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The fintech industry is thriving as more and more companies are developing their applications. In view of that, you should be in the forefront to explore and exploit newer opportunities in the industry especially in the blockchain and cryptocurrency industry.
In order to start a fintech company, you should have an idea for the business model and know what you are looking for in terms of funding. It is also important to have a solid team in place so that you can scale your business as quickly as possible.
1. What is a Fintech Company?
Fintech is an abbreviation for financial technology. Fintech is a term that has been used to describe the new technologies and innovations that are reshaping the financial services industry.
The term was first coined in 1999 by James Gorman, CEO of Morgan Stanley, who said “The future of finance will be shaped by technology, not regulation.”
A Fintech company can be a bank, an insurance provider, investment firm, peer-to-peer lending, blockchain technology, mobile banking and more. It can also be a software provider for banks or other financial institutions.
2. Why is Fintech business so popular?
Fintech is the fastest growing sector in the global economy. The current market size is around a $110 billion and it is expected to grow to $700 billion by 2030 growing at a CAGR of 20.3% from 2021 to 2030. The current market size for Fintech industry is $40 billion in 2022.
The growth of fintech companies has been fuelled by the changing needs of consumers and how they want to manage their finances. In addition, fintech companies have been able to offer better services at lower costs than traditional banks in many cases which has helped them gain popularity among consumers.
Fintech companies are disrupting the traditional banking industry by providing innovative solutions for financial services that are changing the way people use money and finance.
3. What are the types of Fintech Companies in India
Fintech is a complicated and difficult sector to work. Over the past decades, it has seen the recurrent area within Fintech expand in several domains line crypto currencies, crowdfunding, Digital wallets, mobile payments, digital banking etc.
The key to success in fintech is to have a deep understanding of both the financial and technological aspects of this industry. The Fintech industry has also been dominated by a few players does providing ample opportunities which has led to the emergence of new fintech companies.
New Fintech firms need to understand what makes them unique. What will make their model stick out and be more successful?
There are many different types of fintech companies that can be categorized by their business model. These include:
–Payment Service providers: A payment service provider, or PSP, is a fintech company that provides a variety of payment services to customers and merchants. PSPs provide the means for completing transactions between buyers and sellers, typically with some form of financial instrument.
-Financial advisory firms: Financial Advisory firms are generally independent firms that provide investment advice and services to individual and small-business clients. They offer advice on investing in stocks, bonds, mutual funds, exchange-traded funds (ETFs), and other securities, as well as advise on other financial matters such as filing taxes or retirement planning.
– Lending Provider: It is a Non -Banking Financial Services Provider or NBFC which provides money lending services on attractive interest rates to people as well as businesses. NBFC rely on technology to speed up and ease the money lending process.
– Crowdfunding platforms: Crowdfunding is the process of funding a project or venture by raising monetary contributions from a large number of people, typically via the Internet. Crowdfunding platforms are websites that facilitates and allows interaction between the Lender and the Borrower. The purpose of Crowdfunding platforms is where people could post ideas for projects and solicit funds from the public.
– Crypto exchange provider: A crypto exchange is a platform that allows you to trade cryptocurrencies. You can purchase and sell cryptocurrencies on these platforms and they usually offer a variety of trading pairs, including BTC, ETH, LTC, DOGE, etc.
– Stock Trading Platforms: A Stock Trading Platform is an online software tool that facilitates the trading of stocks. This platform provides traders with the ability to buy and sell stocks, monitor market activity, and analyse stock data in return for brokerage and commissions.
– Digital Wallets service: Digital Wallet service providers are a type of Fintech company that provides digital wallet services to consumers. These are third-party application providers that offer a secure, simple, and convenient way for consumers to make purchases in-store or on the go.
Digital wallets are one of the fastest-growing sectors in the financial technology market, and it is estimated that roughly 60% of people around the world have a digital wallet.
