As FinTech firms become established players in the financial sector, it’s essential to reassess and adapt to the evolving dynamics. In this discussion, Aleksei Glukhov and Evgeny Mishchenko, co-founders of the British FinTech company Payrow, delve into ten key trends that will shape your FinTech strategy.
1. Know Your Region
Before aiming for global domination, master one market. Understanding regional nuances and consumer behaviour is critical for initial success and long-term sustainability. Focus on developing a deep connection with your target demographic. Different regions have unique financial environments, regulations, and consumer preferences. Tailoring your approach to fit these specifics can provide a strong foundation for expansion.
For instance, small and medium-sized enterprises (SMEs) in the UK have moved to contactless payments much more quickly than their counterparts in Europe. When we talk about the global tech hub, London immediately comes to mind. Indeed, British SMEs are absolute leaders in accepting contactless payments, with almost all of them now accepting near-field communication (NFC) cards. According to research conducted by SumUp on contactless payments, 90% of UK SMEs now accept contactless card payments. As consumers have become more digitally savvy, the number of digital-only bank offers has risen. Looking ahead, the value of UK technology could reach $2.6 trillion by 2032, based on trends over the past decade.
2. Perfect Your Business Model
A robust business model with strong fundamentals is more valuable than flashy technology. Focus on sustainable growth, revenue generation, and scalability to build a resilient business that attracts investors. A solid business model should include clear revenue streams, cost management strategies, and a path to profitability. For example, subscription-based models, transaction fees, and value-added services can provide consistent revenue. Additionally, scaling should be planned to ensure that growth is manageable and sustainable.
3. Prove Your Worth
Investors are increasingly looking for tangible results and a clear path to profitability. The investment environment is becoming more selective, particularly for early-stage firms. Venture capitalists now demand detailed business plans and regular updates, moving away from the earlier trend where a compelling idea was often sufficient to secure funding. This shift is driven by rising interest rates, higher borrowing costs, geopolitical uncertainties, and inflation concerns.
In many cases, venture capital is being distributed in tranches, requiring FinTech firms to meet specific milestones to receive portions of the money. This deeper involvement of venture capitalists in steering businesses has also led to an increase in down rounds, where a company’s valuation decreases at subsequent stages. This trend reflects the need for startups to demonstrate consistent progress and adaptability in a volatile market.
Demonstrate your potential for scale and profitability through proven metrics and a solid growth strategy. Highlighting milestones such as user acquisition, retention rates, revenue growth, and profitability timelines can make your case compelling. Showcasing case studies, successful pilot projects, and testimonials can further strengthen your credibility.
4. Weigh the IPO Carefully
Going public can bring significant benefits, such as increased capital and visibility. However, it also comes with challenges, including regulatory scrutiny and market pressures. Carefully consider the timing and readiness of your company before pursuing an initial public offering. An IPO can provide the necessary funds for expansion, research, and development, but it requires robust internal controls, transparency, and a solid business plan. Preparing for an IPO involves rigorous financial audits, strategic communication, and stakeholder management.
5. Tackle the Tech Stack
Modernising legacy systems is a significant challenge but essential for growth. Invest in updating your tech infrastructure to improve efficiency, reduce costs, and enable seamless integration with other technologies. Modern technology stacks offer improved performance, scalability, and security. Cloud computing, microservices architecture, and APIs can enhance flexibility and speed of development. Moreover, adopting a modular approach allows for incremental updates and reduces the risk of system-wide failures.
Take the example of Payrow’s approach: developers have implemented a microservice technology stack where each payment instrument functions as a standalone service. With self-managed data, caches, and interfaces, the system can be scaled and updated without disrupting other services. This microservice architecture grants Payrow greater flexibility and responsiveness to customer needs compared to banks and PSPs that rely on monolithic systems.
6. AI is a Tool, Not a Solution
While artificial intelligence can significantly enhance your offerings, it’s not a panacea. Use AI to improve efficiency, customer experience, and decision-making processes, but ensure your strategy doesn’t solely rely on it. AI can streamline operations and provide data-driven insights, but over-reliance may overlook fundamental aspects like customer trust and human oversight.
For instance, Payrow employs solutions and services using machine learning and AI to detect and prevent cyberattacks, enhancing security with multi-factor authentication, including one-time passwords. Data encryption is another critical focus, ensuring the protection of sensitive customer information.
7. UX is Just the Beginning
User experience is crucial, but FinTech companies must offer more than just a sleek interface. To stand out in a crowded market, provide unique value propositions and services that traditional financial institutions can’t match. Innovative features such as seamless integration with other financial services, personalised advice, and proactive security measures can differentiate your offerings. Additionally, continuously gathering and acting on user feedback can help refine and enhance the user experience over time.
8. Partner Up
Collaborations between FinTech companies and traditional financial institutions can be mutually beneficial. Partnerships can provide FinTech firms with access to larger customer bases and established trust, while incumbents can gain technological expertise. Strategic alliances can also facilitate regulatory compliance and risk management. For example, partnering with a bank can provide FinTech firms with access to capital, customer trust, and regulatory expertise, while banks can benefit from their agility and technological innovation.
Furthermore, FinTech companies partner with specialised cybersecurity firms and startups to access the latest technologies and expert knowledge, ensuring they stay ahead in the fight against cyber threats. These combined efforts significantly bolster their overall cybersecurity posture.
9. Watch Your Back
Traditional financial institutions are catching up and innovating rapidly. Stay ahead of the curve by continuously evolving and innovating your offerings to maintain a competitive edge. Keeping an eye on competitors’ strategies, technological advancements, and market trends is essential. Investing in research and development, fostering a culture of innovation, and being agile in your approach can help you stay ahead. Additionally, forming strategic alliances and partnerships can provide access to new technologies and markets.
10. Look East for Inspiration
China has emerged as a powerhouse of FinTech innovation. Study the strategies and technologies driving success in the Chinese market and identify opportunities to apply these insights to your own operations. Chinese FinTech firms have excelled in areas such as mobile payments, digital lending, and wealth management. Their success often stems from leveraging large user bases, embracing digital ecosystems, and fostering innovative business models. Observing and adapting these practices can offer valuable lessons and strategies for growth.
Conclusion
The FinTech industry is dynamic and constantly evolving. By staying informed and adapting to these trends, you can position your company for success in this competitive field. Assess where you stand today and strategise on where you want to be tomorrow. Whether it’s leveraging AI responsibly, forming strategic partnerships, or modernising your tech stack, each trend offers opportunities for growth and innovation. Stay agile, embrace change, and lead with a forward-thinking approach to thrive in the sector.
