Developments in technology and regulation are making it ever easier for FinTech start-ups to challenge (or partner with) stodgy incumbents and to create wholly new service types. However, FinTech is harder than other start-up sectors, because financial services are heavily regulated.
I’ve assisted FinTech start-ups at Cygnus Law and in my previous role at a regulator (the FMA). I identify below key attributes I think are shared by successful FinTech start-ups that provide financial products and services to “consumers” (retail customers). My focus is on factors important to FinTech start-ups in particular, especially regulation, not on things that matter to start-ups generally like investors, technology, minimum viable product, marketing strategies.
You embed legal compliance in everything you do from the beginning. Legal compliance isn’t just a job for your lawyer or a compliance officer, or something to sort out later. You and your team should have an in-depth understanding of the law that applies to your business from the beginning. That not only helps you to comply but will help you to innovate.
You’re diverse. Diversity is not just about gender and ethnicity – it includes things such as background, skills, experience and personality. Diversity is even more important in FinTech, which requires a multi-disciplinary approach to successfully deploy products and services and to comply with law.
You take licensing seriously. If you need a licence to operate your business you should understand the licence requirements in detail at the outset and you need the time and resources to see the process through. If you think it will be easy to get a licence you haven’t done your homework. See my blog for tips on how to get a licence.
You embrace risk. Under New Zealand law you cannot contract out of liability to consumers. So in my view writing detailed terms that attempt to exclude every possible liability is not a constructive use of your (or your lawyer’s) time. Rather than trying to define risk away, a successful start-up focuses on clearly defining what it is the start-up does (and promotes that) and ensures that it does that well and in compliance with law.
You have a good relationship with the right people at your bank. If you’re relying on bank accounts to transact with customers, or to hold customers’ money, talk to the bank early and before you spend a lot of time and money on the project. If the bank makes it sound easy you’re talking to the wrong person or department. By the way, it’s likely to take months, not weeks, to get the bank accounts & services you need, assuming the bank play balls at all.
You get legal advice. You can try to do it yourself but in my experience that’s rarely a recipe for success. I’m not trying to sell my services. It’s quite common for start-ups to spend a lot of time and money going down the wrong path, which they could have avoided with fairly minimal legal advice early on. Talking to the regulator will be helpful but a lawyer experienced in your area can provide the kind of frank and practical advice the regulator can’t.
You consider strategic partnerships. It can help to partner with existing businesses, and with individuals, who have experience in financial services and regulation (if you don’t). But make sure to do your homework on them and that the cultural fit will work. And be aware that institutions may take a long time to make decisions (if they make one at all).
You understand that the web isn’t a law-free zone: If you use a website in New Zealand (or anywhere else) to provide financial products or services to a consumer in another country, the law of that country will likely apply to you.
This blog provides general information only in summary form – it isn’t, and shouldn’t be relied on as, legal advice.