How to stand out as a fintech start-up

After the US, the UK’s fintech sector was second in the global ranking for 2023. It attracts more investment than any other European country at $5.1 billion according to Innovate Finance, more than the next 9 biggest European countries combined.

Despite these positive numbers, some start-up and early-stage businesses are failing to realise their commercial potential by not attracting the investor attention they deserve.

The fintech companies with the highest valuations and the most fascinating growth stories are clearly also those who are most prominent. Lessons can be learned by start-ups from the biggest deals in 2023 such as Stripe, Rapyd and Xpansive, who frequently make the headlines and encourage investor interest.

To stand out from the crowd in an industry with an abundance of good ideas, it is increasingly important for businesses to put their technology through extensive testing to demonstrate their efficiency. The original sandbox concept of the FCA continues prove popular with UK fintech businesses and the latest iteration, the digital securities sandbox is expected to open in Summer 2024 to take the next step towards the use of distributed ledger technology and create a business use case for this technology that is still to see its real break-out moment.

Aside from the initial research, early-stage fintech companies should also engage in consumer interface research. Although there are several ways to do so, the ‘Monzo model’ is often preferred in this speed-to-market industry, as it applies improvements based on consumer feedback after launching a finished product or service. However, this tactic can only be successful with an efficient customer service to handle complaints and an open and honest communication to the companies’ users.

To increase the likelihood of investments and big brand collaborations, careful planning and structuring cannot be neglected. A strong business plan clarifying how funds will be spent and growth will be achieved is an important attribute for even the smallest of start-up businesses. Another example of strong planning, is offering benefits to investors, such as the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS), which after two years, allow the tax-efficient disposal of shares to investors with a minimum 5% shareholding.

The difference between success and failure might also be determined by the ability of the businesses founders to identify and fill any of their skills and knowledge gaps. However, as many of those who have been driving the business from the start are now used to doing everything, from online accounting to marketing and selling, this might be harder than initially expected. In order to avoid this unsustainable way of working and improve efficiency, start-ups need to prove they are able to attract talented people and/or outsource key functions. Additionally, creating an Advisory Board of non-executive directors with a variety of knowledge and experience, which can provide valuable support and advice to a growing business, can create added reassurance to potential investors.

An underappreciated area in the early stages, which could potentially influence investment decisions, is data analytics used to streamline management decision-making. Start-ups should establish which data is needed and whether systems can deliver this, as and when required. Data insights can then determine the greatest profit potential by measuring business performance against clearly identified KPIs. Modern integrations with apps such as Fathom can add real value to a growing business but also make it more investable at potentially higher multiples.

Good governance in terms of business processes and reporting should also not be ignored, as investors increasingly view this as an area of compliance risk. An understanding of the Financial Reporting Council’s (FRC) enhanced assurance standard and Client Assets Sourcebook (CASS) is especially important for fintech businesses to ensure their systems and processes are compliant.