– Digital Banking service: A digital banking service providers are an online service that offers a user the ability to perform various banking transactions, such as transferring money or paying bills using the internet and mobile phones. This eliminates the need for cash or checks and provides them with more convenient banking options. The benefits of a digital bank are the convenience it provides in being able to access and manage your finances at any time as well as being able to enjoy 24/7 customer support.
– International Money Transfer Platforms: International money transfer platform will help you get your money where it needs to go quickly and with minimal hassle. You can also use these services for other purposes such as international payments or even to send a gift.
– Wealth Management platforms: Wealth management platform are an advisor and consulting platform that provides a detail investment plan to clients for complete wealth overview. This includes financial goal planning, investment advice, and retirement planning. Such platform can be used by customers from all ages ranging from young professionals to retirees. The only thing they need is an internet connection and access to their bank account information.
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4. How to Start Your Own Fintech Company
A) Identify the right Niche in Fintech industry
There are many niches to choose from in the Fintech industry. The key is to find the right niche that has enough demand and supply. To identify the right niche, you need to ask yourself what you know about this industry.
- What do you like and dislike about the Fintech industry?
- What unique services can you provide in Fintech?
- How can you take advantage of a particular underserved niche in Fintech industry?
Then the next step to finding a good niche within Fintech is identifying your skillset and harnessing your experiences financial industry. For example, if you are a finance expert, then think about what type of financial services would be best suited for your skillset. If you have experience in marketing or entrepreneurship, then think about how these skillsets can help with this niche.
The following are the popular fintech niches:-
- Cryptocurrencies (e.g Bitcoin)
- Bank services
- Credit/Debit cards
- Investment banking
- Loan services
- Payment processing (e.g., PayPal)
- Personal finance management (e.g., Mint)
- Online banking etc.
There are other hidden niches within Fintech industry and it is not hard to identify the right one if you willing to invest time in extensive research in the right direction with the right approach and guidance.
B) Analyse your Competition
Analysing the competition is a crucial step in starting a new fintech company. It is important to know who your competition is before you can make a solid plan on how to beat them.
To conduct a competitive analysis, there are 4 steps:
1. Identify your competitors: The first step is to identify your competitor and understand their strengths and weaknesses. This will help you decide on what changes you need to make in order to stay ahead of the game or which strategies you will need to use in order to beat them.
2. Perform a SWOT analysis: This is an analytical technique used by businesses and other organizations for understanding their strengths, weaknesses, opportunities, and threats. It helps them make better decisions by identifying the areas where they can improve and focus on those areas that have greater potential for success.
3. Conduct an industry analysis: The third step is to identify the market size and the size of the potential customer base. This will help you decide on how big your company should be and what kind of product or service you should offer.
4. Assess the competition’s strengths and weaknesses: The fourth step is to identify The strengths of a business can be in the quality and variety of the product that is put into the market, its ability to satisfy customers, its brand awareness, or its good reputation. The weaknesses of a business can be in their inability to manage costs, unreliable production capacity and lack of good customer service.
C) Build The Right Team
How to build the right team for your Fintech startup?
Building a fintech product is a complicate and highly technical process. So, building the right team can make or break your Fintech start up. It is important that you have the right persons on board from the start. A wrong team can lead to wasted time, money, and resources.
In order to build a high-performance team, you will need to identify the kind of positions that you would need hire to build an inhouse team. You also need to identify which advisers, consultants, and partners you need for outsourcing.
Your fintech start-up will need a good versatile inhouse team that should handle both the technical aspects of business, like website building and Apps Development, SEO, Database engineers and business aspects like Project manager, Legal experts, Financial Advisers, competent Marketing manager and sales team and many more.
You should also ponder wisely about the type of people you want to hire and the relevant experience they carry in the field.
For example, the most common job positions in any tech start-ups are:
One of the most important things to remember when building a team is to make sure that everyone has the same goals and vision. It is also important that you hire people who work well together as a team and can share ideas with one another to improve productivity.
