Lessons Learned From Building a Full-Stack Bank Replacement From the Ground Up

This is a guest blog post by Elena Zozulya, marketing manager at Holvi — a Finnish FinTech startup that offers a banking service for entrepreneurs, freelancers and microbusinesses. With over 4.2 million self-employed workers and 3.2 million microbusinesses in Germany, Holvi is targeting a segment considered to be one of the most underserved by traditional banks.

Holvi has been running a pilot program in Germany and has recently recruited a small team in Berlin to start scaling its local operations and marketing. The company will soon announce the official launch date for the German market.

Financial technology — also known as FinTech — has been a hot topic in recent years. The sector is growing at a very fast pace with global investment in FinTech startups tripling to $12.21 billion in 2014. This means that the potential to innovate in the financial sector has never been higher. Banks have been slow to respond, however, to demands of the digital era: they remain attached to inefficient technology and branch networks which typically serve stakeholders instead of the customer. In the meantime, EU regulators have been keen on encouraging competition and opening up the financial services industry to new entrants through regulatory changes.

The team at Holvi is one of the first in Europe to build a full-stack bank replacement from the ground up. Unlike the majority of FinTech startups that are building their services on top of existing banks, we’ve built the entire infrastructure and operations stack ourselves and have our own license to operate as a Payment Institution. There are many lessons we have learned through this trying yet fulfilling journey, and we would like to elaborate on a few of them here.

Decide on your licensing from the start.

Building a FinTech product is very different from developing a social app. You need to pay close attention to the issues of trust and security from day one. Naturally, financial services is an inherently regulated industry in which consumers are rigorously protected; therefore, it is extremely important to understand and comply with the regulatory laws and licensing requirements when building a FinTech startup. Doing it the Uber way is not going to get you far in the financial industry.

To comply with regulations in the financial world, a startup can either pursue a partnership with an existing bank or apply to become an independently regulated financial institution. If the former path is taken, the startup operates as an agent of an already established financial institution. That means it depends on banks for the underlying services, which could potentially be a limiting factor down the road. If a startup chooses to pursue a license, however, its options include licenses to be recognized as an Electronic Money Institution, Bank or Payment Institution. Holvi took the latter path and received its Payment Institution license in 2014 from Financial Supervisory Authority of Finland (FIN-FSA) to operate across EEA.

Prepare for complexities with a well-rounded team.

With a mass of complex systems that don’t immediately meet the eye, most FinTech products are best described using the iceberg metaphor. For instance, on the surface, Holvi is an intuitively designed current account for business — but underneath, there are many moving parts that keep this FinTech machine running. We are responsible for the care of infrastructure operations, global payments processing, secure custody of money and regulatory compliance 24 hours a day. Clearly, there is a lot going on — which is exactly why the complexity of a FinTech product cannot be underestimated.

The only way to have such a complex system working flawlessly at all times is to build a team that possesses a wide variety of applicable skills. FinTech startups are not bound by legacy systems; therefore, they can build a modern and flexible technology stack from scratch with a fraction of a bank’s budget and timeline. Holvi’s technology platform has a full retail banking capability that our team built completely in-house. Our success in this can be largely attributed our diverse team that specializes in code, design, finance, compliance and operations. It cannot be overstated: if you want to get into FinTech, start by building a well-rounded team with skills in these areas.

Compliance is your best friend.

If you think compliance is secondary and can wait until the most important things are done, think again! Not complying or showing the intention to comply with regulation can have deadly consequences for your FinTech business. Don’t wait too long to hire a compliance officer to implement effective compliance policies and procedures. Remember, in financial services, not all customers are great customers. You need to implement effective identity verification and anti-fraud and anti-money laundering procedures. The basic starting point is to show an intention to put consumer protection at the heart of your startup.

Raise money from a VC with experience in FinTech.

FinTech startups need regulatory and operating capital from the start. A startup cannot simply launch a minimum viable product without a certain amount of capital at its disposal. This is why, as a founder, teaming up with a VC with FinTech experience is one of the smartest things you can do. VCs with an understanding in this field will help you make the right decisions for your FinTech business.

Shape your product around your customers’ needs.

Create a banking product that your customers will love. FinTech startups need to build products that are based primarily on the customers and the customers’ problems. It is crucial to present the clear value of the services your company offers to the customer segment you are targeting. Put your time and effort in understanding your customers’ needs, and form your product and messaging from there. Talk to your customers — interview them. From an internal standpoint, make sure the product team works closely with the customer support team to gather feedback on problems and missing features that can become opportunities for improvement.

Earn your customers’ trust.

While it is crucial to understand the internal aspects of building a FinTech startup, the customer-facing elements cannot be overlooked. In FinTech, it is never enough to only have the “cool technology” — trust and relationships are the invaluable centerpieces of the business. However, building trust is the biggest challenge that banking disruptors face. Digital banking services like Holvi don’t have physical branches; our customers can’t visit us, meet us face-to-face or shake our hands. This presents a challenge of overcoming these impersonal obstacles in your marketing strategy.

Many startups in the financial world choose to earn credibility with a “good guys vs. bad guys” approach to differentiate themselves from the untrustworthy traditional banks. We believe, however, that trust is most effectively established through offering a product so great that customers will become brand ambassadors. This is why we put a lot of effort into building trust through seamlessly working technology, spotless design and stellar customer support. This way, our customers can feel well-connected to our company even when they cannot physically meet us.

We’re looking forward to bringing Holvi to Germany. Please share your thoughts with me in the comments or reach out to lena [at] holvi.com. Check out more from us on our Medium channel.