As per the Centre for American Progress, between January 2021 and January 2023, American entrepreneurs filed 5.2 million “likely employer” business applications, slightly over a one-third increase compared with the number of applications filed between 2017 and 2019.

Also, entrepreneurs filed 450,000 likely employer applications in the fourth quarter of 2023, a 37% increase over the fourth quarter of 2019. The number of start-ups and businesses under one-year-old surged in 2022 and 2023, surpassing the pre-Great Recession levels for the first time.

Since we are talking about start-ups, we also need to remember that the former is different than businesses, as Joel Mier, Lecturer of Marketing, University of Richmond, states, “All start-ups are businesses, but not every business is a start-up.”

Why the term is so special?

The term start-up refers to a company in the first stages of operations. Start-up founders normally finance their ventures and may attempt to attract outside investment before they get off the ground. Some of the funding sources include family and friends, venture capitalists, crowdfunding, and loans. The initiative, despite the risk of starting with high costs and limited revenue, also brings unique opportunities to work with great minds, while focussing on innovations and learning things during the process.

Start-ups focus on a single product/service that is disruptive. These companies don’t possess a fully developed business model and undergo multiple rounds of capital raising to sustain and move into the net round of their operations.

Talking about start-ups and innovation, we have a great example in the form of OpenAI, whose artificial intelligence (AI)-powered chatbot called ChatGPT has disrupted both the tech sector and the broader economy.

Since ChatGPT’s market entry in 2023, more tech start-ups are undertaking research and development work in the field of generative AI (AI that can create new content and ideas, including conversations, stories, images, videos, and music) to make the latter a transformative force for the 21st century socio-economic order.

Despite the risk of failing to be higher in the start-up field, we have examples of Microsoft, Apple, and Meta (formerly Facebook) beginning as start-ups and ending up becoming publicly traded companies.

A business, on the other hand, refers to an organisation/enterprising entity engaged in commercial, industrial, or professional activities. The purpose of a business is to organise some sort of economic production of goods or services, while ranging in scale and scope from sole proprietorships to large, international corporations.

“On a high level, a start-up works like any other company. A group of employees work together to create a product that customers will buy. What distinguishes a start-up from other businesses, though, is the way a start-up goes about doing that. Regular companies duplicate what’s been done before. A prospective restaurant owner may franchise an existing restaurant. That is, they work from an existing template of how a business should work,” Forbes explained further.

While start-ups can chalk out their operational nitty-gritty during the fundraising round, businesses don’t enjoy this advantage as they have to file a formal document that outlines the company’s goals and objectives and lists the strategies and plans to achieve these goals and objectives. Only then, they can borrow capital from the market and begin their operations.

Also, businesses need to determine their legal structure before entering the operations, as they need to secure permits and licenses, apart from following other registration requirements. Corporations are also considered to be juridical persons in many countries, meaning that they can own property, take on debt, and be sued in court.

Talking about what differentiates a start-up from a full-fledged business, this article will break down things in a simplified manner.

Vision and funding

Let’s start with “Company Visions.” Start-ups are there to innovate stuff that will change the face of an industry vertical and the overall economy, in the best-case scenario. These ventures want to be the most innovative, creative and disruptive forces within an industrial set-up.

And talking about funding and start-ups, it’s a stage-by-stage process. First, there is a preliminary round known as bootstrapping, when the founders, their friends and family invest in the business. Then you have seed funding from so-called “angel investors,” high-net-worth individuals who invest in early-stage companies.

Following that, we have Series A, B, C and D funding rounds, primarily led by venture capital firms, which invest tens to hundreds of millions of dollars into companies. Finally, a start-up may decide to become a public company and open itself up to outside money via an IPO (Initial Public Offering), an acquisition by a special purpose acquisition company (SPAC) or a direct listing on a stock exchange.

Businesses, on the other hand, are more focused on being profitable within an industrial ecosystem. While they are scalable, they can serve either local or foreign markets (or both at the same point of time). Start-ups get most of their funding from venture capitalists (VCs), who make major investments in these businesses, in exchange for which they get equity in the business. If the venture tastes market success, the VCs profit along with the start-up owner.

Businesses usually take out loans from traditional banks/online lenders (fintech companies) to begin their operations. The business owner (call the person CEO as well) only needs to pay the interest amount over time, while he/she gets to keep all the equities in the company.

