Drawing of two planets, circled by a rocket, symbolizing challenges faced by fintech companies.

What Challenges Are Fintech Startups Facing Today

In an industry which is known to be slow to adapt to current digital trends, it feels like financial technology or more commonly known as fintech, is experiencing a renaissance lately.

Fintech startups are emerging from around the world. In a previous post, we listed some from Germany worth keeping an eye on. But that only provides a snapshot of what’s happening globally and what solutions are being developed. Technologies such as blockchain, machine learning, and artificial intelligence are being used to build products that improve the customer experience for financial services.

While all of this sounds great, behind the scenes there’s a number of unique challenges when starting up. Here, we take a look at what they are based on our experience working in fintech.

Fintech Challenge #1: Regulations

Through our consultancy trimplement and our work with fintech companies, we know very well just how regulated the industry is.

It can come as a surprise to newcomers in the industry, just how many regulations financial companies need to comply with. We’re not just talking about governmental regulations (e.g. banking and emoney licenses), but also regulations set by the parties who are running the banking infrastructure like the PCI Council.

An Anti-money laundering (AML) program needs to be implemented and running by the time of your public launch. For regulated markets, like financial technology, knowing your customer (KYC) processes need to be put in place when onboarding customers. That means you have to verify their identity before they can use the full range of your product.

Regulatory red-tape certainly slows down time to market. Yet it has provided opportunities for regtech startups to take on the mantle of solving these issues for fintech companies.

Fintech Challenge #2: Cybersecurity

As a startup, you will be handling extremely sensitive data, and that comes with the challenge of fortifying your infrastructure against cyber attacks. For anyone storing, processing or transmitting credit card data, PCI DSS compliance is a must.

With more financial data on individuals and companies becoming available digitally, the risk of security breaches becomes higher. In PwC’s Global FinTech Survey 2016, 56% of respondents identified information security and privacy as threats to the fintech industry.

Back in 2014, the Heartbleed and Poodle bugs demonstrated how tried and tested security protocols such as OpenSSL could become vulnerable to cyber attacks. No matter how confident you may feel about the security of your infrastructure, there is always a possibility of a potential hack.

Investing in security for a fintech startup needs to be a top priority to ensure customer confidence for your products remains high. After all, you’re dealing with personally identifiable information that your customers are trusting you with, and the loss of this data can be financially damaging for a person.

That’s why with balancr, we have the highest security standards implemented that will support your compliance. Our API platform is based on the product heavily tested by penetration tests and security audits to ensure your data is protected.

Fintech Challenge #3: Talent

The foundation of any successful startup, regardless of industry, is a great team. For startups operating with limited resources in the beginning, it’s essential to find the right people for the job.

Finding people with relevant experience in fintech can be challenging, because it’s a very niche and specialised industry. But that’s not to say it is impossible. There’s a lot of talent from the banking industry, with people looking for a change from the corporate world. The allure of a flexible work environment, more ownership and less bureaucracy makes a fintech startup an attractive place to work at.

According to The Globe and Mail, traditional banks are facing a recruitment challenge themselves with fintech startups providing an alternative working environment for potential candidates.

For an early stage startup, you’ll want to get people on board who share your values, are quick learners and have some experience with fintech products.

To get started with finding talent, you may want to check out the following platforms:

Fintech Challenge #4: Capital

It feels like every other day there’s an investment going into fintech with funding at high valuations. Despite the headlines you see about startups attracting millions in funding — there are others who are struggling to stay on top of their operational costs.

The industry is capital intensive. In addition to paying the cost of your staff, you also have the cost managing your data and setting up a secure infrastructure. All of which is necessary from a regulatory and security perspective, but ultimately takes your focus away from developing your core business. This is also one major reason why fintech startups need to close big funding rounds.

But with capital sometimes hard to come by, and as costs increase — fintech startups are forced to find alternative ways to generate revenue.


If you’re a fintech startup, we would love to hear from you. What challenges have you been facing? Let us know by leaving a comment below.

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