Insights

This Unexpected Hurdle Might be the Reason You Can't Launch Your Fintech Business

April 19, 2021

You've had a great idea for a new fintech product. Let's say is a payments platform allowing users to transact with users elsewhere in the world. You're excited and you get to work building an MVP. Other people are interested in your idea and initial conversations are positive. So you decide to give it a shot.

  • Your first step is to build a landing page to start showcasing your idea and to get a sense of how well received it's actually going to be in the marketplace.
  • With sufficient interest you start to build your product. You produce some screenshots and a proof of concept.
  • It's all going well so you decide to go all in and incorporate your business The process is pretty straightforward and you mange to do in about 20 minutes thanks to the Gov.uk online registration tool.

Next you need a bank account so that you can deposit your initial capital and so that any investors (friends, family or angel investors) can make their investments. You reach out to your bank but they say that they don’t deal with fintech companies. Hmmm.  

Next stop are the neo-banks. They're fintechs too so they'll be sure to take you on board. Not so. Their compliance team say that you’re outside of their risk tolerance. Now what?

One of the biggest reasons that fintechs fail to even get going is because they can't get a bank account. And if you can't get a bank account, you can't even apply for FCA authorisation, let alone get authorised to start trading.

Fintech firms created a global horizon with their products. Consumers were suddenly given technology that would allow them to make payments around the world, invest in assets in multiple jurisdictions and receive services from companies located on the other side of the Earth - all from their mobile device. But regulation has failed to keep up and businesses are finding out that even if they can navigate the minefield of country-by-country regulation, their bank account partners aren't willing to accept the risk of funds being received from multiple overseas jurisdictions - the risks for them under the anti-money laundering legislation is too high when compared with the potential revenue they stand to make from you at the outset of your business.

There are also entire industries that the banks won't touch. Here's a list of some of those published on a popular business account provider's website:

  • Trading of cryptocurrencies
  • Trading of precious metals and stones
  • Money services (such as foreign exchange, loan providers, money transfers)
  • Casinos, prize draws and other betting or gambling activities
  • Travel agencies
  • Charities
  • CICs and CIOs

If you provide any of these services, or you otherwise fall outside of the banks' risk appetite (probably because of the countries you transact with) you'll likely find yourself unable to proceed and your idea will be dead in the water.

So what can you do?

Well, there’s no guaranteed solution.  If you can’t pass the bank’s bouncers then you’re going to be stuck outside in the rain watching everyone else having fun inside. But there are some things you could do to help your cause:

  1. Engage early with banks.  Having conversations with people at potential banking partners before you’re ready to hit the “Apply now” button will help your cause. They might be able to guide you on ways you can re-think your strategy to make your business more appealing to their application process.  After all, it’s very much who you know in this world.
  2. Be very clear on your customer segments, how many customers you expect to have, and how much trading volume you expect. These are the first questions you’ll be asked by any potential banking partner.
  3. Get your documentation in order. Be ready to share your articles of incorporation, sales invoices (if you have any), P&L and growth forecasts. Banks want to see the potential for future earnings from your deposits. Make sure they’re realistic.
  4. Do your research.  Most banks will be upfront about the type of business they can’t accept as well as their eligibility criteria for accepting any business. Don’t waste your time approaching banks cold if you don’t meet their requirements.
  5. Engage with your network to see if they’re able to make an introduction to a friendly bank.  If there’s no one suitable in your network, speak to your friendly lawyer and utilise their contact book.

And if you want assistance with that process do reach out to us. We help fintech firms with their full lifecycles from incorporation, obtaining authorisation and securing funding through to exits and everything in-between.

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