Startup founders almost always know numbers matter. After all, they’re sufficiently versed in some field to have identified a product or service opportunity, and they have started a company to go after it. Knowing, however, that numbers matter in a broad sense is not nearly the same thing as knowing which numbers matter. Granted, some key metrics about any business are useful to track – every CEO wants to know gross margin, every SaaS fintech cares about ARR & MRR, etc. – but invariably, founders confuse and/or simplify the numbers that best apply to their specific business or sector. This can lead to attention and resources being spent on the wrong things or, worse, incorrect strategic decisions.
Fintech as a sector is extremely diverse, with subsectors ranging from lending to payments and crypto. And fintech startups are famous for merging web and social apps with some element of banking, payments, and finance, which unsurprisingly leads to a raft of metrics that apply to specific products and services in each subsector. Some, however, should matter to wide swaths of the industry, regardless of the particular nuances of individual products. For instance:
1. Time to Value (TTV)
Fintech startups, in particular, watch TTV for indications of onboarding friction, trust gaps, and the like.
This metric measures the time it takes for a customer to get value from a purchase. Because fintech products often intersect with the personal or commercial finances of their users, customers are typically highly sensitive to how information is handled. They have little patience for intrusive questionnaires, approval delays, platform glitches or anything that remotely feels insecure. For fintech, these issues can be reflected in a number of ways – onboarding time, the time between signup/purchase and activation, how long it takes to generate an amount of yield or savings in excess of platform cost, or sometimes even usage of a payments rail at all. All of them, however, measure some amount of time between the moment a customer decides to pay for something and when they start to derive some value from it. Startups in general, want this number to be as low as possible because it is highly correlated with churn. Fintech startups, in particular, watch TTV for indications of onboarding friction, trust gaps, and the like. If you’re a fintech founder, identify what version of TTV connects most directly with the experience your customers have with your company and push it down.
2. Liquidity-at-Risk Percentage
The distance between this number and 100 can be thought of as a cushion protecting the company’s ability to withstand unexpected financial stressors like SVB or even unexpectedly strong demand from customers.
Regardless of what type of product a fintech company provides, understanding the risk to the business’s liquidity is paramount to avoiding nasty surprises down the road. Some fintechs involved in trading, payments or lending monitor the percent of total on-and off-balance sheet assets that are pledged, committed, at risk, or in transit, and measure it against a never-exceed ratio. Importantly, this metric doesn’t necessarily refer to the capital raised by a startup in their latest VC round – that’s for operational use, salaries and the like. Instead, it means the capital available for use as fuel for the products the fintech offers – loans, payment gateway usage, insurance policies, brokerage, etc. The lower the number, the less risk those products pose to the funding mechanisms of the company, which is what can throttle growth if not managed properly. The distance between this number and 100 can be thought of as a cushion protecting the company’s ability to withstand unexpected financial stressors like SVB or even unexpectedly strong demand from customers. Although this value can vary depending on several factors, every fintech should have a liquidity risk percentage to determine where on the spectrum it sits.
3. Regulatory/Compliance Exceptions Ratio
An X of Y statistic that measures how well the company is successfully meeting regulatory and compliance obligations could make all the difference down the road.
Fintech is more subject to regulatory and compliance requirements than virtually any other sector, so any set of key metrics for fintechs would be incomplete without an indicator tracking where the company is from a regulatory standpoint. There are many approaches to this particular metric, and each are informed by a startup’s particular mix of services, products, and customers. For instance, for a payments startup, it is not enough to simply gather AMY/KYC information during onboarding – one could measure how many onboarding submissions are rejected or are otherwise flagged as a percentage of the total (and why) to gain insights about both the company and its customers. Regardless, an X of Y statistic that measures how well the company is successfully meeting regulatory and compliance obligations could make all the difference down the road. Indeed, in our work as fractional CFOs for fintech startups, we’ve seen compliance be the Achilles heel of otherwise well-meaning founders who were more technologists than traders and led with code, not compliance, when building their businesses. Proactively develop a custom metric to indicate which regulatory and compliance processes are working, where they need tightening, and from what regulatory/compliance and fraud angles the business may be vulnerable. You’ll be glad you did.
4. CSAT and NPS
It’s not enough that the product works and is perhaps less expensive than traditional methods – it has to have a better experience as well.
Most, if not all, fintech startups are disruptors of some kind. They are typically disintermediating large incumbents with faster, easier, more transparent, and lower-cost offerings, often via mobile interfaces and more intuitive interactions. Accordingly, while customer satisfaction is paramount for any startup to measure, for fintechs it is a direct reflection on whether the product or service is successfully weaning customers away from legacy players. It’s not enough that the product works and is perhaps less expensive than traditional methods – it has to have a better experience as well. For this reason, actively measuring customer satisfaction is key. Both CSAT and NPS are very simple to measure and monitor – CSAT takes the number of customers ranking themselves as satisfied (usually 4 or 5 out of 5 stars, emojis, etc.) and divides it by the total number of responses. Determine where in the customer lifecycle satisfaction means the most to you – onboarding, transaction speed, price, general satisfaction, etc. – develop CSAT metrics around it, and track them over time.
Relatedly, NPS measures the likelihood a customer will refer a product, service or company to someone else. NPS is usually a standalone question sent to a random sample of customers. It asks how likely a customer is to recommend the service or product on a scale of 1 to 10. NPS numeric methodology is beyond the scope of this post, but when taken together with CSAT, and particularly when measured over time and benchmarked against industry peers, these two metrics can illustrate the actual breadth and depth of a fintech’s disruption and by extension, its growth prospects.
5. Time to Break Even (TTB)
Of all the metrics fintechs could track, we see this one ignored the most.
A cousin of burn rate, Time to Break Even (TTB) is exactly what it sounds like – how long in months, at current revenue and spending forecasts, until the company can support itself? Of all the metrics fintechs could track, we see this one ignored the most. True, many (maybe most) fintechs are focused almost entirely on user growth, with the often reasonable logic that if enough people use a platform, be it for payments, policies, trades or the like, exponential revenue growth will follow. And this is often true – scale has saved more than one initially unprofitable startup. But fintech startups often rely on very small incremental revenue per sale, sometimes only a few basis points, so if a high volume of transactions is the strategy, know this number. Even better, know how many transactions it represents and update both of them often.
For many fintech founders, financial services are a means to an end. They’re primarily building SaaS or Consumer businesses, and the financial space offers the most opportunity for funding, scale, and disruption. However, while almost all of the typical startup metrics will equally apply to a fintech, developing a series of fintech-specific ones will serve fintech founders well down the road.
Learn more about Burkland’s services for fintech startups, and contact us to request more information about how we can help your startup.