Since the 1950s introduced consumers to the sleek, savvy credit card, digital cash has become a societal staple. Technological payments have infiltrated the financial industry, generating an entirely new and wholly unique sub-industry: FinTech. You’re likely familiar with Silicon Valley, the California-based community of tech and software startups. Around the world, in Hong Kong, London, and even Sydney, FinTech startups have found their footing. However, not all of these startups are here to stay. One of the biggest roadblocks and the Achilles heel for FinTech startups is the lack of scalability. As technology plays an increasingly vital role in everyday business, how can FinTech startups not only scale, but succeed?

By Disrupting Industries

FinTech is already succeeding in this regard. Take, for example, the global payment industry; across regions such as the Asian-Pacific, Latin America, and North America, payments revenue has experienced a steady climb since the early 2010s. This climb has brought about a complete reshaping of how we think about modern payments, including diversification of modern payment infrastructures. And this is just one side of FinTech—industries involving blockchain, mortgage lending, and money transfers all utilize FinTech in some way. 

The problem appears when these grand industry disruptors end up disrupting themselves by building their foundations upon the wrong business model. Ron Shevlin, Managing Director of Fintech Research at Cornerstone Advisors, wrote on the flaw in selecting B2C instead of B2B and vice versa. His article in Forbes noted that B2C business models for FinTech startups often “overestimate the extent to which consumers will: 1) change their behavior, and 2) pay for a new product or service in addition to all of the things they already pay for.”

On the other hand, Shevlin says this of B2B models: “While a B2B model may be a better path for some FinTech startups, some fail by not understanding that they’re a vendor—not a ‘partner’—which may require a completely different set of skills and capabilities from those they already have.” 

To reach their full potential in disrupting industries, FinTech startups must introspect and understand what services they provide, how those services directly and indirectly impact consumers, and what concrete elements can push them to success.

By Acquiring Venture Capital

For FinTech startups in particular, the acquisition of venture capital is the most vital method of staying afloat. However, venture capital is also a point of contention for these startups, as raising the funds to expand and become profitable is often difficult. What makes it so difficult? Valuation.

Valuation of FinTech startups isn’t as straightforward as one would hope; the countless sub-sectors of FinTech, such as payments, crowdfunding, and insurance, as well as the various and sundry segments that these sectors serve, makes FinTech an umbrella term for any blending of finance and technology. Banks and insurance companies that serve as traditional predecessors for FinTechs often underwent a by-the-books valuation process, which included analysis of strategic and competitive value, asset replacement cost, and revenue and book value. However, as CEO and strategist Nirvikar Jain writes, FinTech company valuation should rely on a homebrewed approach, this one focused on (1) how technology combats the nature of the financial problem, (2) how the company can expand its global reach digitally when it isn’t spreading physically, and (3) the calculation of cost based on lean structures, as opposed to IT infrastructure and manpower. 

Because FinTech is such a relatively new concept, even compared to cryptocurrencies and digital cash, its assimilation into these companies and industries is done through M&As and financing. However, raising venture capital isn’t a simple process. VantagePoint Capital Partners’ Managing Director and Global Head of M&A, Richard Harroch, has written extensively about the multitude of questions venture investors will ask when approached by FinTech startups, from the broad “what makes the company’s product great?” to “how well do you understand the important metrics of this industry and your business?”. FinTech startups must be prepared to answer this slew of questions while maintaining the validity of their unique valuations.

Finding Success

In the end, FinTech startups must be self-aware, humble, and—above all—persistent.