Ron has been in the technology industry for nearly two decades. He started his career as a developer in the telecom industry, building software for microchips and communication systems. Then he transitioned to managing smaller and bigger teams about nine years ago.
Ron has made two major career shifts so far: relocating to London from Israel and joining the fintech industry. He accomplished the latter through his first job in London with a company called Wonga, one of the largest lenders in the UK and Europe at the time.
Wonga was Ron’s gateway to fintech, web development, and Scrum. He worked with the company for several years, developing the next generation of their lending platform before moving to DevOps.
After leaving Wonga, Ron joined a consumer lending startup where he built systems from scratch. He has also built solutions for joint ventures, startups, and companies in between, as well as consulted for larger companies and neo-digital banks in the UK, helping them figure out their architecture and how to build their credit systems.
Ron recently moved back to Israel, where he met his soon-to-be co-founder and formed Bounce—a startup aiming to help merchants increase their acceptance rates on card payments.
In this article, we share details of our conversation with Ron on overcoming the challenges of building a successful fintech company. If you’d prefer, you can use the link below to watch the full video of our discussion with Ron:
The fintech industry keeps growing exponentially, and you may be wondering if there’s still room for your idea anywhere in the industry. To answer that dilemma, Ron claims there are two types of companies in the fintech space.
The first set of companies are technology companies not rendering financial services. What they do instead is provide the tools for fintech companies and other businesses to render financial services such as loan management systems, banking as a service, and payment companies. Ron believes there is still much work to be done in this area, as the systems available today are old and unfit for today’s needs and purposes.
The second category of companies are financial services companies per se. Ron states that most players here are rendering similar services.
The good news for you is that there is no clear winner in either group because, according to Ron, “Companies are trying out similar but very different flavors of the same thing, and out of this plethora of companies trying to provide the services, only a few would survive the next decade and become a force to be reckoned within the financial services.” Hence, the fintech industry may appear saturated, but there is still enough space for innovation.
Generally, fintech companies are prime victims of fraud and cybersecurity breaches. However, when you’re starting a fintech company, a lot more things than that can go wrong. As Ron puts it, “Anything could break when you start a fintech company.” This is mostly because founders attempt to build a fintech company in a way they perceive as standard, which isn’t something they’ve done before.
For instance, calculating interest on a loan may seem easy, but you might not be able to think of all the use cases—such as customers repaying early or late, or repaying only part of the loan—or plan for these occurrences. Here are some likely challenges you may encounter when starting a fintech company:
When you start scaling rapidly, things can go wrong very quickly. That’s because you may not be prepared to handle the scale and automation needed to service the number of accounts or collect loan repayments in minutes.
Another likely problem are the stringent regulatory compliance requirements for fintech companies. According to Ron, “A slight algorithm miscalculation can sink a business because you’re dealing with people’s money, especially today, where regulation is so tight on financial services.”
You need to figure out how to treat people fairly even when recovering loans, who you shouldn’t provide your services to, and how not to lead people to believe you’re giving away free money.
You should also be conscious of who you’re marketing your services to and how they understand them. This will prevent the wrong people from choosing to use your services. As Ron says, “Offering someone your product doesn’t inherently mean that you’re doing good by them. You’re being fair, and sometimes the fairest thing is to turn them down.”
Building a fintech company may be complex, but the challenges it involves are not insurmountable, and knowing how to overcome them will make the process easier. Here are some important tips for avoiding common pitfalls:
One of the toughest decisions you’ll have to make as a fintech founder is deciding whether to build or buy your next solution, and the right decision will depend on several factors. According to Ron, “Entrepreneurs or small teams seeking to disrupt financial services not meeting customers’ needs but lacking experience running financial services often fail to consider how complicated it would be to build.”
Buying may seem expensive initially, but it might save you a lot of money in the long run. After building, you’ll need to maintain and continuously improve your system, as well as add new features and products. You’ll also need teams to manage that system, solve bugs, and scale it.
However, if you’re still struggling what decision to make, you should consider the following:
Ron recommends considering what you’re offering and what your competitive advantage is before deciding to buy or build. If you focus on that competitive advantage you have, you won’t waste time building a solution if similar solutions exist already. You can use open-source systems or buy them off the shelf and start using them right away.
According to Ron, “Many founders build because they have to revolutionize things.” However, financial services today are opaque, and you may not realize the complexity of the systems until much later due to the excitement that comes with building. That drive is necessary, but then you need to hunker down and think about the complexities at some point.
