Secret of Building a Successful FinTech Startup in 2016 [Part 2]

December 26, 2015     By : Sofia

As a continuation of our quest to build a successful FinTech startup in 2016, part two will cover the following topics:

  • How to get funded
  • How to comply with regulations without a lawyer
  • Insurance
  • Operational efficiency with the right APIs
  • Leaders to watch

How to get funded?

While accelerators provide certain financial support, upon graduation from programs, startups are forced to thrive to gain further funding. Some of the options are crowdfunding, personal loans and, of course, VCs.

Here are some of the online crowdfunding platforms for young entrepreneurs to start the big journey:

online crowdfunding

CircleUp is a leading equity-based crowdfunding platform where accredited investors have free access to direct investments in high-growth consumer product and retail private companies that were previously difficult to identify and access. The platform has enabled an online transaction capability to make investments.

Launched in 2005, EquityNet is a multi-patented platform that includes over 100,000 individual entrepreneurs and investors, incubators, government support entities and other members of the entrepreneurial community to plan, analyze and capitalize privately-held businesses.

Fundable is a crowdfunding platform that offers both rewards-based and equity-based campaigns for small businesses. The company charges a fee of $179/month for services. The funds raised are not charged with fees, but transaction fees apply. The platform offers tools for assisting a successful campaign. Startups using the platform can offer investors either a reward or equity in return to invested funds. If the goal is not reached, the investments are returned.

MicroVentures is an equity crowdfunding website that offers investments to early-stage companies. MicroVentures connects accredited investors with startups, businesses and services looking to raise funds or participate in select secondary market opportunities. MicroVentures has raised almost half a million in total funding. MicroVentures charges a commission fee of 5% from investors and 5% commission from startups.

Onevest provides an investing platform that connects early-stage tech companies with accredited investors. Onevest charges a 7.5% commission fee on funds raised through its investor network. Additional fees are incurred for due diligence, marketing and legal. Onevest counts more than 72,000 entrepreneurs and has helped startups raise more than $23 million.

SeedInvest is an equity crowdfunding platform that connects investors with startups. Through SeedInvest, startups have accumulated more than $1 million in funding from Avenue A Ventures, Krillion Ventures, Scout Ventures, Great Oaks Venture Capital and others. 500 Startups is SeedInvest’s main client. SeedInvest charges $250 per month  as technology fee and 7.5% fee for successful campaigns. In addition, the company takes up to $3,500 in due diligence, escrow and legal fees for successful campaigns. The platform has a strict screening process and startups should expect to invest time before they are approved or rejected.

FundersClub is an online venture capital firm that provides online financial matchmaking services. About 10% of the money that investor members invest is set aside within a fund to cover legal and accounting costs as an administrative fee.

Wefunder is a crowd-investing platform that offers capital-raising services. The platform connects more than 48,000 investors that have funded 106 startups with over $14.5 million. Wefunder lets anyone to invest as little as $100 in 30 seconds. The platform is globally accessible for international accredited and unaccredited investors, but with limits on investments depending on income level.

Investable allows professional investors to co-invest in best-in-class technology startups. Platform members can access early-stage venture investment opportunities to pick the startups they wish to invest in. Launched by the team behind NEST, a Hong Kong-based incubator, the platform encourages startups to look for investors who can also serve as mentors and advisers. The platform is available on an “invite-only” basis for investors.

Crowdcube is one of the leading investment crowdfunding platforms from the UK. The company enables anyone to invest alongside professional investors in startups, early-stage and growth-stage businesses through equity, debt and investment fund options. The platform has more than 235,000 registered users looking for interesting investments. It’s free, quick and has no obligations. More than $180 million has been invested through the platform across 330 startups.

We also know at least 21 ways to get a personal loan to boost startup chances.

Affirm is a financial technology services company that offers installment loans to consumers at the point-of-sale with smaller monthly payments for three, six or twelve months of payback and APR ranging from 10% to 30%.

