10 Key Challenges for Fintech Startups Worth Your Attention 

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10 Key Challenges for Fintech Startups Worth Your Attention 

While the impact of technology in several industries has been potent, it has had a very disruptive...

While the impact of technology in several industries has been potent, it has had a very disruptive effect in the financial sector. Traditional financial institutions have found themselves in an epiphany which has forced them to develop their own tech capabilities to remain relevant. Many have acquired fintech companies, while others have partnered with fintech ventures. 

Over the last few years, investment in fintech has grown dramatically. Driven by large rounds of financing and mergers and acquisitions (M&A) deals, world-wide fintech funding has grown to over $100 billion. It is still expected to grow in the next few years since companies are portending substantial growth opportunities.

Many fintech startups have shown great potential and are quickly making gains in their market valuations. Some of them look promising and will likely grow to billions of dollars in market valuations. A case in point is Stripe with an eye-popping valuation of $35 billion.

However, the term “Fintech,” has encouraged budding entrepreneurs to dream of making a quick buck by merely hitching their startups on the bandwagon. Unfortunately, it is easier said than done. New ventures, especially in the nascent fintech industry, require a lot of strategic planning and thoughts. 

Here are ten essentials issues that Fintech startups should take into account before launching their ventures.

1. Funding

Forming a Fintech company is no ride in the park. Ideally, the startups will attract venture capital and strategic investors with demonstrable fintech experience. Venture capitalists can assist startups in different ways, such as providing markets and competitive insights, refining the marketing plan, and arranging for strategic partnerships.

Strategic investors can be pilot customers, distribution customers, partners in product development, mergers and acquisitions (M&A) acquirers of the fintech company, and technical advisers. If you don’t partner with experts in your field who can help you develop your product and market it, then prepare to lose strategic talent. As traditional institutions compete to get a pie of fintech talent, startups face incredible challenges of hiring.

Also, there are the usual capitalization expenses of starting any business. Due to the integration of fintech with conventional financial institutions, costs tend to rise. With VCs, looking for startups with game-changing innovations, there is a need for more qualitative value propositions.

2. Focus On Innovation

It requires expertise, creativity and a lot of grit to launch a fintech startup in a very competitive industry. Tech companies are under immense pressure to deliver tremendous results rapidly. So, Fintech isn’t for anybody. It requires people who believe that they can solve financial issues innovatively.

3. A Great Pitch Deck

Strategic investors and venture capitalists want to see a brief synopsis of the venture before they can even have a meeting with you. Therefore, you must prepare an enticing pitch deck with an evocative story.

The pitch deck should show the current market opportunity and its prospects of expanding, describe the talent on your team and provide excessive financial details. Don’t struggle to cover everything in the pitch deck. You will add and highlight vital information before you get an opportunity to present in person.

4. Regulatory Issues

The financial services industry is arguably the most regulated industry in the world. Laws are enacted to safeguard financial systems from abuse. The emergence of fintech has changed the way we view and handle money, creating a grey area for regulation. This issue has drawn the attention of regulators and lawmakers. Therefore, fintech startups have to contend with different regulatory hiccups on day to day basis because of their amorphous operating models.

Besides, regulations on fintech operations vary from one jurisdiction to the other. Therefore, startups should fully understand the rules of the countries they operate in.

5. Competition From Traditional Institutions

While fintech has brought a lot of disruption in the financial industry, banks will not just sit pretty and watch as they lose their market share. Also, fintech ventures don’t only compete with existing financial powerhouses, such as PayPal. They soon will have to contend with new players, such as Amazon and other technology behemoths foraying into financial services

Due to their strong asset base,  banks wield clout and can either buy out fintech companies or partner with them. As a venture, you should decide if you want to confront the big guys head-on or if you should instead explore greener pastures.

6. Customer Trust

Cybersecurity, data privacy, and data breach issues are fundamental in fintech because the companies have access to very confidential client information. Hackers have become more sophisticated in their tactics of accessing a fintech company’s data, making it difficult for ventures to protect themselves.

Any delays in detecting data breaches can result in legal exposure and negative publicity. Investors in fintech companies should review the company’s procedures for protecting sensitive clients’ data, networks and systems. 

7. Customer Acquisition

Customer acquisition is essential for fintech startups. The methods of acquisition will vary depending on whether the company has B2B or B2C offerings. However, it’s important to develop a marketing strategy before launching your Fintech.

Having a budget for different experiments on short cycles will enable you to disregard any strategies that aren’t working while fine-tuning the ones that are proving successful. It would be best if you consistently refined the tactics until you are comfortable that the venture will thrive at scale.

8. Getting Early Adopters

Getting early adopters is very critical for any business because it determines the initial product-market fit. In B2B, the sales cycle can be very long, especially for big companies while for smaller enterprise customers, the cycle can be a slow as six months. For B2C, getting early adopters is relatively easy, especially if incentives are used.

Startups must understand their market segments, their sales cycle for both the “proof of concept” phase and the commercial rollout phase. In the early days of a company, it is acceptable to be opportunistic, but at some point, an organized sales process should be implemented. Most fintech companies fail to mature organizationally choosing to remain sales opportunistic because the CEO’s aim to please their venture capitalists.

9. Intellectual Property And Technology Issues

Venture capitalists and strategic investors of any fintech startup are interested in technology, software, and intellectual property. So investors will pursue several questions, including:

  • What crucial intellectual property does the company possess?
  • How differentiated is the company’s technology?
  • Does the company own the intellectual property?
  • Where is the company’s intellectual property domiciled?

10. Technology Choices

New technologies have emerged that have completely distorted the traditional financial industry. Machine learning, artificial intelligence, and blockchain are some of the techniques that are increasingly finding use cases in fintech. 

As a startup, you should restrict yourself to the technologies that will power the service. On the flip side, analytics engines and machine learning are now offered as a service by Google Cloud Platform, lowering the hurdle of development. It would help if you prepared to face some challenges when using these technologies because they haven’t matured yet. 

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