For FinTech Startup Survival, Devil’s In The Details

If the road to hell is paved with good intentions, in FinTech, the road to the startup graveyard is paved with innovation without engagement – across customers, regulations and partners.

A recent article from Dataconomy.com offered up some guidelines and lessons learned through the pitfalls and pratfalls that sent a few startups to the land of FinTech also-rans. FinTech firms, said the site, must follow the same rules that lie before every startup, but must also navigate what it termed “the legal quandaries specific to finances.”

A few general observations from Dataconomy: All too often, founders do not necessarily identify just who will need and spend money on the goods or services the startup will bring to market – a key misstep that is a major contributor to the high failure rate of startups in general, at roughly 90 percent.

For FinTech, the business model is a bit different than might be seen with the typical startup, for there is a partnership model that has been emerging between disruptive FinTech firms and the (traditional) entities that are in the midst of being disrupted.

In an interview with the site, Houston Frost, chief executive officer and founder of Akimbo, noted that “even the big payment startups like Square, ISIS, and Google Wallet, require not only financial institution partnerships but also partnerships with big processors like Fiserv. Regardless of the product, the financial startup likely requires a partnership with an established company in the same sector the startup is likely trying to shake up.”

Moving to the legal issues that can amount to a minefield for a young company, the very disruptive nature of FinTech can have lawsuits flying left and right from competitors and also regulators. Dataconomy noted that one company, GoCardless, a direct debit provider that operates online in the United Kingdom, has a strong partner via a sponsorship with the Royal Bank of Scotland. And yet, the FinTech firm’s founder gave voice to the firm’s grappling with regulations and also the technology hurdles of partnering with the larger, and traditional, financial institution.

The navigation of complex regulations can also have a side issue, which is the view that society at large can have of FinTech’s products and/or services. And social backlash can have huge negative impact on a startup, noted Dataconomy. One example: TandemMoney, a startup that promised to be “an emergency for the underbanked,” and the model itself garnered immediate criticism from several corners, claiming that the prepaid card company (which also offered lines of credit) did not in fact serve users well, with charges that the company, which folded in 2012, amounted to “payday lending in disguise,” as Dataconomy reported.