7 mistakes every fintech startup makes (and how to avoid them)

The development of the fintech market is still a hot topic in the financial industry, and there are no signs that it’ll change anytime soon, especially looking at the numbers in this industry. The fintech market is estimated to reach over USD 266.9 billion by 2027.
What are the challenges for novice fintech, and what mistakes should they refrain from to avoid business failure?

 

1. Insufficient financing time

Quite a lot has already been said about the importance of ensuring financial liquidity at the initial stage of fintech development, and it’s not worth repeating it here. The issue of obtaining financing is one thing, but ensuring that this support is sufficient to exceed the break-even point is a completely different problem.

We’re observing the market of beginner fintech, and we’ve noticed that such entities too often underestimate the time – and thus the costs – of their activity in the period preceding their product launch. As a result, they’re left without funds halfway, with an unfinished product, massive marketing expenditure needed, recurring operating costs, and an idea that could work if only the complexity of the topic and financing were better understood at the start of the venture.

 

2. An overly simplified approach to the issue of technology

Let me tell a little anecdote here. We once started talks with a potential client, who was planning a financial activity. He had a business plan ready, an idea for a simple product, and marketing. However, to our question, “How do you want to collect and process data about your customers’ transactions?” he replied in a very serious tone: “It will be done with Excel”. It took a while for the client to realize that Excel wouldn’t work here.

After all, it’s all about money and financial data, and people don’t entrust these to partners they don’t trust.

This may be a very extreme example, but it clearly illustrates how fintech start-ups treat the back office of their product – as an addition to the beautiful “packaging” of the front-end application offered. Meanwhile, what works “in the back room” is not an addition, but rather a core of the entire undertaking. Therefore, when deciding to develop a financial product, you should first and foremost take care of the technological layer that will process data and transactions in an efficient, comprehensive, and regulatorily compliant way. Why do we need a great-looking application for modern payments, if it turns out that due to technical “flaws” and “holes“, it doesn’t meet customer expectations and doesn’t inspire trust?
After all, it’s all about money and financial data, and people don’t entrust these to partners they don’t trust.

 

3. Lack of MVP

This is also a strong trend that I see when working with startups in the fintech industry. Young companies want to offer the maximum benefits of their product in the shortest possible time. However, from a business perspective, and especially in an uncertain startup environment, sometimes “less is more“, which is why creating an MVP is so important.

The minimum viable product (MVP) is a working product with minimum functionality, allowing you to test the profitability of a given project on the target group. It’s worth using this solution because it allows you to verify the business model at a very early stage of the business and in the worst case to avoid losing a huge amount of money, which would undoubtedly happen if you decided to release the full solution.

Often, a fintech customer prefers to use services in a narrow range, gaining trust in a new entity, to start using new functionalities over time. In such a situation, starting by launching a narrow range of services, but well-thought-out and reliably operating may be the optimal solution for a newly established business.

 

4. “We do what others do” approach

If I got a dollar for every time I hear, “It works for them, so we’ll do the same”, I’d be a millionaire. Blindly following your competition and duplicating what already exists has little to do with innovation, and more with following the path of the least resistance.

What’s more, this approach generates a lot of risks, as fintech business models differ significantly from each other, which requires a lot of flexibility both in terms of product creation, and communication issues or target group.

And it’s precisely this flexibility that fintechs lack; instead of following their own path, choosing solutions that are seemingly proven, but incompatible with the specifics of their own business. The effect of such actions is very easy to predict and, unfortunately, not very positive. Fintechs should win against banks with their innovation, courage, and willingness to take greater risks that banks can’t afford. Following the “proven” model will be only a copy, requiring building an advantage through even lower prices or even greater marketing expenditure.

5. Excessive focus on ostensible innovation

If we’d check which phrases dominate the communication of modern fintech start-ups, we’d find there such words as blockchain, cryptocurrencies, machine learning, etc. It seems that today it’s almost impossible to offer a modern solution that doesn’t incorporate these technologies. It’s worse, however, when they only serve as “catchwords” with purely marketing significance, and don’t add any value to the product. Unfortunately, such tendencies are observed increasingly often, and in the end, if these solutions aren’t used properly, it simply doesn’t pay off.

The thing is that sometimes it’s better to use slightly more traditional technologies that realistically and safely respond to product requirements than to expose yourself to the risk of technical errors resulting from the implementation of unproven and relatively low-value solutions solely for the sake of poorly following market trends.

The thing is that sometimes it’s better to use slightly more traditional technologies that realistically and safely respond to product requirements than to expose yourself to the risk of technical errors resulting from the implementation of unproven and relatively low-value solutions (…)

 

6. Non-compliance of the product with the applicable regulations

The regulations governing the financial industry seem to be one of the most underrated aspects of fintechs’ activities. It turns out that meeting the requirements of financial supervision and obtaining a license (approval) to start financial activities is considered by many existing entities as the most difficult and time-consuming task at the beginning of the adventure in the fintech industry.