D) Write a compelling Business Plan
Writing a business plan for your fintech company is one of the most important steps in the process of starting up. It helps you to understand your company’s mission, goals, and financials.
A business plan is also a great tool for investors to understand what you are trying to do and how you will achieve it. It can help them decide if they want to invest in your company or not.
Here are the 5 key components to remember when writing a perfect business plan for your Fintech Company
- Market analysis
- Business and financial projections
- Marketing plan
- Competitive analysis
- Revenue streams
We shall not dive into individual topics you can read an article on How to write a Perfect Business plan.
5. How to find funding for your Fintech company
Funding is the lifeblood for any startup. Without it, your business will not be able to grow and flourish. However, finding funding for a fintech company can be tricky. As most of fintech companies are struggling to find traditional ways of funding, and are seeking alternative ways to secure funding.
Why is it Difficult to Find Funding for Fintech Companies?
As mentioned in the opening sentence of this article, raising money can be hard for most fintech companies.
There are two primary reasons that exist:
1) Investors already have a lot of investment opportunities available and are attracted to newer markets and
2) The Fintech industry is changing quickly, with increasing competition and tightening of governments regulatory policies which makes it difficult for fintech companies to keep up with.
Companies that are trying to break into the market today can find it difficult to raise money in a timely manner. The best way for these companies to secure funds are either through Private Lenders or early stage seed funding from Venture Capitalist which allows these fintech start-ups to gain support and expertise.
There are many ways to finance your Fintech business and the best method is different for each company. The most common methods are equity financing, debt financing, and bank loans.
Some of the most common methods are:
–Bootstrapping a business: Bootstrapping a business is the process of starting and running a company without any external funding. The term is most used to describe start-ups. The term draws its name from an old saying that “you have to pull yourself up by your bootstraps.”
-Crowdfunding: Crowdfunding is a way of raising money in order to create a new product or service. This is done by asking people to invest a small amount of capital in the project and offer rewards in return.
-Debt financing: Debt financing is the use of borrowed money to start or grow a business. A business can take out loans from banks or other financial institutions, as well as from friends and family members.
-Equity financing: Equity financing is a way for new businesses to raise capital. Typically, equity is granted in the form of common or preferred stocks. The main difference between equity financing and debt financing is that equity investors are part owner of the company in regards to the percentage of shares they hold and are entitled to dividends, voting rights and share profits in the growth of the company.
6. What are the Rules and Regulation to follow when starting a Fintech Business in India?
To start any business that offers financial services in India there is a list of regulatory compliance and government regulation you will have to follow as well as obtain all the necessary licenses and permission from central bank of India (RBI) with due paper work.
Here is a list of Permissions and licenses you need to obtain:
1.Registration of your business with MCA: Registering your company with Ministry of Corporate Affairs (MCA) of India is a very important process because by doing so, you are providing a legal identity to it. It will also help you ascertain the structure of the company early on. You can choose from the following buisness structure:
- One Person Company (OPC)
- Limited Liability Partnership (LLP)
- Private Limited Company (PLC)
2. Trade Licenses: A trade license is a license that allows people and businesses to engage in trades. Every States in India issue trade licenses and individuals and businesses have to obtain trade licenses mandatorily before commencement of business.
3. GST Registration: The Goods and Services Tax (GST) is a comprehensive tax on supply of goods and services in the Indian market. All business including Fintech’s and other financial services in India are required to obtain the GST registration numbers.
4. Legal Contracts and Agreements: Financial business including Fintech businesses are required to have the following legal documents, it is also important to get the following legal documents drafted and prepared under the supervision of a legal expert. Some of the agreements and policies required to be included, but are not limited to the following.
- Co-Founders Agreement
- Intellectual Property Licensing Agreement
- Website Users Policy
- Terms and conditions for website, Apps and Mobile users
- P2P Lending Agreements
- Financing Agreements
- Vendor Agreement
- Product Development Agreement
- Employment Agreements and more.
