Fintech Startup Kids say the darndest things

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For my previous post on Startup Kids say the darndest things, see here.

In no particular order, some of the zany things I hear or have heard from fintech startups and entrepreneurs. This compilation is not meant in a derogatory way. I hope all readers aspiring to start or run a fintech company will derive value from this post:

“We are building a new payment network.” Good luck with that. Payment networks are notoriously the most difficult business endeavors to undertake. Growing both users and merchants and banks is a very difficult thing to achieve at pace. Such a statement is usually met with a heavy dose of skepticism by a knowledgeable fintech investor.

“We built a unique token…” Insert solution, platform, the word tokenization… One of THE buzzwords in the world of mobile payments. Many use the buzzword, few understand it and fewer have actually built a unique proposition.

“We have built a superior underwriting engine/algorithm…” If I recall correctly, in Lake Wobegon all children are above average.

“We are in discussions with regulators.”, “We are in discussions with regulatory counsel.” When I hear these statements I dig right in and ask when the talks started and with whom. In the overwhelming majority of cases the discussions started recently with either junior staffers or the wrong department. To be clear, real discussions with a regulator take time, plus a regulator who has the power to review, deny or approve an application or the merits of a business model will never informally discuss said merits and never verbally provide you with definitive guidance. I know of one French fintech company that had to go through a 20 months ordeal before being granted the appropriate license. Anyone telling me otherwise does not know what it means to deal with compliance, licensing and regulatory scrutiny.

“We are focusing on near prime borrowers.” In 90% of the case this is a euphemism for sub prime or deep subprime in disguise.

“We actually are a data company.” I actually like these words. My overarching investment themes in the financial services industry is finserv = fintech, see a previous post here, which means that all participants – small, large, incumbents, new entrants, service providers – need to act like tech companies and be data focused amongst other things. Still, if you utter these words, you better back them with grounded facts, else you are using buzzwords.

“We are building a core banking system, a system of record, from scratch.” I put the probability of success at 1 in a million, unless you are the best coder the world has ever seen. Then again, most people that use core systems or system of record in the banking world, unless they are specialists, do not know what these words mean.

“The regulator is “ok” with us building a core system of record from scratch.” Oh boy, double whammy. I know of only one company which, while making that claim, may succeed.

And now for some “fun” categories:

1) The “Regulatory Challenged” syndrome: When acronyms such as CFPB, FCA, PRA, CFTC, AMF, SEC, OCC, Fincen mean little to nothing. When not understanding there is actually value in compliance, in being friendly with a regulator and in obtaining the right licensing. I wrote a few pieces on this subject, see here and here.

2) The “Sales Cycle Magician” syndrome: If you sell to financial services incumbents then the sales cycle will never be shorter than 12 to 18 months, and sometimes more. Please remember this is a fact, not a subjective thought.

3) The “Wishful Partnership Believer” syndrome: Very few banks know how to or are willing to do the right thing to partner with a startup – not in their DNA. Even though banks are trying to change, know that engaging with such beasts comes with friction and headaches.

4) The “Subject Matter Rookie” syndrome: The financial services industry, of all industries, is quirky, heavily regulated, where subject matter expertise is essential. Core innovation necessarily comes from deep understanding. Not many people realize this, whether entrepreneurs or investors.

Pascal Bouvier

Life and work experiences have given Pascal an unmatched vantage point, seeing things as both venture capitalist and aspiring entrepreneur. He currently is a Venture Partner with Santander Innoventures – Santander Group’s Global Fintech fund.

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