Is Fintech the hardest _____-tech?
Starting a business is easier than ever. Template incorporation and investment docs, business planning advice, website builders, cloud storage, and other resources have become more widely available and cheaper in recent years (e.g.: Stripe Atlas).
Building a real product, finding customers, growing a business, and finding to product-market fit however, remains incredibly difficult. And nowhere is it more difficult - in our opinion - than in fintech.
On top of the standard hurdles of startup businesses, such as:
- Doing customer development, to understand who your potential users are, where to find them and what problems they want solved
- Building websites and mobile apps (back end, API, front-end work and more) to serve customers
- Marketing to build your customer base, while considering CAC/CLTV
- Ensuring your company is meeting security, privacy, and other important customer expectations
- Plus raising money and recruiting the teams that make all this happen...
…fintech presents additional layers of complexity and difficulty, such as:
- Making decisions about building vs buying to interact with (or disintermediate) legacy rails and systems, based on internal decision frameworks on commoditization vs. differentiation
- Competing within an industry dominated by few players who can make it expensive to get distribution, race to the bottom on cost (driving down margins), can influence regulation and more
- Understanding and keeping up with incredibly complex regulation
- Acronym soup: Regs, OFAC, BSA/AML, SAR, 314a, etc. etc.
- State and federal licensure laws
- Needing a regulated bank partner to get access to particular systems (e.g. credit card lending, ACH rails)
- Having to do deep and ongoing diligence on any vendors utilized, given the 24/7 nature of most payments/banking products and incredibly low tolerance for “failure” cases
- Needing to have contracts and insurance in place to govern all these relationships
- Wanting to iterate quickly, but having to go through bank compliance review of all consumer-facing materials
- This slows down A/B testing, pricing changes, etc.
- We wrote a blog post about our process for feature development. Link
- Dealing with the very real fraud and credit risk that comes with each additional customer you onboard
- Getting and maintaining required certifications - PCI, SOC-1, and more, and living up to established SLAs
- Plus raising (more) money to recruit experienced minds, who have learned about all of the above to make it happen...
This is not to say that fintech businesses aren’t worth pursuing or investing in. Simply that entrepreneurs looking to start a fintech company should consider the challenges that lay ahead.