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12 Market Entry Approaches for Fintech Startups
Startup Strategy | Jul 25, 2024
Image: NFX - Virtual Network Wedge Use Cases
Choose the Right Market Entry Strategy
The fintech industry is fast-paced and complex, with many rules to follow. To succeed, startups need to pick the right way to enter the market. In this post, we analyze NFX's inspiring article on "12 market entry strategies for growth" to help fintech businesses grow, scale, and attract funding.
12 Ways to Enter the Market
1. Go Viral
Use social networks and partnerships to spread your product quickly. This approach is cost-effective and gets you noticed fast. Example: Venmo grew rapidly by targeting college students, who shared the app with friends.
2. Solve Cash Flow Problems
Offer quick access to cash for businesses with slow payment cycles. This attracts customers and investors by showing a clear way to make money. Example: Square Capital provides fast loans to small businesses, using payment data to assess creditworthiness.
See: Strategies for Achieving Product-Market Fit in Web3
3. Get Feedback Fast
Focus on markets where you can get customer feedback quickly, like small businesses. This helps you refine your product and integrate with financial systems. Example: Plaid improved its API offerings by listening to feedback from smaller fintech companies.
4. Complementary Customer
Focus on customers in a parallel market that are not well-served by existing solutions. This helps you stand out and build a loyal customer base. Example: Zopa, a peer-to-peer lending platform, expanded into traditional banking services for underserved markets like freelancers.
5. 10X ROI
Provide solutions that significantly improve returns on investment, either by reducing costs or increasing efficiency. Example: Robinhood revolutionized stock trading by offering commission-free trades, vastly improving ROI for individual investors.
6. Address Undeserved Needs
Focus on customer segments with unmet needs, providing tailored solutions. Example: Chime addresses the needs of the underbanked population by offering fee-free banking and early access to direct deposit funds.
See: Balancing Fintech Innovation and Regulation
7. Launch with a Premium Offering
Start with high-end offerings to establish a strong brand before expanding to broader markets. Example: Wealthfront, an automated investment service, initially targeted high-net-worth individuals before expanding its offerings.
8. Streamline Compliance
Simplify complex regulatory requirements, providing value in highly regulated industries. Example: Trulioo offers compliance solutions that help businesses meet KYC and AML regulations.
9. Repurpose Underused Assets
Utilize underused assets, turning them into valuable resources. Example: Brex started by offering credit cards to startups using their venture capital funding as a credit basis.
10. Make Integration Easy
Enhance existing systems rather than replacing them, making adoption easier for users. Example: Stripe offers payment processing solutions that easily integrate with existing e-commerce platforms. See: VoPay & Sage Revolutionize SMB Payroll Solutions
11. Target High-Status Customers
Target high-status or influential customers, creating a bandwagon effect. Example: American Express Centurion Card markets itself as a status symbol, appealing to high-net-worth individuals.
See: 10 Innovative Product-Led Growth Strategies
12. Build Trust with Transparency
Build trust by offering transparency in traditionally opaque markets. Example: Credit Karma provides free credit scores and financial advice, helping consumers navigate complex financial products. See Report: Responsible AI Insights and Tips for Investors
Choosing the Right Strategy (consider your goals)
When selecting a market entry strategy, consider your company's goals and resources. Each strategy has its advantages and challenges, and the right choice depends on your specific situation.
| Strategy | Cost | Scaling | M&A | Brand Building | Market Penetration | Profit/Revenue | Innovation | Avg. Score |
|---|---|---|---|---|---|---|---|---|
| 10x ROI | 7 | 9 | 8 | 8 | 8 | 10 | 9 | 8.4 |
| Viral Network | 9 | 10 | 7 | 7 | 9 | 8 | 9 | 8.4 |
| Instant Liquidity | 7 | 8 | 9 | 6 | 7 | 9 | 8 | 7.7 |
| Frictionless Integration | 7 | 9 | 7 | 7 | 8 | 8 | 8 | 7.7 |
| Underserved Needs | 8 | 8 | 6 | 8 | 9 | 8 | 8 | 7.9 |
| Premium Launch | 6 | 7 | 9 | 9 | 7 | 9 | 8 | 7.9 |
| Transparency | 8 | 7 | 7 | 7 | 8 | 7 | 7 | 7.3 |
| Complementary Customer | 9 | 7 | 6 | 7 | 8 | 7 | 7 | 7.2 |
| Compliance | 7 | 7 | 9 | 6 | 7 | 7 | 7 | 7.0 |
| Repurposed Asset | 7 | 7 | 6 | 7 | 7 | 7 | 7 | 6.9 |
Considering your company's goals will influence your ideal entry approach
- Cost-Effective Growth --> Venmo's use of social features to promote user sharing demonstrates how Fintech businesses can achieve cost-effective growth through the Viral Network approach. Startups can reduce marketing costs and increase reach by launching initiatives with a natural viral appeal.
