10 Issues Fintech Startup Companies Most Often Face

In 2019 the total amount of global investments into Financial technology companies reached $135.7 billion. The success achieved by this industry is mostly attributed to accelerating demand for fast and secure financial services. Thus many fintech startups have appeared in the recent years.

FinTech startup companies offer customers cutting-edge solutions using innovative technologies. Nonetheless, there are some challenges that FinTech startups typically face, especially during the launching stage, such as constraints of government policy, tough competition, and lack of investment. In this article, we will cover the 10 most common ones.

1. Raising Venture Capital and Strategic Financing

Many FinTech startup companies want to get a venture capital investor for numerous reasons. The most important factor is that they provide not only financial assistance but essential expertise as well. In fact, a Fintech startup gets the double benefit of having an investor and consultant in one person. However, it is hard to attract one.

Venture capital investors are interested in companies that have the potential to succeed, thus FinTech startups should be ready to provide all necessary information about their business model. It can be divided into four main groups:

1. Business idea. Investors certainly want to cooperate with a company that has a unique selling proposition. They also check the startup’s competitive advantages and its innovative ways to solve relevant issues.
2. Human resources. A good idea is only half of the success. Venture investors want founders and all team members to be competent in their fields and committed to the project.
3. Market information. A FinTech company should know its target audience well, have a well-thought marketing strategy, and be aware of the possible risks.
4. Financial information. A startup team should know how they will use the seed capital and if they will need further investment.

Strategic investors usually come from the same or related spheres. The key thing is that an investor should know market characteristics and have a good understanding of all the risks.

Raising capital is one of the most important issues FinTech startups face. Their success relies on funding as they can not focus on developing cutting-edge solutions and be competitive if they are underfinanced.

2. Having a Great Investor Pitch Deck

A pitch deck is an important point to consider if you want to build trust with investors. However, many startup companies forget that it is an impersonal way of presenting startup information, and to grab investors’ attention you need to live up to their high expectations. The issues investors face are usually connected with the lack of essential information, complicated language, and poor visual ideas.

A killer startup pitch deck should be well-structured, brief, and contain no more than 20 slides. Poorly structured and long pitch decks give an impression of incompetence. Without being overloaded, it should touch upon the most important startup features, team strengths, and market opportunities.

3. Regulatory Issues for Fintech Companies

The financial industry is one of the most regulated spheres in the world. FinTech is a new branch and it faces many hurdles because it doesn’t have an established reputation yet. Besides international rules and institutions defining the work of financial organizations, every country has its own regulatory bodies. To prevent future difficulties and problems it is better to have an experienced legal consultant in the team.

Nowadays a great variety of regulations refers to personal information storing. FinTech startup companies should be more careful about it not to find themselves facing public disgrace and lawsuits.

4. Big Data and AI Integration

Big Data and Artificial Intelligence (AI) are essential for the company’s further growth. Big Data is a way to collect and process big amounts of customer information. Not only can it be applied in high-risk banking, but also in online bookings (airline tickets, accommodations), cryptocurrency trading, etc.

AI in tandem with Big Data increases service efficiency, hinders cyber attacks and frauds, provides more personalized services, and improves user experience.

Although modern financial software can’t do without AI and big data, it may be difficult to implement them. These technologies need high-skilled professionals who know how to integrate and maintain them.

5. Blockchain Integration

Blockchain is one of the fastest-developing branches in the financial sector nowadays.

Although it is quite widespread , it is not eagerly accepted by governments and traditional financial organizations. It may become challenging for FinTech startups to integrate it due to various restrictions and regulations. Moreover, as it is still in the early stage of adoption, there are few experts who can offer their expertise in maintaining it.

6. Lack of Μobile and Τech Εxpertise

Traditional financial institutions lack the flexibility to cope with new technologies. That is the reason why many mobile banking apps offered by traditional financial companies have poor performance and user experience.

On the other hand, FinTech mobile app development solutions allow users to enjoy enhanced security options such as fingerprints unlocking or biometrical identification, simplified payments using NFC chips, and a user-friendly interface. FinTech mobile apps are fully integrated into the hardware and don’t require any specific smartphone functionality.

7. Cybersecurity and Data Privacy Issues

Although FinTech companies have succeeded in security matters, hackers are becoming more sophisticated in their attempts to get access to private data. As FinTech startups have access to personal information, the losses in case of a cyberattack can be dreadful. Companies that fail to protect their clients’ data face fuss in the press and legal concerns that may result in fines, lawsuits, and reputational damage.

FinTech companies should develop a cybersecurity plan, identify and tackle possible weak security points, and hire a team of specialists to manage daily issues and be prepared for all eventualities.

8. Growth Issues

The number of FinTech startups is constantly growing, there is fierce competition in the market. To expand and to gain new customers they have to concentrate on competitive solutions, which usually require substantial funding and a progressive development team.

FinTech startup companies have to compete with financial giants such as Goldman Sachs and PayPal as well. They need to define their niche and emphasize their benefits for a specific key audience not to fade away from the market.

9. User Retention and User Experience

Even if a company has a clear understanding of its value for the market and provides a useful and unique solution, it may still be difficult to get customers.

All financial organizations are forced to go mobile due to the increasing number of customers who prefer digital financial services. So, FinTech companies should pay much attention to the UI/UX design of their mobile apps. Users always prefer secure apps with easy navigation and rich functionality.

10. Retaining the Human Touch

In the ongoing search for innovative solutions and increased performance FinTech companies often miss the importance of the human touch aside and foster impersonal mechanisms of communication. At that point, they risk being left behind by traditional financial organizations. Thus, to prevent such scenarios consumers should always have access to the startup’s irreproachable services and support. Even if FinTech does not require personal support service, it is an option to consider in case of any urgent technical issues.

Conclusion

FinTech companies face many issues on their way to success. They should clearly understand the importance of fundraising. They have to deal with many legal obstacles. They need to be competitive as customers have a wide choice of options to choose from. Even if they enter the market it is often difficult to grow or at least to stay afloat.

Nonetheless, the market is on the side of FinTech. Traditional financial institutions have difficulties adopting new technologies and very few of them provide their clients with innovative solutions. A FinTech startup can gain a competitive edge if it offers worthy solutions, advanced security, and has an enthusiastic team.