8 reasons to buy a fintech startup

Fintech startups: who buys them and why? They’re expensive, loss-making and overvalued. Why do people even pay for them?

I would like to start by explaining how and why the fintech industry appeared.

It’s not been more than 3 or 4 years ago that this industry emerged and started to draw a great deal of attention from the new entrepreneurs, clients, journalists, banks, telecoms, and web giants. This was associated with fast-developing technologies, especially mobile-first services, that were massively changing the customers’ preferences, and those of Generation Y customers in particular.

Traditional banks started lagging behind these changes for several reasons.

1. Profitability vs solving real-world problems

Regulators all over the world request that the banks should be money-making right here, right now, not at some point of time in the future. Whereas in the technology sector, everyone understands that developing a new technology or service can take a long time, and in the meantime you don’t make any profit and have no idea when and how you will finally start making money.

The sentence above would sound absolutely absurd for bankers who only have owners and bank heads in their world, and, for obvious reasons, they all want an increasing profit.

Startup founders don’t found their companies by hitting bosses or stockholders with questions, but by asking the client where the shoe wrings – and then they help to solve the problem. In the technology sector, the widely accepted practice is to build the service by asking the client questions, looking for the best solution and then understanding how to make money with this solution.

As Silicon Valley sees it, if you solve someone’s problem well, then it’s much easier to understand how to make money out of it, and this understanding will come eventually.

2. Offline branches vs online systems

Whatever the bankers say about their openness to online services, the banks are always offline, because even if they have (suddenly) managed to develop the best mobile bank, you need to go to their office and sign the documents in order to get access to it. Bank branches are, and have always been, the center of the bankers’ solar system.

And startup founders only need a mobile phone. You can simply download your bank through the AppStore or GooglePlay and start using it. The same holds true to banks as clients: they don’t use cloud systems, instead they buy lots of servers, and as the servers need to be taken care of by employees, this creates some kind of significance and increases the salary of IT Head.

3. System management

There are times when it takes so long to build something that, in order to change it, it’s easier to destroy it and start from scratch. Take a look at the back-end and IT-infrastructure of any big bank: they seem like a pile-up of the broken condoms. Anyone knows that if a condom is broken, you should take it off and put on a new one. And the banks just write a new adscript every time, which results in a huge stack-up of adscripts. Often nobody even remembers their history, because “that guy” has already been fired.

8 reasons why market players buy fintech startups