Fintech is a BUZZWORD, but it wont die anytime soon!
Fintech has been a buzzword for a while. There are multiple Fintech start-ups mushrooming every day in Asia largely because of the under penetrated financial services market.
So why do I call it a Buzzword? Answer: Because everyone talks about it but in reality, many don’t understand it and even a smaller percentage will be ready to fund your business.
When Michael and I decided to setup InstaReM back in August 2014, we thought it would be smooth sailing from Day 1. We each had over 14 years of corporate experience and we had a great product with a Target Addressable Market (TAM) of over US$600 billion. We tried to raise a small round of about $1 million to get off the blocks. Our belief that it will be easy was dispelled pretty quickly. We met many venture capital firms who expressed interest at looking at Fintech start-ups but soon realized that most of them don’t understand the Fintech space. Some of the interesting feedback we have got:
1. “We like the team but your product is not SEXY enough for funding”
2. “I don’t think you will get a money remittance license”. Once we got the license “If you guys got the license so quickly, anyone can”
3. “Your business has low barriers of entry”
4. “We don’t have a strategy for Fintech yet”
5. Another VC who spent 4 months talking to us — “XYZ (competitor) (who isn’t even present in the markets which we are targeting) is an established brand in your chosen market and your product wont differentiate against them. So much for due diligence I guess.
Every entrepreneur must go through the pain of rejection.
Your belief that the product you have built is great, will become stronger or weaker? If it gets weaker, its time to shut shop. For us it only became stronger as we kept speaking to end users and everyone unanimously told us that there is a space for us in the market.
Based on our conversations here is a small list of why we feel VC firms don’t like Fintech firms much. Or if they like you, why are they so cautious:
· Most Fintech firms need to abide by rules and regulations setup by local regulators. This is perceived as a massive risk by VC’s; if you mess up your business, it can come to standstill as well as create reputional risk
· Customer acquisition is tougher than other online businesses
· Anti money laundering and counter terrorism financing type of risks can bring bad reputation to the firm
· Well funded start-ups and banks wont allow you to build your business
· Valuation of Fintech firms don’t scale as quickly as e-commerce firms
In summary, raising money is tough.
Strangely every Fintech company I have spoken to, including us, makes a transaction level profit unlike some of the e-commerce companies, but still a VC would look at you through a microscope before offering you a term sheet.
In the last 10 months of being operational we have managed to prove somethings wrong:
1. You need lot of money and time to get a regulatory license: We received an Australian Financial Services License in less than 45 days with minimal funding.
2. Customer acquisition is a nightmare: Our registered user database grows a healthy 25% month on month. And our customer acquisition costs are way below industry average.
3. People wont trust your product: Our average value of remittance is A$2,000. This amount has remained constant from Day 1 of operations. My favourite example is that of a customer who read about us in TIA and setup a transaction for A$5,000, that too in our first week of operations
4. Abiding to regulations and reporting is tedious and time consuming: Every aspect of reporting is automated
5. Gestation period for breaking even is long: We are covering 40% of our costs already and its been only just a start
Mike and I don’t claim to be experts but if you have recently setup Fintech start-up, our advise is as follows:
1. Raising money will be tough so tighten your buckle on expenses
2. Find as much freebies as possible: Our first 12 months of hosting was free as we got into a Softayer catalyst program. We have a bare metal server in Melbourne, wouldn’t have been cheap if we had to pay for it.
3. Get into a Fintech accelerator. We are part of Stone & Chalk accelerator based out of Sydney. Love the work Alex Scandurra and his team are doing. Closer to home, Startup Bootcamp and Markus Gnirck provide an excellent platform for young start-ups
4. Only reach out to VC’s who have Fintech investments. You will save a lot of their time and yours
5. Don’t badmouth banks — There is plenty to learn from them and working with them will only help you scale faster. We had some fantastic discussions with banks even though we run a competing product
6. And brave up — For Fintech start-ups there are more brickbats than bouquets
Having said so many negative things, I come back to the title why won’t Fintech die anytime soon? It’s because there is a genuine need for it. Existing Financial infrastructure is not adequate to cater to the growing population in Asian countries. And increasing penetration of internet and smartphones will only help us bolster the case that -
“Fintech firms are the need of the hour”
Fantastic opportunities exist in making remittances cheaper and faster, improve insurance penetration in rural areas, gamification of trading and so on.
I would like to end this with an interesting incident, I was (again) speaking to a VC who doesn’t have any Fintech investments and I mentioned that we processed $2 million remittance volume in a week which was a great moment for us. The instant critique I received is that one of their foodtech start-ups in which they have invested millions processes same amount of volume in a day.
Russian roulette anyone?
Author: Prajit is the co-founder and CEO of InstaReM. InstaReM is an Asia focused cross border money remittance firm which remits money within 4 hours and at a flat 1% fee. They are licensed in Australia, Hong Kong and Canada and serve multiple corridors in Asia pacific.
