I want to start a payments bank in India but it requires a 13M+ USD initial capital just to get the licensing fee.<p>Wondering if people have any examples of how one might cross this barrier to entry.
There are two ways to answer this question, two new questions basically.<p>One is "raise over $13m." How? This is not impossible. There is more investor money looking for home today than ever, I reckon. However, this is not a level playing field. Who you are and who you know and how well will make a big difference. This is probably the wrong place for advice about this strategy.<p>The second possibility is "what is an easier/cheaper idea, that can later become a payment bank?" This is the HN philosophy, from our founder PG.^" Say you had $13,000. What could you build that would get you customers, impress investors or otherwise put you on a less direct <i>path</i> to what you want? Then, you are pitching "<i>turn this thing into a bank</i>" instead of "<i>start a bank</i>" which is a little easier.<p>This is <i>hacker</i> news so conventional advice here is take on hard engineering problems, and easy business problems. If this was a forum for business people, it'd be the reverse. There, people would rather take the challenge of raising a large sum but avoid hard engineering challenges. You need to figure out what <i>you</i> are strongest at. Are you the kind of person that can cold call your way I to a 7 or 8 figure investment or the kind of person that can build a product in 2 months that will get you investors or customers that will get you to the next step.<p>Finally, what you are asking is <i>"how do I succeed at this very hard thing."</i> There are no formulas that are easy and will work for most people.<p>Read this, pay attention to the bridgehead: <a href="http://www.paulgraham.com/ambitious.html" rel="nofollow">http://www.paulgraham.com/ambitious.html</a>
Yeah, I read all these comments and they miss the obvious answer.<p>Pitch large vcs and ask for a lot of money.<p>It goes against the YC grain, but it is the reason there are silicon valley vcs. It used to be that starting a company meant building chips and buildings and assembly lines, and some vcs are structured to write 30m series a, 50m total to build product, and then 50 to scale. A friend of mine is doing this in the database world right now.<p>If there is a 15m regulatory barrier, then your pitch is why your team is the right one to bet on, and you raise 30m. The money is out there, you can take it
I have thought about this myself.<p>I am from Africa and needless to say, we don't have an abundance of VC funds for startups.<p>I have used products live Revolut and Monzo before and loved them, there is an opportunity being missed in places like Africa and other developing economies that have a huge growing youthful middle class that hates the way the established banks operate and is comfortable with technology.<p>I spent most of my free time last year building a backend that can handle some core banking functions, I already did research on the licensing and knew I would never be able to raise that money just with an idea and business plan so to keep myself going and also have something to show potential VC's I decided to start small, things like airtime top-up, bill payments etc<p>Break it down , look at the bits that you can build out and get some initial customers while you look to raise money, you don't have to go all out and build a whole bank, start small, licensing for things like e-wallets and money transfer is not unreasonably expensive, you can then go on to build on top of that<p>Good luck.
Check out Monzo in the UK. They started as a top up payment card with great technology. This meant they didn't need a banking license. They are now moving into the current/checking account space with a license.<p>So do you need a license from the start? Impossible to tell from your comment.
I know a bunch of people here have said "partner with a bank" or get a license. That seems like a good option, but obviously you wonder how can a small startup or even a founder or two do that?<p>I have learned a couple things about being the little guy trying to partner with bigger folks:<p>- Josh Elman (from Greylock) suggested that when (I think) when LinkedIn (or Twitter, I forget) was small, they didn't go out to look for partnerships with big companies, because they knew those wouldn't pan out because no one in a big company would care. They mostly sought relationships with smaller companies with some audience, but who were more receptive to talk to team up to crush the big guys and offer better value. Smaller competitors in crowded markets like banking are always trying to find ways to become more dominant, so they are more open than the folks at the top of the market.<p>- Just make your offering really really compelling - the "offer you cannot refuse" kind. This is not easy. This goes against traditional business sense, because you might have to offer value at less than cost. But if this is what the existence or growth of your business hinges on, you have to bend over backwards. Goes to the good old Dale Carnegie stuff; focus on their value in the conversation over yours. They need to feel like working with you is a steal of a deal. There are plenty of ways and business models to do this, but offering human capital, co-branding, offering equity or some rev share, customer insights, etc. are all fair game.
