The current innovation economy is aided by an age of open data, where the cost of pivotal technology resources has significantly decreased, and access to information and data has increased by orders of magnitude. Cloud-based infrastructure services and a wealth of public APIs and open developer projects have decreased the cost burden of iterating and scaling a product, the growth of entity resources like VCs, accelerators, incubators and mentorship have decreased go-to-market time and enabled startups to optimize growth. Simply put, the costs of running a tech startup have gone down.
Access
However, startups in financial services face a unique and prohibitive barrier to entry, access to quality financial data. According to a report by Burton-Talyor, “In 2016, global spend on information/analysis [data] increased 3.45% to $27,483.8 million, topping $27 billion for the first time in history,” with much of this growth in spending driven by vendor price increases. Those are some staggering numbers, and financial technology (FinTech) startups are not shielded from their effect. According to a survey from Boston-based VC F-Prime Capital, startups in FinTech tend to spend 40 - 50 % of their monthly burn on market data, anywhere from $14,000 to $70,000 per month.
For early stage FinTech ventures, this is devastatingly expensive and deeply burdensome to product development. Not only does this burden impact the development lifecycle, it disadvantages startups as they establish product-market fit or try to sell into established financial institutions.
Without having built a product to current, robust capital market standards, their innovation becomes un-integratable and lackluster. The gap in market traction in turn affects access to funding, as VCs want to see healthy product before writing a check. And the cycle continues.
FinTech Sandbox is trying to break this cycle. By providing FinTech startups free access to quality financial data from 33 industry-leading data providers at the point when access is most impactful, the non-profit is accelerating the development of strong products, enabling the deliverance of credible innovations into the marketplace. To drive financial services innovation into the broader open source revolution that many startups in other sectors already enjoy, FinTech Sandbox requires each program participant to give back non-proprietary data, ingest code, and APIs via a GitHub repository.
Accelerate
Once the prohibitive barrier of data access has been mitigated for a FinTech startup, the venture can develop, iterate and scale efficiently to deliver a holistic product to the market. The acceleration of product development starts at the point of data access, but does not end there.
Free data access is a propellent of the product and business model that will drive the startup towards success. How? The funding landscape across industries has only become more competitive. According to CB Insights’ Early Stage Tech Report, in 2011, 58% of ventures successfully gleaned more capital after raising an initial Seed round, in 2016, only 11% went on to close a second round. For most FinTech startups, it takes many months to close funding. Founders find themselves stretching bootstrapped dollars because they are tied up in development and customer acquisition. According to a 2017 FinTech Sandbox survey of the Boston financial services community, 41% of Boston-based FinTech startups are self-funded or bootstrapping.
By easing bottlenecks to product development through data access, a FinTech venture can effectively raise and in turn scale rapidly to drive innovation in financial services.
Collaborate
Startups innovating in financial services, especially those focused on capital markets verticals such as institutional investments and financial research, must integrate knowledge of extensive regulation, nuances of the market, and existing (often legacy) workflows into their business model. This is where the strength the Boston capital markets ecosystem, which is primarily asset management focused, proves pivotal to financial services innovation. Through networking opportunities, beta tester feedback loops, and POCs, startups can refine product-market fit and establish partnerships.
Partnerships? Yes, according PwC’s latest Global FinTech Report, 82% of incumbents plan to increase collaboration with FinTech companies over the next three to five years. Startups are positioning for exits and incumbents are shifting their innovation models to bring in emerging technologies instead of building internally.
The future of FinTech is collaboration. Collected from across the Boston financial services community, FinTech Sandbox finds that incumbents and startups are driving a burgeoning innovation economy, and are ripe for collaboration.