Avant is a fast-growing marketplace-lending platform that is lowering the costs and barriers of borrowing for consumers by leveraging big data and machine-learning algorithms to offer a customized approach to streamlined credit options. At its core, Avant is a tech company that is dedicated to creating innovative and practical financial products for all consumers.

Best Egg provides quick, simple, low-rate personal loans for debt reduction or major purchases or expenses. The company has issued over $1 billion in loans. Loans are offered across eight categories with a minimum of $2,000 and max of $35,000. APR varies from 5.99% to 29.99% with 1-5% of origination fee. Payback period is three to five years. The APR offered will depend on your credit score, application information, loan amount, loan term and credit usage history.

BorrowersFirst is a peer-to-peer lending company that serves new generations of connected consumers. It provides access to personal loans and financial advice wrapped in a compelling brand that matches borrowers with institutional lenders to promote connected credit. The company offers loans starting at $2,500 with a maximum of $35,000. Interest rate varies from 6% to 29%. Origination fee varies and late payments fees are $15. Loans are issued across eight categories with payback periods of 36 or 60 months. Loans can be approved in less than 24 hours.

CircleBack Lending is an Internet-based credit platform. It provides a secure, transparent and efficient marketplace for accredited institutional and individual investors to purchase fixed income assets backed by consumer credit products. The company offers loans from $3,001 to $25,000, with interest rates ranging from 5.96% to 35.07%. Origination and late fees are charged as well. CircleBack Lending offers 15 types of personal loans with flexible rates. To learn more, click here.

Earnest is an online lending service that targets millennial borrowers and offers customized interest rates. The company offers low-interest loans, typically between 4.25% and 5.25% for qualified customers. The average loan size is around $10,000 with a maximum limit of $30,000. By the beginning of 2015, Earnest had lent more than $3 million.

Float Money is an alternative to the traditional consumer loan system. An alternative lending solution leverages the power of consumer shopping loyalty to provide interest-free loans to its member base. The company reached $1 million in total funding. The revenue is generated from the marketing of participating stores.

Powered by Kabbage, Karrot focuses on consumer loans through its automated platform. The company offers unsecured personal loans up to $35,000 with 36 and 60-month payment terms and rates as low as 6.94% APR. Loans are deposited to the accounts as soon as the next day.

Lending Club operates an online credit marketplace where investors provide loans to creditworthy borrowers in exchange for the interest income. Lending Club, which is America’s number one P2P credit marketplace, achieved this milestone over the past eight years since its inception in June 2007. Credits are offered from $15,000 to $300,000 with interest rates ranging from 5.9% to 25.9%. In 2014, the company reached $3.5 billion in transaction value.

LendUp is a fair and transparent online lender for short-term loans for those who cannot use bank services. The company also wants to help the unbanked and underbanked from falling prey to nonbank sources, which generally charge outrageous fees and interest rates. LendUp uses analytics to evaluate creditworthiness and analyze risk. Borrowers can achieve four levels in borrowing: silver, gold, platinum and prime. Starting with silver, borrowers can move up to prime which allows borrowing up to $1000 at 29% APR.

LightStream is an online consumer lending division of SunTrust Bank. The company is so assured that it can provide the best loan experience ever that it gives a $100 guarantee on the same. Available across the US, LightStream offers loans from $5,000 to $100,000 with interest rates from 5.99% to 11.99% (as stated by the company, the rate can go lower if you are making home improvements or purchasing an automobile, for example). The payback period is two to seven years. LightStream will approve and deposit money fast, often the same day, and give extra consideration if you have money in your 401K or equity in your home.

OneMain Financial is affiliated with Springleaf Financial. The company offers personal loans to fit borrowers’ needs with fixed rates and clear terms. Loans are risk-free with a 14-day guarantee. The company offers personal loans as small as $300 with a maximum limit of $15,000 (may vary depending on the state) with annual interest rates ranging from 16% to 36.00% (varies by state). A late fee of 5% is charged as well. The penalty for returned checks is $20 (varies by state). Payback can be set for 12, 24 and 36 months.

