The top patent challenges for fintech companies
There is no market more in need of disruption than the traditional financial industry, and the next generation of FinTech companies appear to have an open field in redefining the new normal. FinTech financing has exploded by 700 percent over the past three years and the market is now worth more than $20 billion, far outstripping projections by analysts.
One of the biggest problems with being so popular is that it is not unusual to see a rush to market by startups that are trying to seize first-mover advantage during a rapid expansion like this. Sometimes important intellectual property protections are neglected in all the excitement. Patent protection, in particular, is one of those quiet but essential concerns that can slip off a company’s radar. The results can have devastating consequences for startups trying to retain market share against instant copycats.
The price of the first-mover advantage
Whenever someone has a great idea, everyone wants a piece of the pie. After PayPal made online payments simple, suddenly there were many competitors with slightly different business models, including Square, Google Wallet, Apple Pay, WePay, Dwolla and Stripe.
Without patent protections, the company that spent the time and development costs in creating new FinTech solutions would always lose out to second-mover advantage. In many cases, that’s what happens because patents weren’t filed or defended adequately.
FinTech is all about the tech, so patents are uniquely powerful over copyright and trademark protections. Patents specifically prevent others from making, using or selling services based on a protected technology. These laws are designed to help you hold onto market share while you reimburse your R&D investment.
The Supreme Court's ruling
However, several legal cases over the past few years have complicated the pursuit of FinTech patents. The Supreme Court ruled in 2014 that a proposed FinTech service delivering online escrow was just an abstract idea not eligible for patent protection.
Alice Corp was a FinTech startup that allowed a third party to reduce settlement risk in financial trading systems. They held four patents, so they brought CLS Bank International to court for using technology that was too similar to theirs. The court ruled against Alice Corp, raising the bar for what can be protected under U.S. patent guidelines.
How to protect fintech ideas
Any company that wants to protect their investments should start by reviewing Kiss Patent’s Ultimate Guide to Patent Success. There are so many changes happening now with FinTech case law, that it would be smart to have a patent expert guide you in making sure you can file effective patent submissions. For a FinTech idea to be eligible for a patent under U.S. case law, it must solve a specific problem in a way that provides a technical advantage and has practical application, rather than simply solving a more general economic principle using a computer.
In the case of FinTech, patent proposals must meet standards such as increase network security for a transaction, greatly enhance computer resource usage, boost reliability in the speed of network traffic or present an innovative interface for financial transactions.
Benefits of patents in fintech
Sesie Bonsi, Bleu’s CEO, is a good example of a FinTech founder who made intellectual property protection a priority in his launch strategy. While companies like Bleu have had to meet stricter guidelines for patent protection, they are also seeing greater returns for their work.
Bonsi explained, “You need to have some protectable intellectual property in order to gain market share. It assures investors because it is one of a few assets which can increase in value over time…. A patent has been phenomenal for us and the turning point for a lot of investors.”
Every FinTech success makes it that much easier for investors and entrepreneurs to break into the global market with the next generation of disruptive innovation.