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December 11, 2017updated 16 Jun 2022 4:03am

5 tips for successful FinTech start-ups: How to tackle the biggest financial hurdles

In order to successfully launch a new FinTech business, it’s important to carefully examine why others have failed to avoid making the same mistakes, argues Tobias Schreyer.

By Ellie Burns

All beginnings are difficult. Studies show that, on average, nine out of ten start-ups fail, and the shark tank that is the financial industry isn’t exactly renowned for allowing tender start-up shoots to flourish. The risk of failure and the fierce competition should not, however, deter you from launching your own FinTech. Instead, you can learn from others’ mistakes. Anyone seeking to start a successful FinTech company should carefully examine why others fail and avoid making the same mistakes.

So how do FinTech entrepreneurs meet the demands of a competitive and turbulent market, while trying to make it out on top? Tobias Schreyer, Co-Founder of PPRO Group reveals how:

Tip 1: Thoroughly analyse your market

The crux of any start-up is the business idea. The fact that an idea initially looks promising, however, is no guarantee that it will work in practice. The key here is for FinTech start-ups to begin analysing the market as early as possible to determine whether there is an appropriate and suitably large target audience for their business. By far the most common reason for the failure of a start-up is that there is no market for their idea. You must know the size of target market, what the competition is like, and what prices comparable products and services are fetching. Never ignore market analyses and align your business plan precisely with the results.

Tip 2: Secure your funding in advance

Even (and sometimes, particularly!) FinTech start-ups want to attract financial backing. As with any other start-up, the issue of funding is right at the top of every FinTech start-up’s list. This issue can be roughly divided into two sections.

The first is self-explanatory and covers the considerations which should be part of a traditional business plan and the questions which should ideally be resolved before the company is founded. These include things like how much capital is needed, the outgoings expected, and the potential profits. This is where you should investigate loans for company founders or appropriate grants and subsidies.

The second part of the funding issue is more FinTech-specific. As, in most cases, you will be competing with banks or other FinTechs with a lot more money, so attracting partners and potential investors early on in the process is important. You should look for people who are excited about your idea and ready to invest.

Tip 3: Always keep an eye on your finances, particularly post-launch

After the business idea, finances are the highest priority for any start-up, including FinTechs. This is a very broad subject. Not only should the company be liquid, it should also have a handle on accounting and taxes. Seemingly simple tasks like setting up a business bank account or applying for a company credit card can be a challenge initially. What if you have a business trip coming up, but your bank won’t give you a company credit card? What if it’s simply not available soon enough?

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Nowadays there are many clever financial products on the market which can also be used directly and easily by start-ups. Prepaid credit cards with associated online accounts are quick to set up, but are also secure and flexible to use. The centralised company account provides an overview of all expenses at all times, as well as the requisite flexibility when expenses arise. You must never lose sight of your company’s financial status. This may seem obvious, but failure to manage finances has spelt the downfall of many a start-up.

Tip 4: Determine the appropriate form of organisation for your company

Choosing the right legal form of organisation is an important decision for a new company, and one that start-ups need to consider very carefully. Although, once selected, the legal form is not set in stone, changing it later can involve some effort. The form of organisation defines the legal and taxation framework conditions for a company, so your choice must suit the needs of a FinTech start-up.

Tip 5: Apply for licenses and register in good time

Start-ups should focus much of their attention on their product offering and customers, but even the best product and customer service can be at risk if you don’t have a handle on your day-to-day business operations. Start-ups must perform a great many administrative tasks, including registering with the tax office, listing the company in the commercial register, accounting, sales tax, and more. But to add to that already extensive list, FinTech’s are also subject to additional regulatory pressures.

The second Payment Service Directive (PSD2) will, for example, come into force at the beginning of 2018 and can mean major changes for providers of alternative payment methods. Any financial service which can make automated payments at an end-user’s request while collecting and transferring data must obtain a PSD2 licence from the national financial regulatory authority.

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