Pave is a lending platform for millennials who want access to funding. Borrowers on Pave receive loans from $3,000 up to $25,000 with APR ranging from 6.73% to 35.36%, payable over two or three-year terms. An origination fee of 2% is charged along with late and unsuccessful payments fees up to 5% or $15, whichever is greater. Pave loans are intended for people early in their careers, those who exude potential and drive.

Payoff designs products that help people pay off their credit cards. The Payoff Loan was designed expressly for helping customers to pay off credit cards. The company reached $34.8 million in total funding and a valuation of $80 million in 2015. Payoff charges interest on credit card debt payoff loans, including charging a platform fee to cover loan origination and closing costs. Payoff’s prospective clients fill out an online application form in order to learn their loan rate, which ranged from 7.96% (11% APR) and 19.54% (22% APR) as of December 2014.

Peerform is a peer-to-peer lending platform that connects lenders and borrowers for fixed-rate personal loans. It connects people who want to borrow money with investors. Peerform provides three-year-term personal loans ranging from $1,000 to $25,000 with interest rates ranging from 6.4% to 25% depending on the grade of the borrower, which is granted by the platform. The company charges up to 5% of origination fees along with late payment fees. Peerform offers financing across 12+ categories. Late fees of 5% or $15 dollars are charged.

Promise Financial is a marketplace lending platform focused on the underserved market. They created an underwriting and technology platform to connect individuals with consumer-friendly financing from a range of investors, lowering the cost of borrowing and improving the way couples plan and pay for weddings. Loans are available starting at $3,000 and go up to $35,000 with rates starting at 5.89% APR and reaching 29.48% with fixed monthly repayment over three years. The funds are deposited directly to bank accounts in two to three business days.

Prosper is a P2P lending platform with more than 2 million members. The company has surpassed $5 billion in loans funded through its platform since its inception and a record $1.070 billion in loans in a quarter along with a record daily average. In April 2015, the company was valued at $1.9 billion with total equity funding of $360 million. The company issues personal loans from $2,000 to $35,000 with interest rates from 6.05% to 31.90%.

SoFi focuses on student loans (refinanced over $4 billion in loans issued), mortgages and personal loans. The company’s proprietary approach takes merit and employment history into account to offer customized credit products. In 2014, SoFi became the first marketplace lender to secure investment grade ratings from S&P and Moody’s for senior notes in securitization.  SoFi issues personal loans from $5,000 to $100,000 with APR ranging from 5.5% to 8.99%.

Springleaf Financial loans are aimed to help with bill consolidation, home improvements or unexpected expenses. The company has extended over $10 billion in personal loans to over 3.5 million customers. Personal loans range from $1,500 to $10,000 with interest rates starting at 16% and reaching 36%. To issue a loan, the company relies on the FICO credit score and requires a co-signer to back the loan. With 95 years in business, the company ensures a 93% customer satisfaction rate.

Upstart is an online lending platform that uses data to bring high potential borrowers and investors together. Upstart offers three-year fixed interest loans. Funds can be used for almost anything, including starting a business, paying for a coding boot camp, eliminating student debt or paying off credit cards. Their proprietary underwriting model identifies high-quality borrowers despite limited credit and employment experience. The company has raised $53.2 million in total funding and has reached $437.5 million in valuation. Upstart provides loans from $3,000 to $25,000 with interest rate from 7% to 28%.

Vouch promises to offer lower interest rates if you are able to get someone to “vouch” for a small portion of one’s loan. Vouch considers a borrower as a lower risk once someone is vouching for him. Loans start with amounts as low as $500 and extend up to $15,000 for borrowers with credit scores over 700. For borrowers with credit scores at 600, the cap is limited at $5,000 (600 is the lowest limit of the credit score allowed). APRs start at 7.35% for borrowers at a good standing and reach 29.99% for those with poor credit score. Qualified sponsors either increase the cap of the loan or decrease the APR percentage.

VCs are usually the main target for FinTech startups as they can provide significant funding, extensive networks and expertise.