Growth

Start-ups want to grow as quickly as they can, increasing the top-line revenue (sales or the revenues of a company which is the total income generated during a particular period) through a business model that can be easily replicated and scaled. When we say replicable, it means the start-up founder can play the game safe by opting for a business model which has already found market success with another industry peer. For example, after OpenAI’s ChatGPT success, there are tech start-ups who are trying to introduce generative AI-powered chatbots into the market, realising the tool’s potential to change the 21st century socio-economic order.

“There’s another key factor that distinguishes start-ups from other companies: speed and growth. Start-ups aim to build on ideas very quickly. They often do this through a process called iteration in which they continuously improve products through feedback and usage data. Oftentimes, a start-up will begin with a basic skeleton of a product called a minimal viable product (MVP) that it will test and revise until it’s ready to go to market,” Forbes continued.

“While they’re enhancing their products, start-ups are also generally looking to rapidly expand their customer bases. This helps them establish increasingly larger market shares, which in turn lets them raise more money that then lets them grow their products and audience even more. All of this rapid growth and innovation is typically, implicitly or explicitly, in the service of an ultimate goal: going public. When a company opens itself up to public investment, it creates an opportunity for early investors to cash out and reap their rewards, a concept in start-up parlance that is known as an exit,” it added further.

On the other hand, businesses use a slower and cautious growth strategy focused on building profits before expanding. Since they envision themselves to stay in the market for a prolonged period, they opt for a stable growth route. In this way, the risk tolerance (the amount of loss an investor is prepared to handle while making an investment decision) remains lower.

Profits

Since start-ups are not built as profit-generating machines, they run with the risk of venture capitalists pulling the plug upon their investment flow, in case their investments are not getting converted into profits. Start-up founders, however, have the option of taking their businesses to the public and profit from there.

“Successful start-ups eventually receive additional funding from lenders or other sources like venture capitalists and angel investors. The start-up can offer investors (and employees) something the small business might not be able to: equity in the company. Typically, founders offer equity to investors in rounds (seed funding, then Series A, B, C, etc.)—each with specific goals, terms, and pricing. Each round of funding erodes the start-up founder’s equity and diversifies the company’s ownership. Notably, shareholders and board members generally have voting rights,” online HR (Human Resources) platform Gusto commented.

Talking about raising money from the public, the start-up founder can opt for the initial public offering (IPO) route. He/she can also sell the business, or merge it with another company to scale growth and capital.

Businesses don’t possess that above risk, as they don’t get their capital from investors and venture capitalists. By following an already successful business model, they end up generating profit from the very first year of their operations.

Risk Factor

While there’s some degree of risk with any new venture, a start-up faces it more than a small business. Start-ups are formed by creative minds who want to disrupt the market with a new product/concept. However, the uncertainty here is how the consumers will respond to the product/concept. And then add the headache of undergoing several funding rounds and testing several product iterations before finding what works and even then, success is never guaranteed.

On the other hand, businesses tend to use profit-generating business models, which can’t be tinkered/refined further. In that way, the risk factor remains low, thus providing entrepreneurs with the assurance called “longevity.”

Can start-ups become full-fledged businesses?

Yes, but after a lot of hardships. While we have inspiring examples like Amazon, Netflix, Uber and Airbnb, industry data suggest that 90% of start-ups fail. And even after a start-up becomes an established market player, they face the challenge of staying efficient and profitable.

“Start-ups may be able to rely on funding from different kinds of outside investors while they gain their footing. But an established business needs to run smoothly to make a profit from what it’s selling,” said Joel Mier, Lecturer of Marketing, University of Richmond, thereby giving a reminder that once the start-up transitions into a big business, it faces challenges like how to manage workers better and run the operations in a way that solves the customers’ problems while enabling the company to meet all of its business goals.

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Adalo, whose easy-to-use interface lets app creators drag and drop simple blocks to create their dream application without a single line of code, recently got USD 8 million worth of funding, an initiative which was led by renowned Venture Capital company Tiger Global.

What does Adalo do?

‘Build custom responsive apps & publish anywhere — no coding required’, states Adalo on its website. The venture allows freelancers and business founders to build and publish custom responsive apps for the web and mobile devices.

Custom fonts, colour palettes, icons, logos, name any feature which enhances the website quality and helps the venture’s brand value to stand head and shoulder above its competitors, Adalo has all the answers.

For start-ups, freelancing and personal apps, Adalo has tailor-made solutions for everyone. The clients can get their digital presence further strengthened by adding features like marketplace payments, multi-sided apps, and profiles, all through Adalo.

