[“5 Telling Virtues of a Billion Dollar Fintech Startup in the Making” originally appeared on The Huffington Post and is written by David Wither.]
Emerging from the downturn of the financial crisis of 2008, financial institutions and banks and their respective industry, financial services, was ripe for disruption. As these companies emerged from the ashes and were re-evaluating and rebuilding, technology startups with innovative approaches, products and services began moving into filling the void left. Fast forward a few years, and the newly minted FinTech industry has exploded, with US investments growing from $3.4 billion in 2013 to$13.8 billion in 2015.
Needless to say, the Fintech industry has grown up fast. So fast in fact, that Jeff Gido of Goldman Sachs believes that it is now in its third wave of development – one that will see the new Fintech companies partnering with major financial institutions. Tom Villante, CEO of payment processing platform, YapStone, believes that Fintech is not a threat to banks, but in fact, serves as a golden opportunity.
“While Fintech companies are delivering disruptive innovations to the market, about 21 percent of their investments are directed towards financial services,” says Villante. “To add, these new companies and their respective platforms currently rely on, and will continue to do so, the traditional financial networks, such as existing credit card and ACH rails.” Many soothsayers love to predict the demise of financial institutions, yet when you talk to Founders and CEO’s like Villante, one gets a completely different view – these major and dominant financial institutions will not be going the way of Blockbuster or Tower Records any time soon. Fintech companies are presenting established financial institutions with the ultimate win/win scenario by building new platforms and products, exposing new markets and removing the friction that consumers have been asking for.
Because of its significant upside potential, Fintech has become one of the hottest industries for startups, prompting countless entrepreneurs to seek their fortune. But even with the disruptive idea, an amazing product team and deep pockets of a tier one investor, most startups will not become a billion dollar Fintech company. When it comes to making an impact in this highly regulated and risk averse market, you need more than an impeccable strategy, an innovative product that solves a real consumer problem, and the right team to execute it, you need astute entrepreneurial insights, the steely resolve of persistence and the will to look long term.
After making the Inc. 5000 list of Fastest Growing Private Companies for the ninth year in a row, Villante will tell you that to make the leap, successful Fintech companies must be built to last. Villante founded YapStone in 1999 with a vision to change how the world pays and focused primarily on the multifamily industry. 16 years later, the company is now processing over $15 billion in payments this year and has become a leading electronic payments platform, expanding its offering to serve global marketplaces and multiple vertical markets. Just last month, YapStone expanded its international footprint with a 16,000 sq. foot office in Drogheda, Ireland.
Villante will share his knowledge and experience at Money2020, the World’s Largest Payments and Financial Services Innovation event, on a much-anticipated Fintech panel, titled, “When Startups Grow up: How to Build a Billion Dollar Financial Service Business.” But if you can’t be there, here are his 5 Telling Virtues of a Billion Dollar Fintech Startup in the Making:
1. Building a Solid Foundation
In the media, there is an obsession with unicorn companies (those that achieve $1 Billion valuations). However, with Uber making headlines for reportedly losing $1.27 billion in the first six months of 2016, the general public is starting to see that perception is not necessarily reality. In fact, the news has evoked a very uncomfortable conversation across business media, which is that so many startups are burning through their capital with no plan of ever making it back.
Villante believes in building a “real business.” That is, a business with a solid foundation that can stand the test of time. Hefounded YapStone 16 years ago – way before Fintech, was well, Fintech. He didn’t have a sensationalized success story of dropping out of college and starting his business from a basement – just a vision to “change how the world pays” and a solid execution strategy.
“Wherever you are in the journey, you must commit to the process,” Villante says. “Don’t get sucked in by the media hype surrounding your competition. Instead, get your head down and make sure your technology is providing the best service possible. It pays off in the long run.”
2. Maintaining Market Focus
All great ideas start with solving a real consumer problem and Fintech is no different. According to Villante, if you want to kick into hyper-growth, you’ll turn your focus to a large vertical market and become an expert.
YapStone’s long term, consistent growth has been due to its laser focus on specific vertical markets, including the apartment rental and vacation rental. Both industries were significantly under-served industries that were dominated by the paper check, long term business paradigms and extensive risk owed complex, high ticket transactions.
YapStone focused on solving the payments equation for both the property owner and the renter. Today, YapStone serves thousands of businesses in both industries and has expanded its offering to power payments for HomeAway, the world’s leading online marketplace for the vacation rental industry. By maintaining a tight focus on specific industry, YapStone has emerged as a payments leader, and continues to prove that choosing a market for depth, will offer significant upside and growth.
3. Delivering Product Differentiation
Fintech is indeed one of the hottest industries for startups, which means that it going to quickly become a saturated market. To combat that, you must build a product that clearly differentiates you from the competition.
Villante differentiated YapStone by offering online payment options for apartment rental and vacation rentals – going deep into its vertical offering, instead of wide. At the time, most payment companies were focused on offering a ubiquitous platform that served everyone and everything. Since larger payments are a bigger target for fraud, YapStone had to have a fully-staffed team of industry experts to keep customer information secure. While it presents a higher risk, it was certainly worth it – the company makes more money per transaction, due to the amount being processed.
“When you’re thinking about your business model, find an angle that makes your service stand out from the rest,” Villante suggests. “Now, more than ever, it’s important to be unique.”
4. Exceeding Security Standards
This aspect of Fintech cannot be stressed enough. Unlike other technologies, Fintech companies may be dealing with transactional information of its customers. In YapStone’s case, the company also takes on the role of merchant of record so it is vitally important to maintain a sophisticated risk management team and infrastructure.
YapStone is consistently audited and recognized as a PCI Level 1 service, the highest standard for the payment card industry. As a Fintech startup, you may not have the resources, expertise or funds to mitigate risk and fraud, yet it could be the downfall of the company to ignore. If this is the case, Villante recommends to find an external partner to support your growth.
5. Collaborating with Customers
This is, perhaps, one of the most rewarding elements of building a Fintech company. “Sometimes, when you’re so entrenched in your own company, it’s easy to lose sight of gaps in your business model,” Villante explains. “That’s why it’s important to not only listen to your customers, but to proactively let them in on the creative process.”
To differentiate itself from the competition, YapStone offers a customized payment solution to its partners – even partnering with them on the product roadmap. By pairing the respective technology teams and consistently interfacing with the customer, you can build and launch proprietary features and functionality throughout the product life cycle.
Villante notes, “Payments is a very complicated business. And it doesn’t matter if your business is B2B, B2C or both, at the end of the day, the customer is your partner and you have to work together to build great products that are both useful, desirable and secure.
Finally, Villante believes that passion is essential to for building a startup or a billion dollar company – as it will be the one thing that gets you through the tough times and keeps you going in the good times. If you are in Fintech with eyes on being the next unicorn, Villante’s 5 virtues may serve as a guide.
Who knows? You might just launch the next billion dollar Fintech startup.