With the widespread adoption of innovative technologies and business models, the fintech industry is experiencing a rapid increase. The Business Research Company reports that the worldwide fintech market is projected to reach nearly $191.85 billion in 2025, growing from around $111.24 billion in 2019.
The demand for financial software surged during the COVID-19 pandemic. MX conducted a survey of over 1,000 customers and found that 39% of participants are now more likely to use digital banking services delivered by fintech organizations due to the outbreak. According to deVere Group, the use of finance applications in Europe has jumped by 72% from the beginning of coronavirus.
It is worth noting that the number of fintech startups tripled over the past two years, rising from more than 12,200 in 2016 to 26,000 in 2021. Furthermore, the total funding in financial technology startups is valued at $121.7 billion, seeing a $20 billion increase compared with the previous year.
As such, the usage of fintech software solutions will continue to increase in the coming years. In this article, Surf software experts will describe how to create a fintech startup from the ground up. Let’s get started.
How to create a fintech startup in 5 steps
1. Choose a niche
At the moment, the demand for all categories of fintech software is continuously growing. However, digital payments, personal finance management, alternative lending, and alternative financing are the most fast-growing segments, according to FinancesOnline.
The adoption of investment solutions has also surged. “The Mobile Finance Report 2020” found that average sessions in investment applications rose by 88% while the number of banking app sessions jumped by 26%.
Let’s take a closer look at these types of software to help you identify the best niche for your financial technology startup.
- Digital payment apps
The popularity of online money transfers is experiencing unprecedented growth due to factors such as speed and convenience. As of today, the digital payment category is the largest segment in the fintech sector.
Experts at Research and Markets inform that the value of digital transactions globally is anticipated to rise from $5.44 trillion in 2020 to $11.29 trillion by 2026, at a CAGR of 11.21% during 2021-2026.
Now there are a variety of payment options, including credit and debit cards, e-wallets (for example, Apple Pay, Google Pay). With the increasing use of blockchain, the number of cryptocurrency payments is also rising. According to Statista, the number of crypto wallet owners was 63 million in the fourth quarter of 2020.
When building a fintech startup, we recommend that you add crypto payments to service offerings. This will help you improve customer engagement while achieving a higher level of security.
- Personal finance management apps
Mobile and web apps for personal finance management continue to take the center stage in the sector. Thanks to this type of software solution, customers can easily monitor and optimize their expenditures, plan a budget, carry out digital transactions, as well as withdraw and replenish funds.
If you are thinking about how to create a fintech startup and make it groundbreaking, you can deliver features such as data visualization and tailored recommendations provided by an artificial intelligence-based chatbot.
Considering practical examples, Mint is a popular mobile app for personal budget management. By now, this financial technology startup has raised a total of $31.8 million over 5 rounds.
Employing Mint, users can track payments, analyze expenses, pay bills, view and manage subscriptions. What’s more, the solution offers personalized advice on how to save costs and pay down debts faster.
In case you decide to launch a fintech startup in this category, find out how to create a mobile budgeting application.
- Digital lending applications
Digital lending is another fast-growing niche that you can choose for building a fintech startup. For instance, you can develop a website or application to collect and analyze consumer data such as credit history, salary, account statement. Based on the provided information, specialists will be able to faster estimate the creditworthiness of each user.
If you aim to launch an innovative banking product, it is reasonable to use Machine Learning (ML) technology. An AI-powered fintech solution will analyze financial data while generating a credit score for potential and existing customers.
Recognizing the opportunity to increase the efficiency of lending operations, many companies started their fintech startups in this field.
Established in 2011, Lenddo provides a digital lending application that implements ML algorithms to calculate credit scores and segment the audience. Lenddo employs more than 12,000 variables, involving the use of other finance apps and social media activities.
To ensure data confidentiality, the startup doesn’t share customer personal data with lenders. From the moment of foundation, Lenddo has raised $14 million over 3 rounds.
- Investment applications
Investment app development is a great way to create a financial technology startup. When building fintech software of this kind, it is crucial to deliver a wide range of data analytics tools for investment portfolio management and stock trading. You should also provide guides, especially for customers who do not have the required knowledge.
In order to gain a competitive advantage, it is reasonable to implement features like robo-advisors and reporting. Furthermore, you can start a B2B fintech startup by delivering specialized software to investment banking firms and venture capital funds.
Concerning successful projects, let’s consider Stockpile. The app allows for investing in more than 4,000 stocks and ETFs with zero trading fees and commissions.
Available on iOS and Android, this fintech solution enables consumers to gift stock using electronic gift cards or physical cards sold at popular retail chains like Target, Safeway, or Office Depot. To help beginners invest smarter, Stockpile offers a guide, blog, and lessons. By now, this fintech startup has managed to raise $45 million over 4 rounds.
- Mobile banking apps
Allowing financial companies to address end-user needs, improve consumer satisfaction, and boost efficiency, innovative banking products are being widely introduced in the sector. As of today, the majority of traditional banks offer at least one smartphone solution to their customers.
