BUILDING A FINTECH

Whatever problem or opportunity you are trying to face, you must clearly define it before you start.

It always starts with an opportunity to provide better, cheaper, or better and cheaper services to a group of customers. For this, you need to define potential customers, talk to them, understand their problems, and build solutions, answering problems or dreams they have.

But before you move on, you need to understand a few points:

  • Minimum technical requirements
  • Minimum regulatory requirements
  • Dynamics of the business
  • Potential partnerships
    • Regulatory
    • Technical
    • Process
  • Clear budget up to piloting
  • Sources of funding

Unfortunately, we see many great ideas and start-ups failing because of not understanding the above.

There are many creative ways to build a Fintech. You may say that building a Fintech is like a game of blocks. Depending on the size, market niche, method of service delivery etc., it will have different solutions and requirements, and there is no formula or blueprint to be followed.

Minimal Technical Requirements

To deliver any solution, you need to understand first what you are trying to solve, what you are trying to sell, and to whom. For example, there is no point delivering a payment solution to rural customers in Africa or Latin America based on a smartphone solution. It will not work, as feature phones are preponderant: you will need to have a USSD solution to be successful.

Another important consideration is whether to have a full programming capacity. In the Fintech universe you can have a supplier for everything, from customised programming to the purchase of standard solutions for many problems such as onboarding, KYC, AML monitoring. These solutions can be combined into different shapes and forms, creating your unique solution. Later, you may even consider bringing some of these services in-house as it becomes more cost effective or a strategic differentiator.

The same applies to understanding data storage requirements in terms of volume and location. Some countries now legislate that data must be storage within the country boundaries, and compliance may have extra costs as, for instance, global cloud providers do not have physical presence in many countries, so one must instead rely on local supplies. These will almost inevitably be more expensive.

Avoid digitalising existing processes

What you should avoid at any cost is trying to digitalise existing traditional bank processes. You will end up with the worst of both worlds, with a clunky process that mixes digital and physical, requiring too much back-and-forth. This also affects innovation and new product developments at established banks. When working on a new project or opportunity, established banks use the same people, the same providers, and the same structure. It is no wonder they end up with no true differentiation.

In fact, one of the competitive advantages of new Fintech start-ups is not having to deal with issues and constraints of legacy systems or sunk investments (when firms stick to bad investments just because the money has already been spent). Fintechs can build true digital process from scratch at a fraction of the cost to incumbent banks. This leads to another advantage, which is cost effectiveness. While established banks run at a cost-to-income ratio of around 55 per cent, Fintechs run at close to 30 per cent.

So, always think of your solutions from a digital experience point of view. You will be surprised how the world is becoming digital after the Covid-19 outbreak.

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