Financial technology innovations, or fintech, are changing the way consumers, banks, and companies handle their money. Even in the previous five years, technological developments have dramatically altered how individuals manage their finances. Fintech firms are continuously upsetting the status quo and generating development, while incumbent suppliers do everything they can to keep up. Financial technology involves enhancing and automating how financial services are supplied and utilized in both established organizations and new start-ups. These difficulties stretch our imaginations in new directions and foster exceptional growth, yet there is always space for improvement.
FinTech is a young, comparatively recent sector that is constantly evolving and growing. As with other emerging sectors, there are certain growing pains, and using cutting-edge technology might be challenging at times. The problems that are typical of the FinTech sector are listed below.
Regulations
The implementation of the EU’s General Data Protection Regulations (GDPR) has been one of the most major upheavals for businesses, including FinTech enterprises, with financial firms both new and old needing to devote considerable time and resources to guarantee compliance with the new rules. And GDPR, according to Top Forex Trading Brokers, is only one of several regulatory barriers confronting the banking sector, which has had severe limits imposed on how it may operate since the 2008 crisis. While conventional financial institutions frequently have entire teams to deal with these obstacles, the responsibility of compliance can often fall on a single courageous person who has to carry the weight of ensuring the firm is conforming to all the rules.
With a variety of worldwide legal frameworks to cope with, this can be a big problem, especially when rules fail to keep up with technological developments, leaving many start-ups working in the shadows.
So, what can Fintech companies do to avoid running afoul of compliance authorities?
Working with the authorities is an excellent place to start, which may be accomplished by participating in a regulatory “sandbox.”
Some authorities have also begun to permit temporary limitations, allowing financial institutions to test innovative ideas and lowering the initial barriers encountered by start-ups.
However, you should be prepared to scale your compliance staff in response to your company’s development and explore pooling resources with other Fintech firms to share some of the responsibilities.
Cyber Security
Efforts to prevent cyber-attacks are one of the most challenging difficulties that corporations and governments face across the globe, and they are a big concern due to the sensitivity of the consumer data that Fintech firms hold.
The number of significant data breaches is expected to rise in 2018, as cybercriminals execute more sophisticated and frequent operations.
This has resulted in organizations devoting more time and money to thwarting these assaults, with firms spending an average of $11.7 million on cybersecurity in 2017.
Of course, not every Fintech firm has that type of cash to throw at the issue. So, what can you do to reduce your vulnerability to cyber-attacks and keep client data secure while reducing your ever-increasing costs?
Traditional cybersecurity approaches are becoming unsustainable, therefore you may need to reconsider your strategy to defend yourself and your clients from cyber thieves.
As a result, it may be time to explore installing dynamic security solutions such as a ‘Moving Target Defence’ (MTD).
This approach aids in the thwarting of assaults by constantly altering the sites of attack and depriving hackers of the static targets they are accustomed to penetrating.
MTD has already been implemented by the US Department of Homeland Security and major European banks, with many more businesses anticipated to follow suit in 2018.
Competition and Risks
Creating a successful Fintech firm might seem like an uphill battle. It’s a continual struggle against established, heavy competitors like traditional banks; gaining inroads or establishing a footing can be tough, making industry rivalry a major issue for Fintech businesses.
Many banks have a negative perception of Fintech organizations: they regard Fintech as hazardous and harmful to support. As a result, banks all over the world are canceling their accounts with Fintech, thus unbanking the industry. As a result of traditional banking institutions’ hesitation, numerous Fintech firms are left battling tooth and nail for the financial services they need to function.
Bank distrust may be a significant impediment. Since the industry’s de-risking has taken root, Fintechs and money service firms have experienced a reluctance from the banks on which they rely to function, particularly globally. This wave of de-risking causes instability or even the incapacity of many Fintech businesses to get a competitive advantage in the market.
Customer trust is the other half of the risk coin. Fintech firms furnish a variety of new advantages, but they usually complain about the lack of image or sector credibility. Customers may be unaware that Fintech firms are subject to the same regulations as banks; money is such a delicate issue that extra assurance is required.
Fintech companies must be honest and truthful with their consumers in order to establish themselves as a reliable financial resource. These steps are key in helping to continue glancing at trust barriers and reducing perception gaps between Fintech and banks.
International Growth
The challenges that Fintechs face, such as risk and legislation, combine to create huge obstacles to worldwide development. Expansion generally relies on building local financial ties, a time-consuming and inefficient process that severely stifles growth.
Fintech companies usually rely on financial institutions to establish a system and obtain “For the Benefit Of” accounts (FBOs) and International Bank Account Numbers (IBANs). Furthermore, as they grow, many companies struggle to find banking solutions that can withstand numerous states or nations.
Compliance, particularly in the United States, is a major impediment. Fintechs must be licensed in all 50 states in order to provide a tech-led service to their client base, which is a costly and time-consuming procedure. The expense of conducting business worldwide — hundreds of thousands of dollars per year in each country in which you are licensed and regulated — is stopping entrepreneurs from expanding globally.
Customer Experience
It is undeniably difficult to transform the finance business. Making sure you communicate with consumers, despite the lack of face-to-face contact, is one of the most significant hurdles to developing trust. To fulfill the demands of their customers, FinTech firms must be succinct without being dull, clear without omitting critical information, and transparent without being scary. It is also essential not to lose track of the human component. Employ actual humans in customer support (rather than chatbots), for example, and give a phone number that consumers may contact if they just want to talk to a human. Also, make it straightforward for your customers to get the data they’re looking for. Optimize the User Experience (UX) and User Interface (UI) of your webpage, for instance, to keep online content original, relevant, and engaging.