Meanwhile, beginner fintechs fall into the trap of poorly adjusting a product or service to the regulatory environment in which they operate. In the end, the planned functionalities, which were supposed to be the distinguishing feature of the service, can’t be implemented in the selected form, because they’re inconsistent with the standards, recommendations, or relevant regulatory practices. This entails several consequences, ranging from the extended time of starting a business and potential financial losses, to the reconstruction of the business model.

 

7. Poor selection of a technology partner

The creators of fintechs are most often visionaries, businessmen, and non-technical people. Unfortunately, this makes it easier for them to fall into the trap of choosing the wrong technology provider because they’re simply not able to properly verify the company. Of course, in an ideal world, this wouldn’t be a problem – after all, a technological partner should try to respond to the client’s needs as well as possible, and act as an advisor. However, if it were so, I wouldn’t have to so often put my head in my hands in conversations with clients and ask, “Who ruined it for you?”

Unfortunately, the technological layer of the solution is the basis of a good financial product, as I mentioned above. Picking a supplier that not only doesn’t meet the product assumptions but also creates a technological debt – which translates into the operation of applications and services – in addition to frustration generates only losses. It ends up being a waste of time, money, and trust, without which it’s difficult to build a good business relationship.

This is why I’d advise you to not treat this topic neglectfully. It’s worth asking, checking, verifying, and comparing, even if it takes a long time. From the fintech perspective, it will still “cost” less than a quick, but problematic and wrong choice.

 

ABOUT THE AUTHOR: 

Piotr Hanusiak is the CEO of INCAT Sp. z o.o. Prior to INCAT, Piotr was General Director of Delivery and a Member of the Management Board at Innovation Technology Group SA –a company focused on integrating IT solutions for multiple sectors; banking, utilities, and general business. Before joining ITG, Piotr performed managerial roles in the banking division at Sygnity S.A. – one of the largest tech companies involved in software production.

Piotr has extensive experience in project portfolio management, software project management, and IT Strategy. Piotr has graduated in education faculties in the field of Commercial Banking, Market Policy, and Marketing Management.

Contact an author: piotr.hanusiak@incat.com.pl 


How to start a fintech company: 7 steps to make it happen

According to Valuates Reports, by the end of 2025 the size of the global fintech market will grow to USD 124.3 billion, with a compound annual growth rate (CAGR) of 23.84%. At the same time, the largest and most dynamically developing players on fintech market which are neo and challenger banks, will reach a value of USD 30 billion with a CAGR of 40.4%.  

In the light of this data, it is not surprising that the fintech industry is becoming more and more attractive to both investors and entrepreneurs. This does not mean, however, that launching a fintech or financial industry startup is an easy task.
On the contrary — before making such a risky decision, each fintech entrepreneur should take into account a number of external market factors, as well as internal risks related to creating their own offer and organizational structures. It is difficult to predict all the potential problems and challenges related to building a fintech startup, but a few issues should be considered in advance to increase the chance of success. Below, you will find 7 areas you should take care of when starting your fintech business.

It is difficult to predict all the potential problems and challenges related to building a fintech startup, but a few issues should be considered in advance to increase the chance of success.

 

1. Obtain a license for financial activity

To start a financial activity, you need to obtain a license appropriate for your purpose. The scope of the license depends on the type of activity, so the simplest division includes the following licenses: banking, payment, brokerage, investment, loan, credit, peer2peer, insurance, cryptocurrency or securities issue. 

For fintech entrepreneurs who decide to operate in the management and processing of electronic payments, the most important should be payment and banking licenses. They include, among others, LPI (Licensed Payment Institution), PSP (Payment Service Provider), EMI (Electronic Money Institution) and EBL (European Banking) licenses. What is significant, is the fact that licenses for financial activities are issued by regulatory authorities competent for the country and region of the world in which the company is registered. 

Licensing a financial entity is one of the most demanding and time-consuming stages of fintech development, and above all, it is crucial for the ability to operate in this industry.
Therefore, applying for a license should start at the very beginning of the project to confirm the purposefulness of the other activities related to the launch of a fintech project. Fortunately, there are countries in Europe where the process of granting financial licenses takes much shorter time than the standard one. One of such countries is Lithuania. More and more fintech start-ups start to register in this country. 

 

2. Look for stable financial support

Start-up capital is the basis, and it is almost impossible to start a business without it. Building the offer, team development, marketing activity or legal issues – all these elements generate huge costs. And if you want to develop a fintech, you should secure financing for your business for the minimum of 2 years – and preferably for even longer. You should consider that even after the project enters the market, for the long time, the revenues may be much lower than the regular maintenance costs. Such a prospect may not seem very encouraging, but you need to know that there are many opportunities to obtain funding, which will be sufficient to calmly develop fintech. 