There are at least 61 VCs to consider if you have a FinTech startup. Here are some of them:

VC`s

How to comply with regulations without a lawyer

We have mentioned RegTech as an emerging sector that may attract a lot of attention in coming years. Even though it hasn’t been actively explored yet, there are already strong players in the space trying to ease the compliance for businesses.

regtech

Back yourself up

InsuranceTech has been another extremely hot topic lately. While there are certainly some challenges for those trying to disrupt the long-untouched sphere, there are also great opportunities.

Insurance carriers and related activities contributed $421.4 billion, or 2.5% of the United States’ gross domestic product in 2013, according to the US Bureau of Economic Analysis. Yet, with $3 billion coming into FinTech in Q4 2014, the insurance industry in the US—with a massive distrust and caution to the players—has not seen wide disruption from technology companies.

Interestingly, it’s not only the startups that are starting to pay attention to the industry. There are financial institutions and tech companies that are attempting to leverage the opportunities.

Bright entrepreneurs have to be cautious while starting a business venture. While taking risk pays, making sure there is a backup opportunity could be safe in case the first venture fails. Here are some examples of  InsuranceTech companies redefining the understanding of insurance and traditional business models:

Here are some examples of InsuranceTech companies offering alternative insurance methods:

insurancetech

USA:

Embroker: Embroker aims to revolutionize the way businesses buy, manage and understand insurance. The company combines the service and expertise of the best-in-class brokers with an innovative technology platform. The 100% online solution allows to optimize insurance spending with policy benchmarking tools, provides a real-time interface to track & manage claims and has many other beneficial features.

Lemonade: Lemonade is a P2P, technology-first and legacy-free insurance carrier, offering a product that is instantaneous, un-conflicted and delightful. The company—which hasn’t been launched yet—raised $13 million from Sequoia Capital, Expansion Venture Capital and Aleph.

Uvamo: Uvamo works as a marketplace where both insurance seekers and investors planning to invest in the insurance sector come together. The company leverages technology and replaces the traditional middleman, thereby providing lower premiums to policyholders and attractive risk-adjusted returns to investors. Uvamo’s online data and technology allow to quickly assess the risk of the desired insurance policy and assign appropriate premiums.

Bauxy: The company enables users to file their out-of-network claims by taking a photo of their bill. No more waiting on the phone with insurance companies, asking where reimbursements are, or getting frustrated and screwed over. Bauxy doesn’t charge any hidden fees and submits the claim on the user’s behalf.

Allay: Allay enables companies to work with the broker of their choice to perform online, paperless health insurance purchasing, and full HR and benefits administration. Companies can ensure compliance with local and federal employment laws, have all their benefits plans in one place and help employees understand their benefits and self-manage their HR information—everything online.

Insureon: Insureon is an online insurance agent for small and micro-businesses. Services include professional liability, errors and omissions, general liability, business owner policy, workers’ compensation, umbrella/excess liability, property, employment practices liability and cyber liability.

Crimson Informatics: The company is trying to disrupt the auto  insurance market. Crimson’s hardware and software gather data on a driver’s behavior, giving insurance firms data and metrics on which to base the premium.

Metromile: The startup has created a device that captures mileage data to determine how much a person should pay for their car insurance policy. A free plug-in device turns ordinary cars into smart cars. The device works with Metromile’s smartphone app (Metronome), which diagnoses the health of the car, location and offers tips to help the user with their daily commute.

insuremyrentalcar.com: The company provides collision damage waiver and loss damage waiver policies for use with rental vehicles in the US. The company’s package starts from $5 a day to $93.99 per year.

Oscar: Oscar is a FinTech unicorn ($1.5 billion valuation) in the insurance space with notable investors like Google Ventures, Google Capital, Goldman Sachs, Khosla Ventures and others. Oscar aims to revolutionize insurance through data, technology and design.

PolicyGenius: The company offers a highly tailored insurance checkup platform, where users can discover their coverage gaps and review solutions for their exact needs. PolicyGenius provides the only place online to shop for life, long-term disability, renters and pet insurance through its highly accurate quoting engines that offer side-by-side comparisons of tailored policies.