Thanks to digital banking services, institutions can provide the majority of services online, which is crucial in our competitive environment and, particularly, during COVID-19. Analysts at MX inform that 70% of consumers believe that mobile products represent the future of banking. The survey also found that 84% of respondents use mobile banking once a week.
Mobile banking applications can be used for various goals, for example:
- opening a bank account
- tracking balance
- carrying out transactions
- paying bills
- receiving cashback
- viewing the history of payments
- exchanging currencies
- ordering payment cards
- generating and signing transfer orders
- managing payrolls
- receiving personalized financial advice
With the view of creating an additional revenue source, you can develop a software product that offers supplementary services. For instance, you can enable customers to pay mortgages, donate to charity, or purchase plane tickets via a smartphone application.
If you are wondering how to build a fintech startup in this segment, you should know the main mobile banking industry trends of 2021-2022 to explore challenging ideas.
2. Ensure regulatory compliance
When figuring out how to start a fintech company, it is essential to research existing regulations and explore how to achieve compliance. Otherwise, you may encounter not only data breaches but fines totaling millions of dollars.
For example, financial technology startups have to ensure conformance with the Payment Card Industry Data Security Standard (PCI DSS). The standard requires organizations operating with credit card data to protect sensitive information against various risks. Launched in 2006, PCI DSS aims to provide the security of payment accounts throughout transaction processing.
The General Data Protection Regulation (GDPR) is another standard you should consider when building a fintech startup. According to GDPR, companies have to provide European citizens with the security and confidentiality of their data, including genetic, personal, and biometric information. In some cases, fines for the violation are 20 million euros.
To comply with PCI DSS, GDPR, and other regulations, institutions have to apply robust passwords, implement data encryption, use anti-virus programs, and regularly scan networks for security vulnerabilities.
What’s more, it is essential to deliver role-based data access control two-factor or biometric authentication. With the view of improving data security, fintech firms can also use blockchains to ensure data authenticity.
3. Hire a trusted fintech software development company
A fintech startup may face a variety of issues when collaborating with an unreliable IT partner that may involve low software product quality (for example, poor performance, complicated maintenance, unbudgeted expenses) and non-compliance with deadlines.
To build a digital solution that meets the required standards, it is essential to hire a trustworthy fintech software development company. When searching for an IT partner, you should look into its project case studies to see expertise in fintech.
At Surf, for instance, we developed a cryptocurrency trading app, which is available on smartphones and tablets. Providing advanced analytical tooling, the product serves both professional traders and enthusiasts. Our engineers also created a mobile banking solution about which we’ll be talking further.
Additionally, you should take into account aspects such as the experience of team members and challenges, in which software engineers can help you. For example, software experts at Surf can assist you in conducting market research, preparing a technical specification, choosing a technology stack, performing quality assurance, and maintaining the system after launch.
It is also reasonable to check out client testimonials and company rewards. For this purpose, you can visit B2B review and rating platforms like Clutch and GoodFirms, as well as the website of a potential IT service vendor.
4. Choose a type of fintech software development
Before building a fintech startup, you need to choose a type of software development, meaning what devices and operating systems your product will support. For instance, by making a website, you will reach customers accessing the service via desktops and laptops.
Surely, consumers will be able to visit a site from their mobile devices but this is not as convenient as via mobile apps that offer a more seamless user experience.
Since the popularity of mobile solutions is rapidly increasing, you should consider the opportunity of launching a smartphone application. In this case, you should choose between native (iOS app development, Android app development) and cross-platform approaches.
When creating a native app, engineers have to write two codebases for iOS and Android. As a result, you have to maintain two solutions with the same functionality. Thanks to cross-platform technologies, you don’t have to hire two separate teams for project implementation. Using cross-platform tools, software experts build software products faster and save you costs.
Although it may seem that native applications provide a better performance, frameworks like Flutter allow programmers to deliver mobile solutions of superior quality. Using Flutter, our team at Surf built a mobile banking application for account management, currency exchange, document sharing, and payment order generation.
It is worth remarking that Tagline ranked this fintech startup TOP 1 out of smartphone apps in the banking, finance, and insurance category.
5. Start out by making an MVP
If you want to learn how to create a fintech startup and increase success chances, you should consider the MVP approach. A minimum viable product includes only the key features necessary to address end-user issues. As you don’t build a complex system with rich functionality, the time to market is significantly reduced.
With an MVP, it is possible to test various hypotheses in action, validate a project idea, and collect consumer feedback. After measuring end-user reaction, you will obtain a clear understanding of how you should improve your solution to meet the audience’s preferences.
As a result, you will implement features that your customers really need and want, thus cutting down expenses. Employing an MVP, you can showcase the product to investors and raise funds for a fintech startup.
To create a fintech startup, it is essential to choose a niche and the development approach. For this purpose, you should conduct market research and competitor analysis. This will also help you discover user pain points.
Another step is to study financial regulations. This will allow for formulating a list of features to safeguard sensitive information. By hiring a trusted fintech software development company, you will minimize chances for failure. When building a software system, engineers will identify the best technology stack and architecture to enable security, high availability, and fault tolerance.
Thanks to the MVP, you will reduce project costs and time to market while extending a fintech product according to end-user feedback.