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As the leading sector for VC investment last year, the fintech market will continue to attract newcomers, fuel growth-stage companies, and force incumbents to adapt. Many fintech companies are marching toward similar goals: disrupting age-old financial practices.
Having invested in startups in my previous role and building a fintech company for the last decade, I’ve noticed a pattern of common mistakes and missteps that often occur with newcomers in the industry, but at times are present with mature companies as well. To avoid the hindrance of companies’ viability and growth, leaders must take note of these common traps and mistakes during a fintech company’s early days and growth stage:
Mistake #1: Great UI doesn’t equal a great service
Enduring fintech companies offer much more than a digital interface. Product design and UX are just one – albeit important – piece of the puzzle that makes up your company’s value proposition, but the overall customer experience is dependent on a much wider array of factors.
How quickly can customers move and access money? How predictable and stable are your services? How do you balance risk and compliance with introducing friction in your customer journey? Do customers have access to live support when they need it? Are customers’ data and money safe and secure? How well your company does on these fronts has much more impact on customers’ satisfaction than the frontend design of your app.
This is a common pitfall because the past several years have stressed digital transformation and, as technology leaders, we’re inclined to prioritize it. But in fintech, and digital banking especially, the stakes are too high to overlook the critical infrastructure at the core of your offering.
Remember: banks are services, not apps. So to compete with the incumbent banks and the front-running neobanks with these exhaustive risk, servicing, security and compliance capabilities, fintechs need robust practices that should be built out in a company’s very early days – earlier than many founders think.
A banking experience that is dependable, secure and trustworthy trumps everything else and can make or break your company. After all, if fraudsters hack into your users’ accounts and steal money, how much do they really care about how easy it was to toggle between functions?
Mistake #2: Settling for incremental improvement instead of disruption
Many fintechs are unintentionally building with a rearview mirror. Instead of building your product or experience to be incrementally better than Chase’s or Wells Fargo’s, consider the opportunity you have to change the way people engage with and benefit from financial services.
Think about the iPhone: it replaced the standard phone keyboard with a touch screen and added multimedia capabilities to completely redefine what a phone means. Compare that with the Nokias and Blackberrys of the world who were making incremental improvements to flip phones at the time, and it’s easy to see how Apple succeeded in this category redefinition.
Building a solution that makes a task just incrementally easier, or embedding financial services into an existing app, doesn’t generate impactful change for users or the market. Fintech needs companies that will redefine finance.
For example, Klarna and Affirm redesigned and redefined point-of-sale financing with buy-now-pay-later (BNPL). BNPL presents consumers with an entirely new way to think about financing purchases (closed-end installment loans as opposed to open-ended credit with traditional credit cards). BNPL also allows merchants to incentivize specific product purchases with interest-free financing (which the merchant can subsidize), something not available previously.
This innovation is welcome in other areas of finance, too. For example, banks are extremely conservative when it comes to offering lines of credit for small businesses, as monitoring can become operationally straining for the bank and thus less appealing for smaller, less-lucrative lines. When we built BlueVine’s line-of-credit offering, we restructured it to be essentially a series of term loans under a replenishing limit – combining the control and operational simplicity of a closed-end product with the availability of an open-ended product. This approach helped us make lines of credit more accessible for small businesses.
It’s easy to anchor your product to what others are doing or to pursue incremental innovation. Looking at the swaths of neobanks cropping up, many look the same. Disruptive innovation will always be a challenge, and those players that dare to fully redefine the $800 billion banking market are the ones who will succeed the same way Apple did with consumer technology. Those limiting themselves to merely beating out incumbents will either pivot or fizzle out.
Mistake #3: Building superfluous features instead of adding value
To provide value for your segment, consider your task and focus on doing it well. While the number of your features will be continuously growing, success is rarely measured by their quantity. Remember: quality beats quantity any day of the week.
Unfortunately, I’ve seen fintechs that focus on sheer feature velocity or build things that just look “cool” versus thinking critically about their customers’ needs and how to add value to their everyday lives. Some fintechs boast a vast number of third-party integrations for their users, but in reality, many of these external services are rarely used by their target segment. This kind of window dressing is a misallocation of resources that could be better spent improving and iterating your core offering.
Another example: many consumers don’t actually want or need sophisticated financial visualization tools, like cash-flow prediction. But we continue to see these extraneous features in banking apps because, again, they look cool (or sound good to investors). But backend functionality, like fast money movement, should be prioritized instead.
This isn’t to say that I’m against adding features where appropriate. But in doing so, fintechs should ask two important questions when deciding what features, third-party integrations, or products to add to an offering:
- How is the incremental addition to your platform creating more value to your offering (versus just being a supermarket)?
- Do your customers really care?
Functionalities should be purposeful, thoughtful and driven by customer needs or feedback. People will find a way to access the services they need, whether it’s within your platform or living elsewhere. There are needs in the market and so many jobs to be done, so question whether a given functionality is your company’s job.
Mistake #4: Neglecting live support in favor of technology
Digital finance doesn’t mean 100% self-serve. Of course, the model must work and offer efficiencies from being digitally native, but there are many areas – banking being one of them – where live support is vital. Over-reliance on AI-powered chatbots, voice assistants or self-serve online resources is not only poorly received by current users, but does a disservice to the growth of your business.
This goes back to the idea of understanding that your offering is more than a product – it’s excellent to have a resource center for common questions or troubleshooting, for example, but relying solely on that plus email support is a major shortcoming. Robust customer support services require various avenues of contact – email, phone, SMS, in-app chat assistance – and, importantly, reliable human support. Never needed, always there should be what you’re optimizing for and ultimately what customers appreciate.
Granted, building out just that initial support service is an investment that many young companies don’t consider in due time. Building, training and operationalizing a 100-person support team is no small undertaking and one that many fintechs, unfortunately, skip out on to the detriment of their users’ experience.
With so much on the horizon for fintechs of all types this year, consider some of these potential opportunities to change how you prioritize some areas of your business this year.
The market is getting more and more crowded, and underlying technology, robust capabilities and products will be the factors that propel companies forward.
Eyal Lifshitz is CEO and cofounder of BlueVine.