- Scalability --> The Instant Liquidity, as demonstrated by Square Capital's quick access loans, is an example of scalability by meeting basic financial demands.
- Securing Funding and Investment --> Any investor will be attracted to 10x ROI, as demonstrated by Robinhood's track record of providing high ROI through commission-free trading. By highlighting their potential for large profits, fintechs can use this wedge to attract finance and investment opportunities.
See: Bringing Good Ideas to Life: 13 Modern Ways to Innovate
- Developing a Strong Brand --> Wealthfront's use of the Premium Launch helps develop a distinguished brand image by drawing in high-net-worth customers first and then expanding. This approach raises the value of the brand and establishes a high bar for the industry.
- Innovation and Market Disruption --> Frictionless Integration, best demonstrated by Stripe's smooth payment solutions, is a viable strategy for fintechs seeking to disrupt their market. Fintech businesses can bring novel solutions that upend conventional procedures and gain a substantial portion of the market by improving current methods.
- Making a Positive Impact --> Chime and other organizations use the Underserved Needs framework, which focuses on financial inclusion and provides services to underbanked communities. This strategy creates a devoted client base and positive impact in addition to meeting a pressing social need.
Image: Freepik
How About Strategies for Scaling-up Companies?
Managing growing tech infrastructure and regulatory compliance in addition to effectively growing the user base, expanding service offerings, and boosting income are all part of scaling a fintech firm. The following are some successful scalability tactics for fintech businesses:
1. Use Network Effects
When more individuals use a service, its value grows—a phenomenon known as network effects. This may entail developing platforms where more users increase the value of the service for fintech companies. Fintech companies can develop through incorporating social features, setting up referral schemes, or collaborating with influencers to promote network expansion. The more users on a network makes it easier for others to join and transact.
2. Expand Product Offerings
Extending the scope of services is a common strategy for drawing in new clients and increasing value from current ones. By satisfying various financial needs, diversifying products can improve client lifetime value and boost retention.
See: Meta’s New Open-Source Llama 3.1 and LLM’s for Fintech
For instance, Robinhood—which started off as a trading platform—has grown to include retirement accounts, cash management, and cryptocurrency trading. In addition to processing payments, Square Capital now provides small company financing.
3. Partnerships and Integrations
Reaching out to digital companies, fintech startups, or established financial institutions can open doors to new customers, new markets, and new technology. Through affiliation with well-known brands, partnerships can strengthen product capabilities, expedite market entry, and increase credibility and trust. Stripe offers banking-as-a-service through partnerships with banks such as Citibank and Goldman Sachs. Plaid enhances service interoperability by offering APIs that other fintech companies can use to interact with bank accounts. See: Canadian Fintech VoPay and Mastercard Partner to Move Money
4. Governance and Regulatory Compliance
A strong governance and regulatory framework ensures smooth operations, mitigates risks, and positions the company as a trustworthy player, critical for scaling internationally. Revolut has successfully globally expanded into multiple countries by complying with local financial regulations and obtaining necessary licenses.
5. Utilize Data Analytics and AI
Decision-making, risk management, and customer experiences can all be improved by using artificial intelligence and data analytics. Fintechs can grow by customizing their products, cutting expenses, and raising client satisfaction levels with the aid of advanced analytics. Betterment leverages AI to offer individualized investment guidance derived from user information. Data analytics is used by Kabbage to evaluate creditworthiness and improve loan portfolio management.
6. Customer Acquisition and Retention Strategies
Retaining current users and attracting new ones requires efficient marketing and high quality customer service. Sustainable expansion requires striking a balance between customer acquisition and retention, since getting new clients is sometimes more expensive than keeping existing ones. In a crowded market, offering superior customer service can set a fintech apart. Chime's referral program provides rewards to users who recommend friends, which greatly increases the number of users.
See: Open Banking: Revolutionizing Financial Data Sharing
A diverse strategy is needed to scale a fintech business, including focusing on client acquisition and retention, harnessing network effects, growing product offerings, developing strategic partnerships, maintaining regulatory compliance, and investing in new technologies and governance.
Conclusion
Fintech companies are advised to give serious thought to their market entry approach and aligning it with their target markets, resources, and long term goals for sustained growth.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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