Adalo clients can even build their online communities with features like chat, picture-sharing, and the ability to follow and like community posts. While developing their official websites through Adalo, businesses can enhance the customer experiences by adding facilities like appointment settings, reminders and easy payment options. These ventures can even develop internal operational tools.

In short, Adalo is the one-stop solution, when it comes to developing a website which will give a business the desired brand value and edge over its competitors.

And yes, you can get your app featured on Adalo, by filling out an online form. Adalo even rewards apps with the ‘App of the Month’ crown, thus helping the clients to get the much-needed business reach and networking on the online domain.

For customizing the apps with branding and designing suitable for business/personal purposes, Adalo has a scalable and powerful no-code backend in the form of Xano.

Xano can store and signup users, perform actions on a schedule, make API calls, and perform code functions, apart from allowing databases to be scaled based on need, location, and compliance.

Xano allows the Adalo users to periodically update records in a collection, sign-up and log-in users to the apps, save on action usage by stacking API calls into a single response, send scheduled or recurring notifications, perform complex math or transform text directly in the database, and last but not the least, create, update, or delete records in bulk.

Adalo also provides flexible monthly and annual billing models for publishing and running apps. It ranges from free to Starter (USD 45 per month for founders and first-time entrepreneurs), Professional (Monthly USD 65 for small and medium businesses), Team (Monthly USD 200 for freelancers and agencies) and Business (Monthly USD 250 for big businesses).

Adalo also has a team of designers & builders, who can pitch in, in terms of app building. All the client needs to do is to fill out Adalo’s ‘Experts Form’, with his/her project details, deadline, budget, and requested features. Adalo will review the project details and match the client with an expert who will fit the customer’s needs, in terms of building the app from scratch.

Customised Products, Components & Solutions

Creating apps on Adalo is very easy. First, you need to drag and drop reusable building blocks to create your app’s interface. Then you need to link the pages of your app together to bring the product to life. Then the project can be moved from the prototype phase to the live online one with simple database spreadsheets.

Adalo also has its own ‘Component Marketplace’ and ‘App Templates’, using which one can browse the community-created templates to begin his/her app-making journey. Also, the client’s demo templates can be reviewed by Adalo’s experts, before the projects go online.

For large businesses, Adalo provides an environment, where these ventures can create their websites as per the operational requirements. All they need to do is connect their apps to their existing workflows and expand functionality with thousands of integrations with a few clicks. Adalo will also provide its expertise to help the concerned client throughout the process.

Adalo’s ‘No-Code’ tools help big businesses to design, build, and publish apps on quick notice. Be it reaching out to new customers, improving customer engagement, building a website with payment gateways and initiating customer loyalty programmes, name any crucial function for making a company’s business lucrative, Adalo has answers for it.

Also, through Adalo’s help, these businesses can build and manage their own backend data source to house the information, a function that’s important for these businesses.

Adalo Experts Program For Freelancers, Agencies & Start-ups

To avail of the above service, the client needs to submit an Adalo Experts program application form highlighting his/her no-code experience. After the review of the application, the individual will receive an email with next steps. Adalo will then pair the client with individuals/entities, as the latter will collaborate on the website development process.

The start-ups can enjoy Adalo’s drag-and-drop editor or work with an Adalo Expert to build their customised website. From self-guided tutorials in the Adalo App Academy to end-to-end design, development, and maintenance with an Adalo Expert, the start-up is there to help its peers to register quick business growth.

Connecting the start-up’s app with third-party tools and services, getting it launched on a custom web domain, and helping the app to grow its engagement through targeted push notifications, and in-app messaging, Adalo guides its client to overcome all these business barriers.

Apart from providing guidance throughout the design and development stage and periodic coaching on product maintenance, Adalo also provides over 70 courses on various aspects of app building.

Conclusion

Developing a website or mobile app is no child’s play. Companies take months and years, when it comes to firming up their ‘dream’ presence on the digital space. The process is both time and cost-consuming (add the developer fees as well), something which the big businesses can afford, but not the small ventures, start-ups and freelance professionals.

Adalo has emerged as a viable and cost-effective option on this front. The prospective clients will get their tailor-made mobile app and business websites on very short notice of time, without compromising on the quality front. Expect Adalo to gain more from the uncertain business environment of 2023, where companies are in the mood of acquiring cost-effective solutions for their business challenges.