Start smaller. Most of the disrupter banks started as something else with the view to eventually obtaining a banking license. That way you can actually prove that you have a product worth investing in. Usually banking startups start with a Stored Value Facility license (or the local equivalent) and work up from there.
This isn't the sort of thing to do as a cold startup. The way to do this is what is sometimes called "intrapreneur", as a "startup" within an existing large corporation that can bankroll such a large project.<p>Are you an engineer, or a banker? If you don't have a track record in the banking industry, you're hosed. No one will give you that kind of money. If you've actually been there for the founding of a bank before, then maybe. Moreover, if you're an engineer without banking experience, you probably have <i>no idea</i> what you're getting yourself into.
Can you finance the license fee? Ie borrow to get it, and if all doesn’t work out, the corporation goes bankrupt? Or can you lobby the issuing agency to give you a payment plan?<p>My only concern with such a large investment is that at the beginning you don’t know what you don’t know. You think $13m is a big problem, wait till you have that license and uncover all the reasons why people with $13m in their pocket have avoided the problem you’re trying to solve (just a maybe, but I’m sure there are other problems you’ll encounter you should look to resolve before you try dump so much money on a business).
The fix has two steps:<p>1) Bring in co-founders whom raised $100m+ from VCs in companies they were in before. Also, one of those companies needed to have had an exit where it was very profitable for those VCs. Getting these co-founders is hard, but it is your fix. One of them needs to have been the CEO of the former successful exit.<p>2) Use $500k in capital to build the pre-launch version. Be hyper-capital efficient building the tech, for demos to investors. Bring the product working to investors along with those co-founders as part of the team.<p>Make sure those co-founders confirm that they think they can raise the capital in this business model.
There is a reason requirements to start a bank are so high. Banking is a really hard business and you margins are not that great. There is so much regulation that your licensing fee will look like small potatoes.<p>Instead you should ask if there is cheaper way to get to where you want to be. You could start by researching how the PayTM guys did it.
It is critical to minimize the risk. Remember, you are taking somebody's money. Their main concern will be the payout and this is the likelihood of future income minus risk of losses. You probably spent some time thinking of future income (everybody does), now do your homework and work hard how to mitigate risks. With lower risks you can ask for more money for less stake in your budding enterprise.<p>With large amounts of money involved there will be more focus on risks involved and so it gets critical.
Lots of crazy answers here.<p>As an industry insider, what you do is buy a bond from a company that specializes in these sorts of licensing bonds. It should only cost you a small fraction of the capitalization requirement each year to maintain.
we are a lending startup in India - also a YC alumni (RedCarpetUp YC S15).<p>We are (now) a regulated entity with specific licenses that took us a crazy amount of time from the Reserve Bank of India.<p>Two things - first, the business models of payment banks is kind of unproven. Those of us who are in the fintech space in India kind of agree that the regulators kind of screwed up here. I'm hoping you have answers to that. TL;DR - a payment bank cannot lend.<p>Second, the regulatory structures in India are setup to look at license grants not as a consequence of capital. Even if you had a 100 million USD (and I know of specific examples here), there is very less likelihood of you getting a payment bank license unless you can prove out a gold standard team and board experience. Just to remind you, bank CEOs in India are appointed by the Reserve Bank. They are NOT appointed by founders or investors. One of the CEOs of a very large bank in India just got fired by the regulators for dancing around stockholding regulations - <a href="https://economictimes.indiatimes.com/industry/banking/finance/banking/oh-yes-you-lost-your-ceo-for-greater-good-why-rbi-said-no-to-a-full-term-for-rana-kapoor/articleshow/65881229.cms" rel="nofollow">https://economictimes.indiatimes.com/industry/banking/financ...</a><p>I feel there is a very low chance of you getting regulatory clearance for this. Indeed, we give out a t-shirt that says "Because, its regulatory" to fresh employees at RedCarpet ! We are tech founders, but we have spent countless hours sitting outside RBI doors trying to make case for several regulatory changes. We were one of the first to get license grants for non-standard lending risk policies to the unbanked in India (that's a billion people!).<p>Write to me <a href="http://scr.im/redcarpetup" rel="nofollow">http://scr.im/redcarpetup</a> if you want to come work with us for a while. Maybe you will stay a while and listen to stories of regulatory pacman in India.
