After the last financial crisis, many people lost trust in the institutions that had failed them. This helped give rise to the booming fintech scene today, according to Jay Reinemann, a partner at venture capital firm Propel: those who felt let down by the traditional financial industry started to look for different products and services.
Reinemann says a good fintech founder creates a business to solve a problem, not to simply make money. That could be preventing customers from being punished with fees when they go into overdraft, or finding a way to better inform them on the financial services they sign up for. Reinemann believes a good fintech founder must solve a real problem if they expect to create value that someone will pay for, and payment or value is of course required to be a successful entrepreneur. "As a VC, we must believe the entrepreneur will be very successful at creating value," he says.
He looks for entrepreneurs who can identify where traditional business models have failed customers. Good fintech startups, he says, should give users an incentive to do the right thing in a way that benefits both the customer and the startup – by convincing people to save more money or get better insurance, for example. Building trust is imperative.
Finally, anyone looking to start a successful fintech company has to expect some risk, and must be patient. “Unfortunately, in financial services, as a startup you don't necessarily know how well you're doing until your customers have to start paying you back the loans,” he says.
Over the next few years, Reinemann predicts that fintech will revolutionise industry supply chains where paper processes are still being used, such as in the restaurant industry where orders are made manually.
What characteristics do you look for in a founder?
Tenacity. The startup business is extremely difficult. As a founder, sometimes you're all by yourself. You're alone building a company at the top, you're the boss and you don't necessarily know the answers.
How have things changed in the startup ecosystem since 2010?
It's a lot cheaper to build a startup because of all the services that are out there from a technology perspective – cloud services and AI services. Unfortunately, the price of human talent has gone up dramatically.
What deal do you most regret missing out on?
A company called Plaid. They built APIs to extract your consumer data, like your transaction data from your credit card or debit card. They leverage that data to help you understand your personal finances better and alternative ways to help SMEs.
What's the worst pitch you've heard?
We get letters in the mail sometimes pitching us on things that aren’t what we do. We have a financial services focus, which is on all of our marketing materials but somebody will will find your address and send you a letter to pitch. It's completely ridiculous stuff.
What trends will be significant over the next decade?
Mexico and Brazil continue to catch our attention as geographies that are still really underserved. The products provided by incumbents are worse, which opens the door for the startups to beat them.
Updated 10.03.20, 12:00 GMT: This story has been updated to add corrections and clarifications.
Maria Mellor is a writer for WIRED. She tweets from @Maria_mellor
This article was originally published by WIRED UK