Image Credits: Adalo

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US financial regulators have rolled out emergency measures to arrest the aftereffects of the crisis. The bank depositors will now get access to their money. Other banks will also be able to borrow from the Federal Reserve for 2024, as long as the loans are matched by safe government securities.

US Treasury chief and veteran economist Janet Yellen, however, decided not to compare the situation with the 2008 financial crisis, when the collapse of large banks threatened to bring down the global financial system.

Understanding The Gravity Of The Crisis

Silicon Valley Bank had assets valued at USD 212 billion and these were primarily lent to tech start-ups.

The bank has been placed under the Federal Deposit Insurance Corporation (FDIC) control, with the latter guaranteeing deposits of up to USD 250,000 for the affected parties.

Silicon Valley Bank’s woes have also resulted in the downfall of the values of other US regional financial institutions. New York-based Signature Bank has been shut down by the FDIC. The regulatory body has also taken control over the bank’s USD 110.36 billion worth of assets and USD 88.59 deposit storage (as per December 2022 stats).

First Republic Bank, Western Alliance and PacWest too have been affected by the crisis.

In the United Kingdom, HSBC will take over SVB’s operations in the country. This will override the Bank of England’s initial decision to place the entity into insolvency, apart from protecting the finances of the bank’s 3,500 customers, including hundreds of tech start-ups.

Crypto company Ripple Labs had “business exposure” to Silicon Valley Bank but remains in a strong financial position, clarified CEO Brad Garlinghouse. Ripple, currently engaged in a lawsuit with the United States Securities and Exchange Commission (SEC) over the status of the cryptocurrency XRP, had reportedly stored some of its cash reserves at the Silicon Valley Bank.

What Went Wrong For SVB?

As the world went into COVID lockdowns in 2020 and 2021, remote working became a part of the mainstream economy. This resulted in the rise in the fortunes of tech start-ups, as companies bet big on technology to keep their operations going amid business disruptions.

The tech companies used Silicon Valley Bank for payroll and other monetary services and the bank received an influx of deposits. SVB used the investors’ money in US government bonds, including those supported by mortgages. The prices of these bonds generally go down when the Federal Reserve hikes interest rates. As the Joe Biden government started its monetary policy tightening in 2022 beginning, it resulted in SVB’s bond portfolios undergoing value losses.

The only feasible option for the bank would have been to hold onto these bonds till their maturity stage, in order to get the capital back.

As the tech sector went into a financial bloodbath in 2022, SVB’s customers reportedly started drawing on their deposits. The bank sold some of its bonds at massive losses.

On March 8, 2023, it announced a USD 1.75 billion round of capital raising, while informing its investors about the need to ‘plug a hole’ caused by the sale of its loss-making bond portfolio.

However, aware of SVB’s mess, its customers started withdrawing money en masse, which was reportedly stored in larger accounts.

On March 10, the collapse finally happened. It is now the largest bank failure in the United States since the 2008 global financial crisis.

Revisiting The 2008 Mess

In 2007, global financial markets started showing signs of the negative fallouts of the cheap credit binge. Not only did two Bear Stearns hedge funds collapse, but BNP Paribas also warned investors that the latter might not be able to withdraw money from the bank’s funds. British bank Northern Rock reportedly mulled emergency funding from the Bank of England.

However, only a few investors could anticipate the onset of the worst crisis in nearly eight decades, which brought Wall Street’s giants, triggered the Great Recession and cost people their jobs, savings and homes.

The 2008 financial crisis began with cheap credit distribution and relaxed lending standards, along with years of low interest rates, fuelling the creation of a housing bubble. As it burst, banks were left holding trillions of dollars of worthless investments in subprime mortgages.

The Federal Reserve lowered its rates from 6.5% (in May 2000) to 1% (in June 2003), in order to boost the US economy by making money easily accessible to businesses and consumers.

The move resulted in an upward spiral in home prices. Subprime borrowers, those with poor/no credit history, were also able to buy homes.

The lenders then sold these loans on to Wall Street banks, which, in turn, packaged these entities into low-risk financial instruments such as mortgage-backed securities and collateralized debt obligations (CDOs). The whole chain created a big secondary market for originating and distributing subprime loans.

The US Securities and Exchange Commission (SEC) in October 2004 relaxed the net capital requirements for Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns, and Morgan Stanley, thus freeing the latter to leverage their initial investments by up to 30/40 times.