5. Intellectual Property registration (IPR Protection): Intellectual property registration is the process of registering creative expression that businesses own. Intellectual property includes things like Logos, Brand name, Designs, Patents, Copyrights, Trademarks, and Trade secrets other such creative digital assets. Fintech business should also have its digital assets protected under IPR law.
6. RBI License: Registering your Fintech company as an NBFC with the RBI is an important process. There are various licensing norms and regulatory compliances issued by the RBI for Fintech companies depending on the category of financial services they wish to provide e.g Payment services, Money Lending and Depositing Services or NBFC’s etc.
Other Compliances to be followed by Financial Institutions and Fintech Companies.
There are many stringent legal requirements and compliances that you need to follow in order to operate a fintech startup in India.
All compliances should be diligently and religiously followed by Fintech Companies any lapses by companies would attract heavy penalties and discontinuation of licenses to operate in India. Some of the compliances are a as Follow;
- Payment gateways Compliances
- IT Act & Rules Regulations ( DATA Protection)
- NPCI Guidelines and Compliances
- RBI Regulations
- SEBI Regulations
- IRDAI Insurance Web Aggregators Regulations
The above list is just a summarised review of the rules and regulations. Please conduct your own independent research on each individual topics to thoroughly investigate and understand the Regulatory Policies and Compliances.
7. How much does it cost to start a fintech company in India?
The cost of starting a fintech company varies depending on how much capital you must invest in your business. This is because there are many different types of fintech companies, each requiring different levels of capital investment.
Globally, most FinTech Startup will need a total capital investment between $600,000 to $800,000 to start an efficient FinTech Startup. And $2M-$5Million for a VC backed Fintech Startup who is looking to scale more aggressively and capture a strategic position in the market.
In India the start up cost of starting a Fintech company could range anywhere between 50Lkhs to 40Cr depending upon factors like VC backed Fundings, type of operation, cost of product development, operational costs etc.
8. What is the future of Fintech Startups in India
The future of Fintech startups is bright and it will continue to be so with the rapid development of technology. Fintech startups have been gaining a lot of attention in the recent years. With the rise of digitalization and cryptocurrencies, the industry is booming.
Fintech startups are not just limited to digital finance, but also include any company that helps people manage their money better and make transactions easier. One of the most popular fintech startups is PayTM, which allows users to transfer money between friends and family members electronically.
9. Which is the largest fintech company in India and US?
The largest fintech company in the United States in 2021 was Stripe, a payment processing services headquartered in San Francisco. Stripe’s value reached 95 billion U.S. dollars in 2021, and was followed by the Buy Now, Pay Later(BNPL) provider Klarna (source: Statista)
The largest Fintech company in India is PayTM with total market cap of roughly ₹30,000 crore (Scource:grow.in)
10. What is a Fintech ecosystem?
A fintech ecosystem is a set of companies, financial institutions and technologies that work together to provide financial services.
The term was coined by the World Economic Forum in 2018. It is a set of companies, financial institutions, and technologies that work together to provide financial services.
A fintech ecosystem includes many different types of companies like banks or credit unions, technology providers, and digital firms as well as regulators and other stakeholders in the market like insurance companies or central banks.
A fintech ecosystem is a community of companies that are involved in digital finance. These companies can be categorized into three groups:
- 1) providers of traditional banking services,
- 2) providers of non-traditional banking services, and
- 3) providers of non-financial services.
The main goal behind creating a fintech ecosystem is to create an environment where startup can grow and flourish while staying within the boundaries set by regulators.
Conclusion on Starting a fintech company
In Conclusion we could say that it is fairly difficult task to start a Fintech Company as It requires a lot of effort and time. However, if the business idea is sound enough, then it can be worth investing both your time and money.
Hope this article would have helped you in that direction and decluttered some of the question in your mind and helped you to put your first step forward. Best of Luck!!
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