchase or rent to save time and money by focusing on the core product.
4. Develop a concept for a fintech startup
Briefly about the main thing: how is your project different from others? The payment system is very interesting, but why is it worth choosing you? How will your service solve the client's problem and allow you to earn hundreds of thousands and millions? How do you plan to develop in 3 years? And after 10?
Answers to conceptual questions will allow you not only to work out a marketing strategy, but also to determine the type of license, jurisdiction for registering a company and other technical nuances.
Many startups grow out of a desire to solve some kind of personal acute problem and gradually turn into large companies. Or, as an experienced professional, you can immediately close the market's need for a particular solution in a way that no one else has suggested before you.
Sometimes the difference at first glance may be minimal, but in the end it is expressed in millions of users around the world.
5. Financial opportunities at the start of a business
Studying the prospects for the fintech market, it is easy to forget about the costs that will have to be incurred at launch. And it's not just about the cost of the license itself. Let's just list what you need to prepare funds to start a fintech business (especially if EMI and PI):
- License - from several thousand to hundreds of thousands of euros or dollars;
- Providing AML / KYC procedures - developing your own, using ready-made templates in most cases is impossible;
- Company registration - several thousand euros / dollars;
- Hiring AML specialists with experience and so on;
- Providing the technical base of your service: developing from scratch or buying a ready-made solution. For example, buying software to launch your online bank - about 20 thousand euros.
- Advertising and customer acquisition;
- Backoffice salaries and others even before the company broke even, not to mention profitability.
In many cases, you need to think through the financial component many times more seriously than the issue of a license. Especially if you attract borrowed funds or your investors have agreed on too short a return on their investment.
6. What to do with finances in case of emergencies
You can believe as much as you like that “my project will be perfect” or that no crises will happen in the next 100 years, but reality strives to poke its nose into the naivety of such entrepreneurs.
Therefore, it is important to always have a contingency plan. Especially when it comes to money and money of strangers.
Whether you have your own liquidity from which you can cover your debts or you have purchased insurance in case of financial turmoil - there are always options to prepare. Your task is not to forget about it, until, as they say, the roasted rooster is pecked.
Or you didn't need an urgent backup of data from your server ...
7. Build an outstanding team
Our colleague and owner of several fintech projects, including payment systems, says: "Hire the best of the best and don't interfere with their work."
Thanks to experience, professionalism and understanding of the intricacies of business, a good team will launch any project into the stratosphere. With the right leadership, such a team can literally move mountains. Elon Musk today is not the most striking example of fintech (although he participated in the creation of PayPal), but still he solves such tasks in his company that seemed, if not impossible, then too difficult for private business. And he pays a lot of attention to the team, and not only to the one that directly flies into space.
There is nothing to do without experienced people in the fintech industry. At least a normal license will not be given, but as a maximum, you will spend a lot of money and go bankrupt.
Sometimes it is worth investing resources in a specific specialist, and he will give an enchanting acceleration of your company. All you have to do is to guide people, remind you of your vision and adjust the course based on the real situation in the world.
8. Open an account and create a safety net
Last but not least, opening an account. How can a fintech project exist without an account, right?
However, opening an account for this type of business can be challenging. It will in most cases be considered risky or even unacceptable for some banks. For example, if we are talking about cryptocurrencies.
Ideal case: open an account in the country where the company is registered and / or licensed. This is not always possible: in Estonia, banks open accounts only if the business is related to the local market. Fintech prefers to go beyond a small country.
Therefore, the next step is to open an account abroad. And here, too, is not easy: non-resident banking is overly controlled and considered risky. Plus, again, not all banks are willing to work with risky clients.
It is important here to use the services of professionals who will help you choose a place to open an account and negotiate with a bank or payment system. At the very least, you will save time: fewer checks, more understanding from the financial institution and a lower risk of rejection after weeks and months of studying your application.
As for the safety net, any business should have more than 1 account. After all, if it was closed or frozen, and the business completely stopped. Having two or more accounts in different countries allows you to count on predictability.
For a financial startup, this is triple important, because if your main account is closed, all transactions get up and the business receives not only financial losses, but also reputation losses. And the last ones in this business are the most difficult to compensate.
Instead of summing up
Fintech is a promising niche for the next few years. But in order to survive the competition, you need to prepare and prepare thoroughly.
But the strongest will get the biggest jackpot.