Eventually, interest rates rose and homeownership reached a saturation point. In 2006, the Fed rate was revised at 5.25% and it remained as it is until August 2007. By 2004, US homeownership peaked at 69.2% and by 2006, home prices started going down. The US homeowners couldn’t sell their properties, as they owed a high amount of money to their lenders. Subprime borrowers were stuck with mortgages beyond their payment capacities.

In 2007, subprime lenders went into a bankruptcy spree. Bear Stearns stopped redemptions in two of its hedge funds, prompting banking giant Merrill Lynch to seize USD 800 million from the funds. Northern Rock had to approach the Bank of England for emergency funding due to a liquidity problem. In October 2007, Swiss bank UBS announced losses worth USD 3.4 billion from subprime-related investments.

By 2008, the United States and world economies entered the recession phase, and financial institutions’ got surrounded by liquidity struggles. Northern Rock got nationalised. Bear Stearns collapsed and was taken over by JPMorgan Chase. IndyMac Bank too failed. Two of the United States’ biggest home loan lenders Fannie Mae and Freddie Mac, were seized by the government. The crisis reached its zenith with the downfall of Lehman Brothers in 2008 September.

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However, they can flourish in any economic environment with an appropriate strategy. Here are five actions you can take to help your venture grow from now on, keeping the future in mind, despite the challenges presented by business cycles.

Take Away Knowledge From More Difficult Circumstances
A challenging economic climate offers a rare chance to make critical business plan decisions. Everything is subject to review. How the market has changed? Do your clients’ problems present opportunities for your solutions? What steps you can take in response to your assumptions changing amid new circumstances?

Analyze your product roadmap critically. Is this the right time to change/step up your current plans? Give top priority to features with the most significant margins that can be implemented in the next year. Reassign resources to projects that didn’t make a list and push them out.

Review the costing. Raw material and transportation prices continue to rise significantly even as inflation slowly decreases from its record levels in forty years. What will happen to your clients if you temporarily raise fees or impose levies to cover these expenses?

This year has not been good for hiring. Many businesses seized the talent they could. Now is the time to fire employees/gig workers who might perform better in another position. Make tough adjustments that will pay off in the long run, moves that may be avoidable in less harrowing circumstances.

Tighten Your Money Control
Crunchbase reports that start-up funding in the US and Canada dropped by 50% in the 2022 third quarter. All prices fell. Extend your last round if you’re a later-stage company that benefited from VC generosity in 2021.

Wait till markets stabilize to start another round. Then, prioritize the basics for early-stage companies with less market validation and a longer exit horizon. Delay capital purchases. Hybrid work styles reduce office costs. Continue using Zoom/Google Meet to cut down on travel costs. Service providers should review payment arrangements. Also, request supplier credit.

Yogi Berra suggested, “Hit the strikes.” A good swing can turn a tough pitch into a home run in business.

Sit Face-To-Face With Customers
How have your clients’ business demands changed in the previous 18 months? Do your solution’s benefits gain in popularity? From major corporations to start-ups, everyone has revisited supply chain management. As a result, start-ups that offer AI-based business decision support, cost savings through better inventory control, or out-of-stock protection by locating new, regional supply sources will be competitive.

Non-Dilutive Capital
PitchBook reports that venture financiers are interested in companies whose satellite, robotics, and software solutions may serve both the military and the commercial sectors. International conflict is a cause.

The defense sector is recession-proof. The US Small Business Administration (SBA) gives non-dilutive grants from USD 150,000 to USD 1 million for cutting-edge ideas.

The application process takes time. A business must be honest about the work necessary, yet many states offer assistance. Technicians also examine and evaluate government RFPs. This can provide feedback and field contacts.

Blue-Chip Talent Prefers Blue-Chip Cultures
Company culture might be strong or weak. A rich culture encourages critical hires. Finding stakeholders that share your values and adhere to your guiding principles enhances the likelihood of their support.

Talent demand is cooling after months of “great resignation” frenzy. Offers may not be as plentiful as last year. Nevertheless, young companies can’t turn off their search for outstanding talent. A corporation may modify hours or employee numbers, but it will always hire and screen for cultural fit.

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The webinar will feature insights from industry experts and a masterclass on how to deal with uncertainty. The course will be taken up by Nathan Furr, an author and associate professor at INSEAD. The event is going to take place on December 8, 2021.

