Fintech How-To Guide: Build a Market Resilient Lending FinTech

October 5, 2023


With the switch from bull to bear market, various entrepreneurs in the space have asked us if building a FinTech today is different from 2 years ago and what they should focus their attention mostly on.

About us

WinYield is a credit asset manager dedicated to FinTech companies. Its team has over 20 years of experience working with alternative lenders and FinTech. With a history of introducing 'buy now, pay later' to Europe, investments in Afterpay and Aria, and restructuring like Finexcap or Earlypay, we cover a broad range of financing and advisory solutions to help FinTech thrive. As principal or as advisor, the team has completed over EUR400m of transactions in the space since 2016. WinYield has a global presence with offices in London, Dubai, and Gibraltar.

Our FinTech rules of success

Here are some quick tips that will allow you to save time and money when building your FinTech.

Lets start with the general idea many FinTech tend to forget:

  1. Building a successful lending FinTech is not about moving fast and breaking things. It is essentially the opposite.
  2. Building a FinTech, especially in the lending space is about building a track record and trust. Cutting corners in lending has the same effect as ending up in prison in the game Monopoly: it forces you to restart from the beginning. Following these steps to build a lending FinTech company may not guarantee you success but it certainly could help you save a lot of time and money.

Step 1: Identifying the Needs

During a bull market, many companies were created to please VCs and offer them what they promised to their LPs. This is how the market ends up with 20 companies doing AI for KYC where 2-3 companies would have been sufficient. Unfortunately, the same happened in lending FinTech with the SME segment and in particular the e-commerce niche.

To avoid this pitfall, you can assume that the client is the one bringing you the product you need to build. If a series of companies operating in a specific sector asked you for a revolving credit line product and this specific sector is lendable (i.e the risk and reward of this sector is suitable to debt) then you have a business and the product market fit will be easy.

Then, it is crucial to ask why existing players are not providing the service: the issue must be one that technology can solve.

Here are few pitfalls we have seen since inception of WinYield:

The SME market is untapped: Surprisingly, about 90% of SMEs lack the strong financial principles needed for long-term loans. It is not that this is an untapped market, but rather it is an uninvestable one.

E-commerce is a great market to finance: a lot of the e-commerce is based on trends which can stop rather quickly. So the risk associated with e-commerce may have more to do with equity than debt risk. There are many exceptions but if the sales are not recurring and there is no reason to explain the recurring behavior, then it is an equity risk.

Step 2: Build your Process, Risk Management, and Fraud Management First

Building solid processes for your FinTech lending business is an absolute requirement. This means building redundancies and documenting each step of the payment and information flow. Black box underwriting letting people know it is AI doing the work is not acceptable by lenders anymore.

Step 3: No need to reinvent the wheel

When Funding Circle or Mercado Libre were created, they had to create everything for their businesses: from KYC to servicing.

Today, there is a deluge of APIs at the disposal of FinTechs to rapidly build a product. A few of them we recommend are: Taktile, Credit safe and Airwallex. Your differentiating factor will not come from having the best tech for bank accounts or servicing, it will come from (1) your relationship with your customers and how much they love your product and (2) the combination of the existing API to create a great product. There is no need to reinvent the wheel.

Step 4: Ownership and Partnership

Consider your customers' ownership of the lender's FinTech ecosystem. If you choose an embedded financial model where your partner owns the customer relationship, you should focus on minimizing marketing costs, maintaining a competitive price, and increasing volumes. This is because your partner bears the cost of acquiring customers. But if you are building an ecosystem where your customers live, focus on marketing efforts, average revenue per user (ARPU), and drive strong customer engagement. This is where having a customer relationship becomes crucial and you should invest in adding value to your customers to retain and sell them.

A Final Note

Creating a sustainable lending FinTech company in any market requires a strategic approach. By identifying underserved markets, building a strong foundation, leveraging existing financial expertise, and considering customer ownership models, you can build a lending FinTech business that is prepared not only for market downturns but also for success in a dynamic financial world. Commit to careful planning and long-term sustainability, and your business will be well-equipped to meet the challenges and opportunities ahead.

About Altio and WinYield

Altio and WinYield are dedicated to providing invaluable insights and solutions to FinTech companies. Altio offers expert advisory services to FinTechs seeking to raise debt, while WinYield offers first loss capital to grow your FinTech. Together, they empower FinTechs to thrive in today's dynamic financial environment.

Follow WinYield for more information and insights on lending FinTechs