The Zebra: The Zebra is the nation’s largest quote comparison platform which focuses on car insurance. Car owners can anonymously compare dozens of insurance companies in real time and begin seeing estimated quotes with as little as two pieces of information. Real-time updates provide a transparent shopping experience.

UK:

Guevara: Guevara is a whole new way to think about car insurance. The service allows users to pool premiums online to save money. Unlike traditional insurance, any money left in the pool at the end of the year stays with the group and lowers everyone’s price next year. Users that keep claims low can save up to 80%.

BoughtByMany: Bought By Many is a free, members-only service that helps users to find insurance for the things in life that are out of the ordinary. Members save an average of 18.6%. The company negotiates discounts directly with insurers for the clients’ unique situations.

Elliptic: Elliptic is the world’s first company to secure insurance for blockchain assets. It is also the world’s first company of a type to achieve accreditation from a Big Four audit firm, KPMG. The company offers a real-time AML protection for bitcoin.

Cuvva: Cuvva was launched in October as an iOS app that enables the user to sign up, get a quote and buy cover in less than 10 minutes. Cuvva offers a completely digital experience run from a smartphone. It is a totally new type of UK car insurance that gets users covered on a car for only as long as they need itcfrom a single hour to a whole day.

Germany:

Friendsurance: The company has implemented the concept of online peer-to-peer insurance which combines social networks with well-established insurance companies. Customers can connect to form individual insurance networks, thereby lowering their annual insurance premiums by up to 50%.

France:

insPeer: insPeer allows users to share insurance “deductibles” with their friends and family members. It allows users to select the people with whom they plan to share the deductibles.

Shift Technology: Shift Technology leverages the best of data science to automatically detect networks of fraudsters in insurance and e-commerce. The solution is integrated to the company’s cutting edge big data platform and is provided in a SaaS model.

New Zealand:

PeerCover: PeerCover is the only peer-to-peer insurance provider in New Zealand. PeerCover does not involve lending money to friends & family, but also makes cost-sharing simple and hassle free; and as a bonus, users can help out peers.

Thailand:

Claim Di: Claim Di is mobile application for facilitating communication and claims between drivers and their insurance companies. The drivers or car owners can download Claim Di and shake the phone near the phone of another party who also uses Claim Di. The insurance companies of both sides will issue claim reports via Claim Di application, drivers can then separate immediately without the need to wait for surveyors.

India:

RenewBuy: The company offers the simplest way to renew car insurance in a couple of minutes, providing quotes. RenewBuy focuses on car and bike Insurance and aims to offer the lowest premiums and issue your policy instantly. The platform works in real time and provides the best-available price specific for the model of the vehicle.

Switzerland:

Knip: Knip is an innovative digital insurance manager that allows users an easy-to-understand overview and analysis of existing insurance policies, tariffs and services. The app automatically detects individual insurance gaps and recommends essential insurances. Moreover, the Knip team consults on all aspects related to personal insurance policies; users can electronically change their tariffs, conclude new insurance contracts and terminate old ones.

Reduce operational costs with insanely useful APIs

In the days of a great variety of APIs powering all kinds of financial services, there is no need to invent a the wheel again. Before building any financial product, each FinTech startup needs to make sure it leverages some insanely useful APIs to offer the best solution and save time and resources.

Banks and other financial institutions are sharing codes through application programming interfaces of software gateways that allow applications to work together. APIs are a bank’s tool for survival and relevance in a smartphone-first world. So making it open to outsiders is pretty much like inviting the competition to come in and read the insider’s note. However, industry watchers say that offering an open API is not a deterrent. Instead, it lets fresh-off-the-boat tech companies and ever competitive developers innovate much faster on the built platform, as opposed to keeping their app development limited to compliance-inhibited, resource-strapped IT organizations.

Considering the amount of APIs present in the market today, it is very important to recognize what we are exactly looking for. The important factors to consider while choosing an API include functionalities, services and pricing. The API allows developers to integrate the functionality into existing apps and platforms. Developers look for certain functionalities while choosing an API. These APIs also target some selected markets based on the functionalities they provide.

fintech apis

Source: 63 Insanely Useful APIs Across 12 Segments to Supercharge Your Product

Braintree’s Partners APIs provides users with an integrated way to start accepting payments using the Braintree payments gateway. The API allows users to sign up seamlessly from within applications and get instant approvals so merchants can easily receive the credentials on a user’s behalf, basically everything required to process a transaction.

