Fintech startup companies are fast-growing financial technology firms embracing the new opportunities offered by technology and enjoying the profits from them. However, as large as the fintech opportunities are, they are also complex and have many pitfalls for even the most experienced entrepreneur. So considering the challenges comes first in this industry. Following are some challenges:
Many governments are formulating rules to regulate the fintech sector. Some startup companies are finding it hard to get licensed on time. This is slowing startup companies that have new innovations. On the other hand, for ever growing fintech sector comes from scrutiny and enforcement actions of government– mostly to avoid being related to the financing of terrorist activity and money laundering
This is another problem for the new startups. There is an evidence that shows the traditional sources of capital such as VCs are not too keen on this new technology. According to a report fintech startup sectors saw a reduction in VC funding in the fourth quarter of 2015.
However, last year, VC-backed funding to fintech startup companies decreased. According to another research, the quarterly global report on fintech VC trends published jointly investment to VC-backed fintech startups was reduced by 49 percent in the second quarter of 2016.
Building a good fintech team
Behind every successful fintech firm, there is an alert and well-diversified team of forward-thinkers. Since startup companies operate with limited resources, every employee counts. Therefore, it is authoritative to have employees with a combination of both experience and relevant skills for fintech companies. Even if you find relevant talent, they will often command higher wages as their opportunity cost is very high. It isn’t always easy to find them, but there seem to be motivated individuals out there who have this necessary experience; and they are really rare.
Explaining Value proposals to investors and press
There are a lot of fintech startups out there nowadays. The majority of them is service-based and is therefore intangible. Unless one is speaking to a financially and technologically savvy investor, it’s often difficult for startups companies to describe the value proposition and more explanation is needed than in other industries
High Expense Of Running A Fintech Startup
Another thing is, if you look in the business section of any newspaper, it would seem that every month you see a new fintech startup receiving huge funding at very high evaluations. When you hear of these big fundraises, also remember that there are several other fintech companies who are struggling to justify their high costs of building and operating to investors, as these result in much higher valuations.
Marketing to a less tech-involved and busier audience
The target market for an average fintech company is the broad financial services sector which is a sector that tends to prioritize security and reliability. Therefore, any significant changes come with potential risks in the eyes of this sector. While we have seen so many industries adopt technology at a quicker pace, the repressed need for innovation has only recently resulted in the explosion in the number of fintech startups.
Old legacy IT systems make new tech difficult
Many financial service companies adopted legacy software years ago. These programs have become such an integral part of their operations that they are hesitant to make any changes. Incorporating new technology into the work atmosphere is challenging, as compatibility between old and new systems remains a systemic industry problem.
Difficult to explain value proposition to investors, press and others
There are many different fintech offerings nowadays, however the majority tend to be service-based and are therefore are arguably intangible. Unless you are speaking to a technologically and financially savvy investor, it’s often difficult for startups to portray the value proposition and more explanation is required than in other industries.
Running a fintech startup is very different from running your average tech startup. However, the fintech industry still doesn’t have its Facebook, Google or Amazon equivalent, so if you’re willing to put up with the risks and the unconventional difficulties of finance then the potential rewards are incredible.
In conclusion, running a fintech startup is challenging. Every day, fintech companies are faced with many challenges that threaten the nature of their operations. However, despite these challenges, the future is still bright for the fintech industry. Feel free to give your idea a trial, “Stop being afraid of what could go wrong and start being positive about what could go right!”