As FinTech adoption rates continue to rise, investors are eagerly watching the industry for opportunities to get behind. FinTech is more than a series of unique digital payment methods in today's market. It’s a new approach to personal finance, systems enabled by software, and a connection platform between businesses and consumers. When we add these variables together, we notice that they equate to a transparent and practical system. Naturally, this is what users want— transparent institutions that make them feel they are in the driver's seat of their money. What does this mean for competitors? Nearly 90% of them expect FinTech companies to wipe out the majority of their consumer base.
In addition to the feasibility of these systems, international adoption is a major push for consumer engagement. One recent example is the introduction of mobile payment in the Association of Southeast Asian Nations (ASEAN). This venture brought plenty of attention from foreign investors who pumped $1.6 billion into ASEAN-based FinTech startups during 2020. The industry is growing as a result of this level of adoption all over the world. In 2021, the FinTech industry was estimated to be worth $112.5 billion. By 2028 it is expected to be worth nearly threefold at over $332 billion. What’s the reason behind this growth? Here are some of the services’ attractive components:
Total Cost of Ownership (TCO):
The price of an asset and the cost of operation is useful when determining the direct and indirect costs you’re getting into with long-term ownership of an asset.
Low Cost of Operation:
Operating virtually whilst not being governed as a depository institution makes way for FinTech companies to bring in clients and function at a rate less than that of a traditional bank.
Big Data:
This is a process used by FinTech service providers which keeps track of everything from transactions and credit scores to where consumers like to shop. This information is then used to tailor the service’s approach to users by showing them more of what they need.
Shift to Mobile Wallets:
There was a huge shift to digital payments in 2020 but there was also uncertainty around its longevity. Flash forward two years later and now 75% of consumers use this service. Additionally, it was found that 60% of consumers feel more comfortable with their smartphone as opposed to a physical wallet.
Cross-Border Payment:
Whether it’s retail, wholesale, or remittances, FinTech opens its reach to this market through blockchain technology. Ultimately this allows ledgers no matter where in the world to transfer funds from one to another.
These factors draw in consumers as well as investors but this is still only the beginning. Remember that mobile banking itself has only been around since 2007 and by 2012 only 21% of smartphone users in America reported having used mobile banking. Flash forward to today, the rate of users who prefer mobile banking now sits around 65%. If we wanted to look at an even larger user base we’d shift focus to China, where a whopping 90% of the population uses FinTech services.
With a broad understanding of FinTech’s reach, what's next is focusing on what investors are saying. Whether you’re a company, competitor, current user, or just curious about FinTech, this information will be useful. Here are some common topics for discussion among FinTech investors:
Uniqueness
The market gets crowded with companies taking after one another which, to investors, doesn't present anything worth getting behind. This is especially difficult as a business when the giants of the industry have set the bar so high. Inevitably as an organization that wants to prove itself, it comes down to the question of “what makes me special?”. There are tens of thousands of companies in this industry. Being one of them you need to have a clear purpose with research that supports your rationale for pursuit. Investors want stability, investing in a company that serves the same purpose as 5 others without dramatic outperformance doesn’t stand out.
Long Term Planning
Profiting as a financial institution does not begin the first day you’re open for business, it is a long path especially in a climate as competitive as the FinTech industry. Investors need to see planning for the long term with clearly defined goals. Additionally, they’ll need to have confidence in your understanding that longevity in FinTech requires substantial capital. Marketing, bringing in clientele, retaining clientele, and ultimately being able to monetize your services will take time and commitment. Trying to make a fast profit or “passive income” is not an attitude that will serve well in a search for funding.
Partnerships
This applies at any stage of development but is especially beneficial for startups. Partnering companies bring numerous benefits in terms of innovation, services offered, problem-solving, and backend operations. It comes back to standing out in this crowded market and partnering entities are more likely to make their presence known. However, there will also be a handful of risks with mergers and this will need to be mitigated by the team as best as possible.
The Team and its Leaders
The logistics of running a business ultimately comes down to the people working on it daily. It should be noted that a team is only as good as its leader. Of course, a leader who can get positive results from their team will thrive. Most importantly a leader who is competent when faced with uncertainty and able to bounce back from failure will build confidence in their team as well as investors.
Put yourself in the shoes of an investor and imagine you’re looking at two companies with similar performance in the last 2 years. One of them embraces company culture, has had to make hard decisions and has seen steady growth. The other has a high employee turnover rate, is behind on its goal timeline, is not interested in change, yet still has seen a level of growth. Which of the two are you going to fund?
The Takeaway
The financial sector is extremely competitive and is always at high risk for consumers, investors, and businesses. For investors to consider your product your service needs to fit like a missing piece of the industry's puzzle. The development will take time just like any business which allows you to take your time. The interests of your consumers will change and so will the economy. As long as your team is open to that reality and employs the necessary tactics, you’ll be on your way to a long-term reward.
Written By Ben Brown
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