Ask the expert: your questions on growing the business answered
In this fortnightly column, Ask The Expert, we aim to provide readers with practical advice on how to grow their businesses.
Greg Watts is our resident expert. He is the founder of Demand Creation Partners, a London-based growth consultancy that helps fintechs and paytechs to scale. A visiting lecturer at the American University in Paris and regular industry speaker, he was previously head of market acceleration at Visa Europe.
QUESTION: US fintechs, do you have what it takes to succeed in your target European market?
According to KPMG, global investment in fintechs reached $111.8 billion in 2018, with 2,196 deals. Of those investments, US fintechs took the lion’s share, at $52.5 billion across 1,061 deals. European fintechs received the next highest level of investment, totalling $34.2 billion.
Fintech is transforming the way Americans lend, invest, shop for loans, fund start-ups and buy insurance. On average, one out of three US consumers use two or more fintech services to make business and personal decisions.
As US firms continue to innovate and disrupt the financial services industry, many are considering growth into other geographies – in particular, Europe.
When assessing individual European markets, what characteristics should US companies look for and how should they prioritise them? In short, what makes a good market and what makes for a risky one?
In this column, we’ll look at three key considerations for any US fintech looking to enter Europe.
1. Identify market launch criteria.
When looking at Europe as a whole, it can be tempting to start with large, financially-lucrative markets such as the UK.
Despite the dreaded B-word, the UK remained the EU leader in the fintech space in 2018, accounting for half the region’s VC deals – for example, the $110 million funding of Monzo and $80 million allocated to BitFury. High value deals have continued this year, with BCR investing £280 million into Metro Bank, Starling and ClearBank, collectively.
However, even with significant investment, the UK can be a hard market to crack. It’s mature, with just over half of all payments being made via card. And even though the US and UK share the same language, there are many subtle cultural differences which must be understood before engaging potential partners or signing up users.
To assess your chances of success in a particular European market, it’s important to research and weigh launch criteria. For example:
- Macroeconomic factors such as GDP, economic performance and availability of government incentives.
- Barriers to entry – are these high or low? How will local legislation or regulation impact your launch?
- Consumer behaviours and indictors to gauge market opportunity, such as penetration of mobile phones and percentage of cash versus digital payments.
- Structure of the retail and payments market: is it comprised of local players you’ll need to establish partnerships with or global organisations with which you already have relationships?
- State of existing players – how many other fintechs operate locally? How do they differ from you? What is the advantage you can offer?
Knowing where you stand vis-à-vis such criteria will help you to realistically gauge and prioritize which markets to invest in.
2. Undertake a detailed market assessment.
Now that you’ve prioritised your launch market(s), the next step is to undertake a detailed market assessment for each.
A market assessment is a comprehensive analysis of market trends, entry barriers, regulatory requirements, competition, risks, opportunities and available company resources. Whether you’re thinking of venturing into a new market or launching a new product, conducting a marketing assessment is a critical step in determining if there is a need or customer base for your product.
A well-executed market assessment will enable you to decide where to apply resources for the best return. Failure to conduct a proper assessment could result in wasted resources, missed opportunities or even financial losses that could be detrimental to your company.
3. Develop a go-to-market plan.
Now that you’ve prepared a market assessment, the next step is to develop a go-to-market plan to ensure successful entry. Here are some relevant points:
- Access to experienced local talent is crucial. Recruit leaders and sales and marketing personnel with a thorough understanding of the market. Be aware, however, that securing the best people can be difficult for a lesser known brand, so think about your resourcing strategy. In the short term – while momentum is being built and resources are constrained – support functions such as product, legal, operations and technology can be performed by HQ.
- Identify local partners who can help you raise awareness and introduce you to prospects – for example, chambers of commerce, payment associations or retail consortiums. And who are the banks, acquirers, PSPs and retailers you need to cultivate relationships with? Can you leverage existing relationships? Choosing partners with presence in multiple markets will save you a lot of time.
- Differentiate yourself from local players. Understand local business issues and market nuances and develop a value proposition that resonates with key decision makers. Review your collateral with local experts to ensure your messages are relevant and cannot be misinterpreted through subtleties of language.
- Create an integrated demand generation plan to qualify opportunities for the sales team such as must-attend events where you can build relationships with target clients and partners.
- Identify a local PR agency to support your launch and develop a map of local influencers to form relationships with – for example, journalists, bankers and retailers.
Bringing it all together.
Many fintechs underestimate the planning, focus and resources it requires to effectively launch into the European market. Many believe that success in one market will lead to replicable success in another, but that’s rarely the case.
However, with careful planning and support from HQ, you’re more likely to scale into new geographies successfully.