5 Benefits of Fintech for Startups: Empowering Growth and Financial Management
Gemma Carter, Senior Account Executive
Against a backdrop of the fast-evolving business landscape, it’s not uncommon for startups to face numerous challenges when it comes to financial management and achieving sustainable growth. Fortunately, the rise of financial technology (fintech) has brought forth innovative solutions that are specifically tailored to meet the needs of startups.
Understanding Fintech
The term ‘fintech’ addresses the computer programs and other technology used to support or enable banking and financial services. Whilst it might seem like something that only concerns the financial or banking people of the world, fintech is becoming increasingly ingrained in everyday life. Paypal, for example, is one of the biggest fintech enterprises in the world. Any transaction that you make via online banking – or even just to check your account – requires fintech, as well as your digital wallets. Every time you pay for your shopping with Apple Pay or Google Pay, it is fintech that allows you to do so.
In recent months, therefore, there has been a lot of discourse on how fintech is empowering startups to drive growth and efficiently manage their finances. But what transformative potential do fintech solutions offer for new businesses with ambitious plans?
Key Benefits of Fintech for Startups
When starting up a business, leaders need processes that are quick, easy to use, and agile, so that they can run the business efficiently and scale operations as the business grows.
The following benefits of fintech ensure that finances are accurate, easy to interpret, and efficient for startups to manage:
1. Streamlining Financial Operations
Traditional financial processes can be time-consuming and prone to errors, hampering a startup’s ability to focus on core business activities. Luckily, in the modern day, calculations no longer have to be done by hand nor each invoice individually created. This is thanks to fintech tools, which can streamline operations and save huge amounts of time.
The growth of automation has played a huge role in this, smoothing out manual processes such as invoicing, payroll, and bookkeeping. Such tasks need to be done regularly so can take up a significant amount of time, but fintech tools enable them to be scheduled to occur automatically at set intervals. The information only needs to be entered once before the automotive technologies can take over, only needing to be re-addressed if the payments change. This not only ensures that they are done on time and accurately, but it saves startup executives a lot of time in completing each task manually.
Financial automation can also take over roles that may otherwise require additional expertise to complete accurately, such as tax compliance. This can reduce operational costs significantly as, without it, startups may need to hire or outsource the expertise, or an inexperienced executive completes the task and potentially does it wrong. This comes with its own risks as failure to comply with regulations can result in being hit with fines.
Similarly, digital payment solutions and expense tracking apps allow for easier cash flow management and total visibility of spending. In the early days of starting a business, when every penny counts, this is essential for budgeting and ensuring profits are being made.
The adoption of these solutions not only saves time and money but ensures that efficiency and productivity levels are at a maximum – vital for new businesses, which are often only staffed with a few people, but with a heavy workload.
2. Enhancing Access to Funding
Startups can often struggle to secure funding through the traditional sources of bank loans, venture capital, and angel investors. These investors like to see a secure and profitable business so startups can be overlooked or considered too risky due to their limited track record.
However, fintech has disrupted the traditional lending landscape by introducing innovative fundraising platforms and alternative financing options. Through the ability to make transactions online, fintech opens up a number of new opportunities for securing funding, such as crowdfunding, peer to peer lending, and online venture capital platforms.
Crowdfunding has quickly become one of the most popular ways for startups to access funding. Rather than relying on one person or institution, crowdfunding allows businesses to collect money from a large number of people via online platforms. This opens up an opportunity to raise huge amounts of money, due to the large pool of potential investors, as well as allowing startups to assess the level of market demand for their product or service. These factors have made it such a popular funding option that the total annual volume of equity-based crowdfunding in the UK grew by 1,773% between 2013 and 2020, and has only continued to grow since.
And it works, too! Some of the biggest brands of today were able to grow because of crowdfunding. BrewDog, the Scottish brewery and pub chain, raised a whopping £126 million from its crowdfunding campaign back in 2011. This enabled it to go on a huge growth journey – having started selling beer at local markets, the company now has a spot on the shelves in all major UK supermarkets as well as having more than 100 bars globally!
3. Facilitating Financial Planning and Analysis
For startups, data-driven decision-making is crucial for sustainable growth. But, luckily for these business leaders, this doesn’t mean that hours have to be spent manually analysing numbers and spotting trends. Fintech solutions offer advanced financial planning and analysis tools that provide real-time insights into a company’s financial health.
Many fintech platforms have built-in smart-KPIs features to help startups define and measure their progress against operational and strategic goals. Updating in real time, these KPIs provide an immediate assessment of the business’ current financial state and will flag areas that require attention, and even recommend courses of action to rectify any that are low-performing. This can be critical for ensuring that startups stay on top of their financial planning alongside their busy day-to-day activities.
4. Simplifying International Payments and Transactions
As startups expand their global reach, managing international payments and transactions can become complex and costly. In order to be successful in a new region, it is essential to localise your product or content to make it accessible to your new audience. Currency is a vital part of the localisation process. According to a recent survey by Paypal, 76% of e-commerce customers prefer to pay in their local currency. So, without localising payment methods, startups could be shutting out a huge pool of potential customers.
But, cross-border payments and currency exchange doesn’t have to be a complicated process. There are dedicated platforms out there with multi-currency capabilities which automatically convert currencies to the chosen base currency (e.g. British pounds if a UK company). This allows all financial analysis to be conducted within the same currency and gives a single view into the business’ financial situation, without the pain of getting to grips with multiple different currencies. All covered within the fintech solution, it also saves on transaction fees and currency conversion costs that can be off putting for startups looking at global expansion.
5. Ensuring Data Security and Compliance
In an increasingly digital world, data security and compliance are of paramount importance for startups. This can be a complex and confusing area for new business leaders but it is crucial that they get it right. Failure to do so could lead to data breaches, cyber attacks, or non-compliance fines, each of which come with huge financial and reputational damage. Financial systems especially require high protection due to the sensitive and highly confidential information that they hold.
When using a fintech solution, the majority will prioritise data protection and compliance with financial regulations within their offerings, ensuring that customers are using a secure and trustworthy platform. But, you can never be too careful. When looking for a fintech platform, check that it operates from a secure and well-managed data centre, which stores data in accordance with the National Cyber Security Centre’s 14 Cloud Security Principles. That will ensure that your data is well-protected and keeps the risk of data breach low.
Some fintech platforms will also include disaster recovery and automated backup features, which are a critical safety net should the worst happen. This will allow for a quick recovery if your data is lost, minimising downtime and the impact on customer service, reducing the reputational damage of a security incident.
Considerations for Startups
Fintech has emerged as a game-changer for startups, offering a range of transformative solutions that drive growth and optimise financial management. From streamlining financial operations to facilitating funding opportunities and ensuring data security, fintech empowers startups to focus on innovation and scalability. By leveraging fintech, startups can confidently navigate financial challenges and pave the way for sustainable success in the dynamic and competitive business world.
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Our team will tailor an approach that will help to fuel your growth plans – contact us today to kickstart your project.