Derya Matras, Meta Vice President of the Middle East, Africa and Turkey, told the media, “The challenges that small and medium businesses continue to experience as a result of COVID-19 are significant, and we remain firmly committed to supporting them in both recovering and, in due time, thriving. We are continuing those training efforts in partnership with Mastercard, helping further boost a burgeoning startup ecosystem to positively impact socio-economic growth across the region.”

He added saying that the primary goal of this partnership is to provide the necessary digital skills for startups and small businesses to survive, recover and deliver results online and offline. Speaking about the challenges, Matras included factors like access to training and digital tools, power supply interruptions and infrastructure.

Earlier last month, MasterCard teamed up with Mexico-based business banking company Jeeves to come up with a new card that allows companies to pay in any local currencies from anywhere Mastercard can be used.

With the help of this collaboration, MasterCard is hoping to contribute to a fast digital transformation that provides startups with the correct products that directly align with their needs and facilitate access to financial services.

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In the report, the data scientists and researchers at Novum Insights assembled a definitive list of 2,138 start-ups which it is tracking in the blockchain space. The report collected and analysed data using a mixture of APIs and data crawlers to track 973 investors, which have backed 826 companies.

Geographically, investment in Blockchain is being led by the US with $1.3bn invested and $1.35bn received, followed by the UK in second place, Ireland, Singapore and China. The report shows payment infrastructure is the best funded sector, with companies having raised $512.9m to date, including businesses like Digital Asset and Ripple. Other sectors seeing significant raises include wallets and mining and blockchain tech development.

Digital Currency Group and Blockchain Capital share the top two spots respectively for most money invested and most rounds involved in, with the latter involved in 51 rounds worth $445m and Digital Currency Group involved in 89 rounds worth $413.2m. Series A rounds account for most deals, with a total of $756.6m invested.

Part of the excitement around the sector is being driven by a growing awareness of cryptocurrency among investors. Bitcoin, Ether and Litecoin have boomed in the last year, hitting a market capitalisation of $138bn. Start-ups have also increasingly been turning to cryptocurrency as a way of raising funds through ICOs, seeing it as an alternative to seed and series A.

The report analyses 650 of these Initial Coin Offerings, totaling $2.3bn, including $252m into Filecoin and EOS receiving $233m. In the first eight months of 2017 alone, ICOs have already raised a staggering $1.84bn, three times that of traditional venture capital investment in blockchain startups.

Toby Lewis, chief executive of Novum Insights, said, “Multi-million-dollar sums are being raised at significant speed, in sales of coins which in the past would have been raised from venture capitalists. The booming cryptocurrency markets have subsequently gifted start-ups with significant funds, and some investors with meaningful returns. At the same time however, many in the sector are raising concerns that the strong performance of ICOs and cryptocurrencies is unsustainable and anticipate a crash. The parallels to the dot-com boom of the 1990s seem irresistible, though for the moment it is a highly exciting bull run, with extreme volatility mixed in.

“It is important to remember that it remains early days for the development of blockchain as an industry, and there is still a lot of hype surrounding the market, though it seems likely, given the level of investment and technological innovation, that many companies in the sector will indeed go on to create significant value for business and society. For this reason, we think constant data vigilance of the sector is of the utmost importance. Our domain focus and forthcoming data product will provide the best means of understanding all start-up innovation in blockchain and custom curated data deep-dives to unparalleled depths of industry and investment data.”

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Currently, we are experiencing a far different dynamic; the high-street banks are feeling the heat from the fire being set by fintech businesses. A report by Capgemini found that 63% of customers that were using products and services by fintech companies are more likely to recommend them to friends, then products and services they used from traditional banks.

It is also forecasted that despite the red-tape and regulation that the banking industry is shrouded in, young fintech start-ups are expected to capture 17% of banks revenue over the next five years.

In the aftermath of the global financial crisis between 2008 and 2009, banks had  focused their time and effort on compliance and regulation, meaning that innovation was left at the bottom of the ‘to-do’ list.

Due to the increase in demand for further banking regulation, investment in innovation by the large banks, has remained a low priority. However, this isn’t a shock when you consider the reduced deal flows and deterioration in commodity prices.

It then, comes as no surprise that small, more agile businesses have swooped in to drive innovation in this arena.

Fintech consists of four major areas – data, software, payments and platforms. Broadly speaking, there are two types of firms within Fintech; there are large, established tech businesses that support the financial services industry and then there are the disruptive, agile firms that we have previously touched upon.

