5 Important Considerations for Fintech Companies Eyeing Global Expansion
What every fintech firm needs to know before entering a new geography.
While the fintech sector has seen growth driven by technological advancements and an increasing demand for digital financial services, companies in this space have been extending their footprints into new markets. Yet a geographic expansion strategy has challenges.
Expanding beyond their home market is an ambition many global fintech firms share. But while there is clearly growth potential from entering a new market, navigating the local complexities and establishing a brand in a new geography requires meticulous planning and adaptability.
There have been notable examples of both successful and more challenging global expansions by fintech firms, including:
Klarna, the Swedish payments and BNPL pioneer founded in 2005: Entered the US market in 2015. After significant investment (including time spent by the CEO personally pitching to merchants), by 2023, the US became Klarna’s largest market by revenue.
Revolut, the UK neobank founded in 2015: Entered the US market in 2015, leveraging a partnership with Mastercard, and expanded into commission-free stock trading in 2020. They announced plans to get a full banking license in 2021, but as of 2024, the status of their application remains unclear.
RiseUp, an Israeli fintech focused on making personal financial management fun founded in 2017: Entered the UK market in 2023 and more recently launched in Spain.
These are examples of fintech firms (large & small) choosing to enter new markets based on having large numbers of potential customers. But another reason to enter a new market is for operational efficiencies and as a strategic base.
A great recent example of this is DailyPay, a US-based earned wage access fintech founded in 2015. They established their first international office in Northern Ireland in 2023. This expansion is more than a geographical change - it’s a £24 million investment that promises to create 293 new jobs. This means the move is not just about scaling up - it’s about tapping into a new market with unique needs and opportunities.
Northern Ireland has emerged as a burgeoning hub for fintech companies. The region offers a compelling mix of a skilled workforce, supportive business policies, and a strategic location. Invest NI’s role in facilitating this expansion exemplifies the region’s commitment to nurturing a thriving fintech ecosystem.
Our experiences at Ulysses Partners have shown that there are 5 key considerations that fintech companies need to take into account when expanding into a new geographic market:
1. Market Demand and Size:
Determine the total addressable market for the fintech firm’s solution(s) in the target country. This involves analyzing demographic data, financial inclusion rates, and the proportion of the population likely to use your services.
Segment the market to understand the specific needs of different customer groups, such as millennials, small businesses, or unbanked populations.
Gauge the current state of fintech adoption. Consider factors such as the prevalence of mobile banking, the use of digital wallets, and the comfort of online financial transactions among the population.
2. Economic Stability and Growth Prospects:
Look at economic indicators such as GDP growth, inflation rates, unemployment rates, and economic policies that might affect the fintech sector.
Assess the growth potential in the fintech sector based on economic trends, government initiatives promoting digital finance, and the overall business environment.
Consider economic risks such as currency fluctuations, political instability, or potential economic downturns that could impact market entry and growth strategies.
3. Market Research and Cultural Sensitivity:
Use surveys, focus groups, and market analysis to understand local financial behaviors, preferences for financial products, and any barriers to adoption.
Pay attention to cultural aspects such as attitudes towards money, savings habits, and trust in digital services. Cultural factors can significantly influence how financial products are perceived and used.
Adapt your fintech solutions to align with local languages, cultural norms, and user expectations. This might involve changes in user interface, communication strategies, and even product features.
4. Regulatory Landscape:
Research and understand the specific regulatory requirements for fintech operations in the country, including any necessary licenses for operating in the financial sector.
Be aware of laws governing data protection, privacy, and customer information. Different countries have varying levels of stringency in data handling and protection.
Since fintech regulations can evolve rapidly, establish a process for staying updated on regulatory changes. This might involve working with local legal experts or regulatory consultants.
5. Technology Infrastructure:
Assess the availability and reliability of internet access in the target country, which is fundamental for delivering online fintech services.
Understand mobile device penetration rates and usage patterns, as mobile platforms are often the primary medium for fintech applications.
Evaluate the country’s general technology readiness, including factors like digital literacy, which can impact the ease with which consumers adopt fintech solutions.
The experiences of all the fintech firms mentioned above highlight the critical importance of market analysis, cultural adaptation, regulatory compliance, and technological readiness. These considerations are essential for fintech firms planning international growth and entering new markets successfully.
As the competitive landscape evolves, fintech firms must remain agile, informed, and adaptive to each market’s unique challenges and opportunities. This ensures compliance and relevance in diverse markets and paves the way for innovative financial solutions catering to the nuanced needs of a global customer base.