The most popular option is, of course, to look for a venture capital, i.e. an external investor. Business angels, i.e. private investors who are looking for innovative companies and solutions to locate their capital in, can be one of the solutions. 

You should consider that even after the project enters the market, for the long time, the revenues may be much lower than the regular maintenance costs.

 

3. Build partnerships

Building a partnership is not a crucial factor to run a fintech, but it is a step worth taking for many reasons. For a beginner fintech, the partnership is an opportunity for intensive development, financial and substantive support and increasing credibility in the eyes of potential customers and investors. 

Membership in foundations that create an ecosystem supporting the development of fintechs is also worth considering.
They help to build financial, technological and business facilities, as well as provide access to the knowledge and experience of market experts and investors. They can also be helpful if it comes to finding economists, lawyers or IT specialists whose knowledge and contacts can be of considerable value, especially at the initial stage of fintech development. 

 

 4. Find a trusted technology partner

Behind each successful fintech company, there is not only an innovative idea, but also, and perhaps above all, advanced technology.
Therefore, when creating a startup, you have to consider both perspectives – business and technological points of view. While there are no major problems with the first one, fintech creators are often unaware of the technical aspects of financial solutions. 

Fintech creators, having an innovative idea for a financial product or service, know exactly WHAT they want to do, but in most cases need support in HOW to achieve the result they want. At our company, we often advise our customers in the areas of ​​infrastructure, tools, and architecture of the solution. The support of a technological partner that cares about the customer’s success is precious. Thanks to their knowledge and experience, the customer optimizes costs, develops new functionalities and selects technology that allows them to achieve business goals much faster and more efficiently than if they had created the solution on their own. 

…when creating a startup, you have to consider both perspectives – business and technological points of view. While there are no major problems with the first one, fintech creators are often unaware of the technical aspects of financial solutions. 

 

5. Ensure you have legal support

The financial industry is the area of many restrictions. Offering financial products or services requires obtaining appropriate licenses and approvals from financial supervision authorities. Therefore, it seems necessary to start cooperation with an institution that is well-versed in applicable laws, directives and legal conditions of the financial industry. Ideally, it would be a RegTech entity that specializes in technologies allowing fintechs to meet the requirements of these regulations.  

The popularization of each is a great help for companies that can adapt their activities to the current legal requirements in a cost-effective manner, and thus expand the scope of their activities. 

 

6. Introduce modern technology

Solutions based on microservices, blockchain technology, AI and machine learning are a necessity for fintechs today. First of all, it’s because of the fact modern fintech offer must be highly competitive in comparison to traditional financial solutions. Fintechs offer their customers faster, cheaper, easier and more modern services than those offered by classic banking institutions. Fintechs achieve advantage mainly due to the identification of optimization areas, technological advances and their skillful implementation. 

The use of modern solutions is also an added value in the context of marketing communication. The aforementioned technologies, such as AI or blockchain, still have a strong impact on the imagination of recipients and customers, giving a sense of modernity to the services offered. 

 

7. Last but not least – central transaction system or platform

Fintech is the network of related services and technologies that, when properly integrated, allow us to offer our clients innovative financial solutions. Startups and other non-bank institutions do not have to build systems as complex as traditional banks. Nevertheless, they need an IT solution to conduct financial activities, which will, on the one hand, meet compliance requirements, and, on the other hand, allow for the functional and product-related development of the fintech offer.

Modern and fully flexible transaction systems, such as BOS or the FaaS AI platform, save time by reducing the implementation period by up to 50 percent. At the same time, they are cost-effective – easy modification of individual microservices and full automation of transaction processes generate significant savings. Functional flexibility, scalability, quick implementation and the possibility of advanced integration are key factors that should be taken into account when choosing a transaction system for your fintech. Especially since it is a one-time choice – so it is worth making sure that it is a winner and fully fulfills its task at the start, but also in the following years of fintech development. 

 

ABOUT THE AUTHOR: 

Piotr Hanusiak is the CEO of INCAT Sp. z o.o. Prior to INCAT, Piotr was General Director of Delivery and a Member of the Management Board at Innovation Technology Group SA –a company focused on integrating IT solutions for multiple sectors; banking, utilities, general business. Before joining ITG, Piotr performed managerial roles in banking division at Sygnity S.A. – one of the largest tech companies involved in software production.

Piotr has extensive experience in project portfolio management, software project management and IT Strategy. Piotr has graduated in education faculties in the field of Commercial Banking, Market Policy, and Marketing Management.

Contact an author: piotr.hanusiak@incat.com.pl