Baby Fintech Unicorns, who aspire to be big and take on the world (however young and tiny they are today), have four grown-up attributes:
- Root cause analysis
- Regulation as part of consumer marketing plan
- Banks as partners
- Think global, act local
Root cause analysis
The easy story is “the customers are paying too much because bankers are greedy or stupid”. The reality is usually more complex and unless you really understand why customers are paying so much, your hopes will be dashed against the rocks of reality.
Regulation as part of consumer marketing plan
The naïve view is “regulation is a pain, we want none of it, we are tech business”. That may work in some markets, but it won’t work in Fintech unless you are happy to offer a purely white label service that other companies use to reach consumers and businesses. Few white label businesses make it into the big time. The best example in Fintech is Yodlee; they started in 1999 and current market value after IPO is under $400m (so, not really a unicorn). If you want to serve consumers and businesses, you need to be regulated. You need to choose a jurisdiction and regulatory regime and build your product to fit that. That regulatory badge is part of your branding; it is a simple way for consumers to start the process of building trust.
Banks as partners
Once you get past the disruption rhetoric, you focus on real business issues such as Customer Acquisition Cost (CAC) and then you start to think properly about how to partner with banks to get distribution. Or if you operate a marketplace and need funds deployed into that marketplace, you soon recognize the low cost of funds that banks enjoy and so you want to partner with them. That is when Fintech Startups and Banks get past the “dialogue of the deaf” and start to discover a win/win partnership.
Think global, act local
This is less of an issue if you start in America. You can scale in your home market and then go global when you are already big and mature. Fintech startups from anywhere else need to act local to get early traction, but think global and have a realistic plan to get into the American market before the American equivalent lands in your market.