The CardConnect API allows secure acceptance of a wide-range of credit, debit and alternative payments. Instead of a high flat rate, CardConnect uses “interchange plus” pricing as processing costs. The API offers features like next day funding, certified PCI level 1, patented tokenization, recurring billing, online bill presentment, hosted payment page and fraud protection as well.

The Dwolla API provides an interface to integrate the Dwolla payments platform into a software application. The API provides developers with the functionality to send, request and retrieve account history and send money between Dwolla accounts.

Google offers exclusive Wallet APIs which enable the integration of its popular Google Wallet services. The APIs help streamline purchase flow across mobile apps and websites. Two major API offerings include: Instant Buy and Wallet Objects APIs.

Intuit offers the QuickBooks online API which allows developers to leverage the huge amount of financial data that businesses create within QuickBooks. Intuit also offers the Customer Account Data API which, along with the QuickBooks Online API, provides developers with programmatic access to data from more than 19,000 financial institutions. Using these APIs, developers can create third-party applications for QuickBooks which can be offered to consumers through the Intuit Apps.com app marketplace.

The iZettle API allows developers to access and integrate the functionality of iZettle with other applications and to create new applications. Some example API methods include managing account information, processing payments, and retrieving payment information. Developers can use the chip-card APIs to enable apps to access the card reader and turn the phone into a terminal.

Marqeta introduced an open issuer processing Payments API. The company already offers a payments platform with feature-rich functionality, making it quick and easy to set up new physical and mobile payment cards, configure multiple funding types, and define how and where cards can be used in real time.

MasterCard offers an array of API-based solutions to cover multiple aspects of payments solutions. Here are some prominent APIs that MasterCard officially offers to developers for developing payments solutions: Simplify Commerce, MoneySend, Mobile UI SDK, rePower, MasterPass, Western Union Money Transfers, etc.

PayPal’s REST APIs allow the integration of the popular payment processing system into a Web-oriented checkout system. PayPal also offers mobile SDKs for iOS and Android that make use of the REST APIs.

Square opened its Connect API to allow merchants and third-party developers to create apps and tools around Square’s platform. Merchants can use Connect API to retrieve activity reports for processed payments, refunds and deposits.

Stripe’s APIs let developers integrate payments within their website or apps. Stripe already went global in early 2014 supporting more than 130 currencies. With Stripe, a customer in South Africa can make purchases from a Stripe-using merchant in the UK. For merchants, Stripe APIs bring a one stop solution to multi-currency acceptance rather than having to work with multiple financial partners. Stripe recently updated its APIs to support bitcoin-based payments as well.

Visa launched the “V.me” digital wallet solution in collaboration with Nationwide in the UK. V.me allows the user to store card information for multiple credit and debit cards from Visa, Mastercard, American Express and Discover along with the “Bill to” and “Ship to” addresses for each of the cards.

In addition, 51 more insanely useful APIs for building a financial product can be found here.  

Watch the leaders, they are doing something right

Finally, our last suggestion for those looking to enter the competition in the FinTech industry would be to learn from the leaders. Each story is unique in some way; business models are very different, and entrepreneurs behind the most successful companies have once been through/are still going through the journey the newcomers are about to start.

LTP’s proprietary ranking, the LTP9 Leaderboard, indicates the most innovative and promising companies disrupting the financial industry. We have analyzed a wide range of FinTech companies in the US to identify the ones worth learning from and to look out for in the coming years.

top us fintech

 

 

Sofia

Sofia is a contributing writer for LTP based in New York. She is a market research professional skilled in data analysis and visualization. Sofia has an extensive experience in consumer behavior studies and marketing analytics. She is passionate about disruptive startups with innovative business models that are having a powerful impact on the industries.

If you have any suggestions or questions for the author, please email us at follow@letstalkpayments.com