In recent times, innovations in financial technology have transformed the way we connect with our finances and dramatically changed how we manage our money. Fintech (Financial technology) startups are growing dramatically and are predicted to grow more in the next few years as they offer outsized growth opportunities.
However, the Fintech startups space faces various issues and challenges, from regulatory to fundraising and competition. In this article, Eyal Nachum will outline some of those key concerns and challenges.
1. Funding and Emerging Data Analysis Capabilities
Forming a Fintech startup isn’t cheap. This could be a technology or personal challenge faced by several startups. A company may have the most superior system but lack the good talent to analyze data and develop actionable insights.
If a venture cannot develop the whole product and work on business development, they should be ready to shell out a good sum for talent. As conventional institutions attempt to assimilate Fintech talent for them, startups certainly face competition in the hiring.
There are even the usual capitalization and operating expenses linked with starting a business. What further raises the expense for Fintech startups are integrations with conventional institutions such as banks and brokerages.
Many governments are making rules to control the Fintech sector. Some startups are finding it difficult to achieve licensing on time, which interrupts their innovation processes. Another challenge in the Fintech sector comes from analysis and enforcement actions of government– mainly to avoid money-laundering tricks. This is undoubtedly a positive development but Fintech companies face the challenge of complying with frequently changing regulations.
3. Fixed Financial Resources
The drawback is that fixed financial resources can stop startups from gaining scale. Many times, they cannot get the tools or talent necessary to take the business to the next level.
4. Investor’s Pressure to Rapidly Establish Operations
The pressure to rapidly get into the market, realize revenue and demonstrate acquisition and risk models to investors often causes products being brought forth ahead of time in order to hit fixed deadlines and avoid obstacles to future investments.
Many fintech startups are service-based and are therefore intangible. Unless one is communicating to a financially and technologically perceptive investor, it’s often hard for startups to explain their value proposition.
5. Building Credibility
When any new technology is involved, building credibility becomes a tricky issue. If it involves your hard-earned money, then things get even more difficult. As compared to other sectors, Fintech startups lack regulatory assurances and the huge brand credit that large financial institutions enjoy.
However, this issue can be tackled by digital marketing, if done in the right manner. Useful social marketing strategies that publish well-researched content, information, etc. reflect a company’s expertise.
To sum up, running a Fintech startup isn’t easy. Every day, these companies face many challenges that threaten the nature of their operations. However, despite all the hurdles, the future looks bright for the Fintech industry. Always remember challenges can be opportunities as well. There is an advantage possible in every endeavor, made incrementally easier when you climb to the challenge and keep the focus on the prospect on each occasion.