Preparing for a fintech IPO

As companies that are often advising on and enabling financial transactions and products, fintech companies have a responsibility to make sure their controls are effective and their leadership is strong and experienced.

Turning your governance into a competitive advantage requires some extra effort. As a public fintech, you need an internal control environment that establishes appropriate lines of defense that can enforce and systematically monitor operational effectiveness, reliable and timely financial reporting, and consistency in regulatory compliance. You will need corporate governance procedures that clarify roles, responsibilities, and decision-making processes and set the tone for behavior in the organization for creating long-term value. Your systems and processes can help your fintech differentiate itself from competitors and be innovation-forward, with a customer experience protected by reliable processes.

If you’re considering an IPO, your board of directors should pull in relevant experience to guide how your company is embracing the "fin" in "fintech" and challenge it to excel not just in technology innovation, but also in delivering a differentiated customer experience within the compliance boundaries that govern it. For this reason, your board should include leaders with extensive experience at financial services organizations that reflect the risk profile of your company. These board members can serve as valuable guides to the complex regulation that was largely written to govern traditional organizations. Combining that with an innovative vision of management, these board members can help you pivot those requirements into a competitive advantage for your company.

Your customers are trusting you with their money. To foster that trust, you need to demonstrate your steadfast commitment to compliant and reliable execution by possibly investing in a governance structure that provides appropriate oversight to your business.

Financial discipline is a must before your fintech IPO, SPAC, or DL. Shareholders of public companies often don’t have the same tolerance for growing pains as venture capitalists looking to get in on the next disruptive idea or unicorn while it’s still in its infancy. Public company shareholders may not want to hear about the profits that are coming; they may prefer to see those results today, or at least understand the clear path to get there.

To ensure your company’s capital is furthering strategic objectives instead of funding losses, you need products that generate enough revenue and systems that reduce enough cost to maintain the consistent profitability expected of a public company. Building capabilities to perform ongoing sensitivity analysis to stress your capital and liquidity position, resulting in a forward-looking financial plan, can instill confidence and enable informed decision-making.

Innovative and forward-looking financial planning fuels your ability to reinvest in your business and launch new products and growth strategies that a public company needs. It also helps you become a company that, during periods of economic uncertainty (like what we’ve seen during the COVID-19 pandemic), can double down on investment and grow market share instead of hunkering down and simply trying to survive.

The regulatory landscape is always changing. Meeting existing requirements and being able to adapt to new ones without slip-ups will keep your shareholders and partners happy. But that should only be the start. Your fintech company can stand out by developing processes that look ahead and anticipate changes from key US regulatory bodies, such as the Fed, OCC, CFPB and SEC, state regulators, and even those of other countries if you have (or plan to have) international operations.

By working to strategically address regulatory changes before they go into effect with smart, innovative, and agile operations, your fintech company can pivot more quickly once the effective date arrives. You can also be a first mover on business opportunities that may arise due to emerging regulation, ahead of slower-moving traditional financial institutions and fintech companies that choose not to invest. Having a compliance management system that can sustainably identify regulations, risk-assess, test, and monitor changes can help to reinforce controls to proactively protect shareholder value. Instead of looking at regulatory compliance as meeting what’s required, look at it as building a competitive advantage. As your company heads toward a public listing, an innovative compliance function can help you efficiently obtain the permissions and licenses your business needs to expand product offerings and geographies, obtain money transmission licenses, or even secure a bank charter. This know-how and speed in satisfying regulatory requirements may enable your company to expedite the rollout of new products and customer features. Managing your product offering and customer experience is a critical ability as you scale up your business and seek to provide an end-to-end digital experience for customers.

How you manage risk as a public company is a signal for potential investors and ecosystem partners. It tells them how responsibly you’re running your company and how confident they can be in your future. That risk exposure is determined by topics like your company’s balance sheet, loan portfolio, investment portfolio, systems and data reliability and protection, and foundational processes like flow of funds and platform reconciliations. A commitment to enterprise risk management that demonstrates a capability to manage the inherent risks posed by the fintech business model can inspire confidence and provide value to management and likely synergy with other strategic enterprise goals.

Any risk-related missteps will be amplified when your company is in the public eye. An innovative approach to managing risk can help your company establish a respected long-term brand and reputation. By investing in a vision for enterprise risk management and engaging the right talent and governance process, you can flip risk from a matter of due diligence to a strategic mechanism that monitors the health of your organization, anticipates threats and opportunities, and addresses them with speed and agility.