In foreign exchange, there is one true exchange rate – the mid-market rate. This rate is the ‘mid-point’ between the supply and demand for a currency, and is regarded as the fairest exchange rate. The price is over-inflated by banks and brokers, and the price the customer receives is derived from a spread from interbank prices, screens and a credit profile of the customer.

It was recently uncovered that Santander had made €585 million from international money transfer, an amount that equalled almost a tenth of its global profit for 2016. A more precise breakdown reveals that €290 million was made from its FX margin – the difference between the mid-market rate and the exchange rate that a bank offers and a further €163 million was earned through its ‘standard fee’.

On average, through using a small, more disruptive Forex business, a customer is offered 15% more than a bank offered.

Now, that there are number of young businesses, like us, that are altering the current landscape through offering real-time mid-market rates, true pricing transparency, on-demand foreign exchange reports and customised alerts.

In the past, businesses have been limited in their choice of where to go to carry out a foreign exchange, and were forced to use banks. However now, the emerging forex businesses are challenging this norm and giving the banks a run for their money.

Fintech is all about connecting individuals and users via the use of technology.

The core of these fintech firms in foreign exchange and remittance, is software and technology. As the service becomes automated, the costs are reduced because the middlemen become obsolete; and it is for these reasons that a more transparent approach to fees and pricing has been adopted.

The legacy of foreign exchange has run on a model called correspondent-banking, whereby up to four banks were involved in the transfer of one currency. This level of involvement also drove up the cost of foreign transfer as each bank was making a profit. The rise of blockchain, or distributed ledger technology means that the foreign exchange process becomes less expensive as well as far more secure. Most banks are on the back-foot because they are currently locked into legacy systems that are extremely inefficient.

However, there is still an edge that banks have over fintech businesses; and that is the power of their licences. The strict licensing and regulations that is often cited as a barrier for fintech start-ups who wish to broaden the list of countries that they can send money to. When it comes to sending amounts of money that reach into the hundreds of thousands, banks begin to pose competition, at amounts over £500,000, banks drop their fees by 65%.

Despite these details, the impact that emerging foreign exchange disruptors have had on the remittance industry simply cannot be argued. It was reported by World Bank that in the last quarter of 2015, the average global cost of foreign exchange money transfer had dropped to 7.37% from 7.52% in Q3. The cost of sending money to 80% of the worlds countries now sits at 10%; to put these statistics into perspective, six years ago it was only possible to achieve this in 50% of the world’s countries.

EU and UK officials have promised that new banks will not be subjected to the complicated regulations that the established corporations are; enabling many fintech business that operate within a niche now to expand their innovation into other areas of finance, meaning that they will further compete with banks.

In conclusion, foreign exchange is going to continue to expand the landscape even further. Advancements in technology and the rise of blockchain are revolutionising. Not only foreign exchange, but will also challenge the outdated processes that were formed in the dark ages of banking. We will enter an age of transparency and collaboration, and this will change the perception of banking entirely.

Omar Mohammed is a Financial Analyst at Imperial FX

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Snapchat made its historic initial public offering in March with a market valuation of $33 billion, which qualifies it as a decacorn (a firm valued at least $10 billion, compared to a unicorn, which is valued at a mere $1 billion). Snapchat, once the bane of parents as a teenage distraction, overtook Alibaba’s record of raising $22 billion in 2014 and has spawned two 26-year-old multi-billionaires.
It is tempting to be dazzled by the likes of Snapchat, Uber, Facebook and Airbnb and to conclude that the start-up scene is dynamic and thriving. However, the reality is rather different, and perhaps even somewhat grim: US Census data released in 2016 show that new business creation is near a 40-year low. According to a number of researchers, the rate of business start-ups and the pace of employment dynamism in the US economy have fallen over the past decades.

A critical factor in accounting for the decline in business dynamics is a lower rate of business start-ups and the related decreasing role of dynamic young firms in the economy. For example, the share of US employment accounted for by young firms has declined by almost 30 percent over the past 30 years. This statistic has significant implications given that the churning effect of new firms is an important means of reallocating capital and labour from low-productivity to high-productivity activities, which in turn is required for long-term productivity-led growth.

If this were not worrisome enough, the data also shows that since around the year 2000, there are far fewer high-growth young firms being created in the United States. Most start-ups fail, but a very small percentage (between 1 percent and 5 percent, based primarily on data from OECD countries) are innovative and dynamic, grow rapidly and create the most jobs and value, thus making a disproportionate contribution to overall productivity growth.