If you can’t find a unique reason to build, don’t waste time and resources because you may spend years just building instead of solving the initial problem. As Ron puts it, “The main thing is keeping the main thing, the main thing.” You may realize that you didn’t get the most important things done because you focused on building so much.
While new entrepreneurs with little experience in fintech think it makes sense for them to build things themselves, executives in huge financial institutions may actually think their old banking system is the only system they would ever use for whatever they want to build next because it’s the only system they know, which is another problem.
Transplanting legacy systems into modern architecture is liable to make scaling very difficult. Hence, even if you decide to buy, you need to be smart about what you’re buying and who you’re buying it from. Don’t hold on to what you know just because. Instead, go for the solution that solves the problem best.
According to Ron, “You have to research every time to see if something new is more tailored to the problems you’re trying to solve.” Ron advises leveraging your networks and relationships, discussing with people who can recommend systems, and reaching out to companies similar to yours to ask them how they solved the problem.
There are many misconceptions about the actual cost of running a company in the financial services sector. Hence, it’s important to create a financial model that gives you an idea of the amount to charge and how much it will cost you to keep the business afloat.
From experience, Ron says, “Sometimes, founders assume that the payment market is huge and believe they will make a lot of money if their solution is somewhere in the payment value chain. However, the profit margin, in reality, may be as little as some pennies on the dollar.”
Don’t work with assumptions. Customers may stick with your startup because you’re the only one willing to work with them at their size. However, they will not hesitate to switch to other vendors offering the same service at a much cheaper rate when they scale.
Therefore, it’s important to work with the right financial model that will still be viable when your business scales. If you’re finding it difficult to find a model that is right for you, Ron recommends consulting people in the same line of business as your company when picking a financial model for your company.
You can show them your current financial model and ask for their feedback on how much people would be willing to pay for the product, the cost of running the business, and any missing costs you need to consider.
The financial services industry is highly regulated, and you need to know all the obligations your company needs to comply with to avoid regulatory sanctions. You should ensure that your “Know Your Customer” (KYC) processes are properly documented and in line with the regulatory requirements.
Also, you should not perform transactions with customers without completing the KYC process or confirming they haven’t been blacklisted anywhere in the world and won’t launder money through your service. The KYC process makes sure that you choose only legitimate people and organizations as your clients.
It would be best to comply with “Know Your Business” (KYB) requirements, usually conducted to determine the majority of business owners, business directors, and decision-makers. KYB enables your customers to assess the risk of doing business with your company, which is relevant because, in Ron’s words, “Behind the business are people and those people need to be identified.”
Many professional firms offer KYC, KYB, and anti-money laundering services at a national or global level. It would be best to consider your business goals and ideal customers when finding out which of those services suits your business. For instance, if your ideal customers are from a particular region, it may be best to go with a vendor specializing in that region rather than a global provider.
Fintech services are admittedly and to a point unavoidably complex, requiring several inputs and rounds of authentication from users. Hence, you should do what you can to simplify your users’ journey and make it easy and smooth. Ron recommends hiding your business logic from users to do so. In his words, “Your users do not need to understand your internal processes. You should focus on their journey and keep the back office away from them.”
However, this is not as simple as it sounds because sometimes users may be able to decipher your internal processes from the information requested. A good example here is the users’ ID, which they may figure will be used to run a credit check on them. Additionally, if you expose too much of your internal processes, bad actors can exploit the knowledge they gain of your internal workings to trick or defraud you or your users.
Hence, it would be best if you tried to find a healthy balance between creating a good customer experience and hiding your internal processes. Ron recommends separating UX design from software development to minimize exposing your internal processes or architecture to the user. Your app and service don’t need to reflect your internal workings. Rather, they should reflect what the user wants to achieve by using your service.
The prospect of building a fintech business can be exciting, so it’s easy to dive right in without considering the complexities and options that might make things faster. However, as a founder, your role is to make sure your startup succeeds instead of chasing after quick wins or latest technologies.
In Ron’s own words, “Don’t fall in love with technology; focus on what you’re trying to build at the end of the day.” Luckily, you can leverage the insights collected in this piece to overcome the various challenges on the way to building your fintech startup.
Thank you for reading our article. If you thought it was useful, here are several other resources on our blog you might also find interesting:
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