Armed with this fact, I decided to ask a few Fintech startups in each of the core Fintech sectors the following question:
There are a few core roadblocks that face Fintech startups in general. What sector-specific roadblocks do you wish you should have better anticipated or prepared for?
“We can say a lot about the long sales when selling to large financial institutions but the most enduring misconception about open APIs is that it would disintermediate banks. That somehow, by opening up, banks will lose their customers to small creative startups. At OBP, we adapted our narrative to acknowledge and reflect these concerns. We highlighted the value of the banks opening up and showcased successful case studies early on. Importantly, we also designed our technology at the Open Bank Project to give maximum control to the bank. “ – Ismail Chaib, COO Open Bank Project
“Firstly, we underestimated the costs related to the acquisition of new customers. Traditional online brokers spend up to €600 to get on board a new client. Robo-advisors succeeded in slicing these costs into half. However, the costs remain high, especially in the context of low fees charged by the platforms and the low average investment amounts of the users. As a result, a user needs to invest with a Robo-advisor up to 4 -5 years until the person generates some profits for the service. That’s a tough business case, usually justified by the long life-time value of a user. Secondly, when innovating in the investment space we realized how important trust in this industry is. Even though you have a much better product offering, this does not mean that people will actually switch their service provider. For instance, most people lost faith in their banks, but they do not switch to another one, simply because of the hazel involved and the lack of trust in new solutions. Being a team of young entrepreneurs that have not worked in the investment industry for a long period of time does not make it easier, especially when raising funds for the venture.
We have since learnt and continue to learn. In general, there are three ways to cope with a high CAC in the online investment space. First is to cooperate with established financial institutions in order to profit from their brand and distribution channels. However, we have so far decided not to move down this path, as we do not feel that these institutions share our vision; their interest in disrupting their own business is still very low. Second is to become a very efficient market. This means to excel in the use of digital channels to market your product and to exploit growth hacking techniques. Most importantly, we decided to market Swanest from the very beginning and not to wait until investments can actually be conducted through us. The last option is for us to focus on increasing the value that Swanest offers. The better a solution, the less one should spend in marketing to convince people to use it. To enhance the value of Swanest, we spent a lot of time analyzing our users’ needs and the services offered by other Robo-advisors and online brokers. Most importantly, we evolve Swanest together with our users and closely integrate their feedback and ideas into the development. For instance, our users can vote for features and functions that they would like to see in the future: https://swanest.com/next-feature. The idea is to make our users to talk about us, instead of us talking about us.
Regarding the team, we actually discovered that not having worked in the investment industry to be a huge advantage, simply because we look at Swanest with the eyes of a user. We question all these little details that would simply be taken for granted by people from the industry. As a result, we build an investment solution that people can actually understand and that we want ourselves. However, we had to develop quite a bit of what we envision to get the trust of the startup ecosystem. Building up the trust with our users will take some more time. PR plays a crucial role, as our users can derive confidence from other sources. We further emphasize on customer interactions to make clear that there are people behind the technology. Lastly we are building up a bad ass team of employees, advisors and board of directors; people in which people can trust.” – Silvan Schumacher, CEO and Co-Founder Swanest
“I’d have to go with how ingrained the current banking model is in our psyche. Many of us can remember a time before the internet but no one can remember a time before banking. Unravelling all that takes time. I can explain Secco like reputational economics with individual currencies on a distributed platform for digital bartering and data monetisation. In response I get stuff like “So how do I get a mortgage?” – Chris Gledhill, CEO and Co-Founder Secco
“We could have better prepared for and anticipated how formidable Bloomberg is as a competitor to everything when targeting the Asset Manager/ Hedge Fund space. Either you have a service that does not overlap with it, or you become another data source a professional has to reach out to. At that point irrespective of how superior the Fintech Startup’s service is, you are adding to the fragmentation of the space (professional), rather than adding value. The best way to deal with that is to target spaces that are not Bloomberg. For example, RiAs, HNW, or individual investors. Or on the other end, get enterprise-wide deals solving problems that are too complex for Bloomberg. This is where the disruption is happening. For example, we are working on situations like creating an alternative Advisor Desktop, automatically reading through Credit Default Swap contracts, etc.” – Praful Krishna, CEO Coseer
To be continued …
Startup? I would love to hear what you wish you had been prepared for!