The likelihood of a start-up in the United States becoming a high-growth firm is now lower than before the year 2000, which is counterfactual in the age of digital disruption. No one is quite certain of the economic, social, and demographic factors behind these trends of declining start-up activity and the dearth of high-growth firms in the United States, but there are a number of theories, including the effects of the Great Recession, generational cultural changes and changing risk appetite of young people, a burdensome regulatory environment, and the increasing importance of large, innovative firms that have adapted many of the appealing features of start-ups.

A World Bank Group team is exploring the topic of high-growth entrepreneurship in developing countries to examine whether there are similar patterns and trends as in the United States and OECD countries. This study looks at the prevalence and characteristics of high-growth firms in various economies, the attributes of the firm and the entrepreneur, the business environment, and other factors such as the role of foreign direct investment and spillovers/linkages and agglomeration effects. The focus of the study will be also to assess the policy instruments being deployed and how effective are these in providing targeted support to high growth firms.
This article was originally published by the World Bank Organisation

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The post Demystifying start-ups appeared first on International Finance.

Jaya Smitha Menon

August 18, 2014: The financial crisis of 2008 caused much misery to the sector, but for the FinTech startup community, it proved to be quite fertile. The need for changing old business models and bringinginnovation has bridged the gap between the FinTech startup ecosystem and the financial community.

According to a report by Accenture, investment in FinTech sector globally has increased from under $930 million in 2008 to more than $2.97 billion in 2013.

Driven by the need to cut cost, comply with increasing regulations and understanding the new costumer behaviour, the finance sector now has a bewildering array of start-ups. So, which among them are creating a stir in the market?

Payment engine

Payments is a growing sector but involves high cost and hidden charges. However, Currency Cloud(http://www.thecurrencycloud.com/), started in 2012, aims to make payments more transparent, fast and affordable. Its payment engine allows its customers, like TransferWise, Azimo, Fidor Bank and MANGOPAY, to enable secure and transparent transfer of money around the world. The London-based company has invested heavily in compliance, research and development, and allows costumers to get up and running in as less as two weeks via their API. Cloud recently raised $10million in Series B funding round from its existing investors along with a new investor.

Reputation and trust

In the financial world, trust and reputation is an important factor whether it is to hold a credit card or getting a mortgage. In today’s world, making online transactions with unknown people also demands a level of trust and reputation.Traity(https://traity.com/), a Madrid-based start-up is taking reputation and trust to a new level. If you are a good seller on ecommerce portals and use other online services, Traity will import that information into your profile. This helps financial institutions to take informed decisions even if you are in a foreign country. The company recently got a $5 million funding for further development.

Filling forms

Who doesn’t hate filling up forms and entering details each time; whether it be your personal information or your card details. Ensygnia’sOnescan(http://www.ensygnia.com/thecompany/), a patent protected app, helps to make mobile payments less cumbersome and faster, whether you are shopping online or in-store. Waitrose, the retail giant recently showcased Onescan along with few other mobile technology innovations that can redefine a customer’s shopping experience. Onescan allowed customers to complete a payment in-store using a mobile phone app, directly from any iPad screen in the store, without having the need to go to the till point. The company got a $3.3 million funding from Telefonica start-up accelerator Wayra.

Core banking solutions

Banks spend millions on its core banking solutions. But with time, the complexity and cost of the application increases enormously. This also limits their desire to penetrate untapped markets. Mambu(http://www.mambu.com/en/mambu-story-35.html), founded in 2011 wants to redefine this paradigm by providing a unique cloud based platform, which will help banks and financial institutions roll out products and services in a jiffy. This is much more relevant in the case of microfinance institutions that need a low-cost banking platform to support underbanked users. Mambu offers a flexible and cost-effective solution. It received $2 million from Runa Capital, Point Nine Capital and Kizoo Technology Ventures in 2013. Today,Mambu has over 100 clients in over 20 countries.

Crypto currencies

With Bitcoin gaining momentum, the future of crypto currencies seems to be brightening. To cash in on this new wave comes Epiphyte(http://epiphyte.us/index.html), which promises to integrate banks and financial institutions with the crypto-finance industry. With a range of cloud based products and services, taking care of security, risk and compliance, Epiphyte hopes to help financial institutions deal with traditional and new forms of money in a single network. The company’s middleware suite CBridge enables banks to interface with cryptofinancial networks in a controlled and secure manner.

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