Although the sector as a whole does not struggle in securing investments, if fintech start-ups want to attract the attention of bigger financial services brands, they will have to work harder than ever to stand out within the rapidly growing fintech market.
The UK fintech sector is healthy
After China and the US, the UK’s fintech sector is third in the global ranking. It attracts more investment than any other European country and experienced an 18% rise to a record 3.3 billion in 2018 according, to Innovate Finance.
Despite these positive numbers, some start-up and early-stage businesses are failing to realise their commercial potential by not attracting the investor attention they deserve.
The fintech companies with the highest valuations and the most fascinating growth stories are clearly also those who are most prominent. Lessons can be learned by start-ups from unicorn companies such as Monzo, Revolut and TransferWise, who frequently make the headlines and encourage investor interest.
Standing out is not simple
To stand out from the crowd in an industry with an abundance of good ideas, it is increasingly important for businesses to put their technology through extensive testing to demonstrate their efficiency. The original sandbox concept of the FCA has already proven to be popular with UK fintech businesses and also the recently launched cross-border sandbox is expected to be a success. This new concept, run in conjunction with the Global Financial Innovation Network (GFIN), a network of 29 regulatory bodies chaired by the FCA, selects applicants to test their solutions in a safe environment and opens the door to potential industry partnerships.
Consumer interface research can help in the early stages
Aside from the initial research, early-stage fintech companies should also engage in consumer interface research. Although there are several ways to do so, the ‘Monzo model’ is often preferred in this speed-to-market industry, as it applies improvements based on consumer feedback after launching a finished product or service. However, this tactic can only be successful with an efficient customer service to handle complaints and an open and honest communication to the companies’ users.
A strong business plan is likely to increase your chances of investment
To increase the likelihood of investments and big brand collaborations, careful planning and structuring cannot be neglected. A strong business plan clarifying how funds will be spent and growth will be achieved is an important attribute for even the smallest of start-up businesses. Another example of strong planning, is offering benefits to investors, such as the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS), which after two years, allow the tax-efficient disposal of shares to investors with a minimum 5% shareholding.
Don’t turn a blind eye to your skill and knowledge gaps
The difference between success and failure might also be determined by the ability of the businesses founders to identify and fill any of their skills and knowledge gaps. However, as many of those who have been driving the business from the start are now used to doing everything, from online accounting to marketing and selling, this might be harder than initially expected. In order to avoid this unsustainable way of working and improve efficiency, start-ups need to prove they are able to attract talented people and/or outsource key functions. Additionally, creating an Advisory Board of non-executive directors with a variety of knowledge and experience, which can provide valuable support and advice to a growing business, can create added reassurance to potential investors.
Data analytics, Business processes and Reporting should not be ignored
An underappreciated area in the early stages, which could potentially influence investment decisions, is data analytics used to streamline management decision-making. Start-ups should establish which data is needed and whether systems can deliver this, as and when required. Data insights can then determine the greatest profit potential by measuring business performance against clearly identified KPIs.
Good governance in terms of business processes and reporting should also not be ignored, as investors increasingly view this as an area of compliance risk. An understanding of the Financial Reporting Council’s (FRC) enhanced assurance standard and Client Assets Sourcebook (CASS) is especially important for fintech businesses to ensure their systems and processes are compliant.
Success is achievable but not easy
One big success on the UK fintech scene, with a record $440 million investment from SoftBank’s Vision Fund and the Clermont Group, is the digital-only bank, OakNorth, while the financial management platform, Moneyhub, proves the potential success of early-stage businesses by securing an undisclosed sum from Nationwide’s fintech fund.
Standing out in a highly competitive sector with a large number of new entrants each year is clearly never going to be easy. However, with the right planning, systems and structuring, start-ups and early stage fintech firms can increase their profile and create value in their business in order to attract potential investors.