You can raise a lot of money at the beginning if the founders have the right connections and track record. Opendoor was able to raise a $10M Series A without a product. [0]<p>[0] <a href="https://techcrunch.com/2014/07/07/opendoor/" rel="nofollow">https://techcrunch.com/2014/07/07/opendoor/</a>
The high-entry barrier business is where VC actually makes sense. Building a webapp and getting $3M VC money is a little bit of a waste. Building a rocket or a jet requires $100M and there's no other way around it. You're maybe somewhere in between. Or start small. Maybe in a different country/province, if you can.
Like someone said, partner with a bank. Maybe check with RBL bank, they even have API for virtual accounts (<a href="https://developer.rblbank.com/content/virtual-account-api" rel="nofollow">https://developer.rblbank.com/content/virtual-account-api</a>).
Do something in the banking ecosystem to get your foot in the door.<p>What I have noticed in Malaysia are startups effectively handling the {credit card, loan, insurance} applications & such other Web forms that banks are far too incompetent to do effectively.<p>Once you do this well, you will be on the right path.
I have similar question too. The initial Capital investment for Storage and Trucks along with Ordering and Distribution Software for a Food Distribution business requires up to $2M+ USD Capital. ( It is consider a large sum in Hong Kong, which has a slightly smaller TAM than say US or China ) While I can guarantee we reach $1M USD monthly revenue within the first 12 months, I have yet to find anyone interested in funding.<p>If anyone could give any tips or help send me a email.<p>my username @live.hk
Have you considered starting a payments bank in another country where you can prove your idea with less capital? Then you can use the capital from that to get started in India or if there's not enough, you can use the experience to inspire investments to get the capital.<p>Also, I hope you're ready for an immense amount of red tape.
From what I've seen, your expertise and network in the field are what will allow you to raise funds for a capital intensive business.<p>If you don't already know people and/or have deep expertise in the field, why would someone give you the money?
My thought here has already been said. Start smaller if you can. I'm starting really small with one specific banking issue and the entry fees are much smaller. I'm using some hedge fund ideas to get the capital.
Consumer or Enterprise? If it’s the latter, get a list of customers who will put in (can be legally non-binding) writing, “If you build X it is worth Y to me.” Get enough of those and take it to a VC.
A team with multiple big exits could possibly raise the money from VCs or self-fund.<p>More likely, something like this would start inside another company or it would partner with a license holder at first.
I have looked into this area. The best way to do it is to partner with an existing bank. You wouldn't need payment processor license which would likely be very costly.
Have you considered opening a cooperative Bank? You could out-innovate a lot of slow moving small banks. And I think the initial capital requirements are lower.
well one way to 'hack' your way to bankdom is through founding a company offering sketchy financial advice then expanding to sketchier insurances and payday lending, then to banking. takes about 25 years and you get to be public enemy number one doing this. they 'sadly' went under during the crisis though.<p>because its so difficult most banks are very old and most new ones are established by existing players.
Partner with a bank.<p>Or get a hedge fund to buy a bank shell, have it as an asset, and use that bank. If your startup fails, they still have the asset.<p>Or you may just need to have access to 13M, it's probably not the fee. So - you can just borrow 13M and use the 13M as collatoral. If you structure the deal right, it's 100% risk free. Moreover, you may be able to invest the 13M in which case you can still return an interest rate.<p>So you could find a fund with 13M, draw up the paperwork such that they put that in your company, but it can't be spent, and the 13M is effectively it's own collateral. Then pay the investors interest, plus some small coupon payment, or give them some equity for their risk free investment.<p>So long as the paid up capital isn't used for anything, it's a 'non transaction', i.e. it has no financial meaning.<p>That said, the 13M may be designated as collateral or some kind of requirement for the payments system.
adplexity.com - 5 million USD revenue.<p>Better launch a new product first, make revenue like the product i posted and use that money to fund your big business.
Disruption. Begging for forgiveness instead of asking for permission. You can see it in many major players that got their start by going around regulations.<p>Once you are onto something, the regulations can be satisfied by backers who see a business plan, cashflow from the side of the business, or perhaps new regulations will form around the new company's business model.