Exploring the barriers to entry in Fintech

Regardless of how lucrative a market is, high barriers to entry in Fintech often makes it less viable or significantly increase the cost of entry.  In my opinion, there are only three fundamental barriers to entry in Fintech:

Capital or the seed money to launching the business. Unlike traditional financial serves businesses, such as a bank or an insurer, Fintech is a “technology first” strategy, that doesn’t require expensive infrastructure such as branches.  So, technology significantly drives down the cost of launching a Fintech business.

As we have already discovered, there is a sea of venture capital waiting to back the right Fintech business.  So, an attractive business model won’t find it hard to attract funding.  Now with funding in hand, you can attract the right people on board to help start building your Fintech venture.  We have already seen that top talent is favouring this sector over and above more traditional businesses.  So overall, capital doesn’t seem to be a big barrier to entry.

Technological barriers. A “technology first” strategy is driven by technology that is used to enhance financial services.  Without the right technology, you either won’t be able to start your Fintech venture or indeed start in a suboptimal way, possibly loosing customer trust even before you get going.  Some ideas may also be complex, requiring proprietary complex solutions, for example, algorithmic trading or block chain solutions for crypto currencies.

Again, we don’t see this as a significant barrier to entry in Fintech.  With capital and talent, and the right people driving the development of this technology, anything is possible.  However, for tried and tested Fintech businesses like crowdfunding or peer to peer lending, there are a vast number of high quality and proven white label solutions that can be purchased or licensed and plugged straight into your business model.

Regulatory barriers. Remember, financial services is one of the most highly regulated industries in the world.  Certain business models will require a regulatory license before being able to start.  This, in my opinion, is the biggest barrier to entry in Fintech.

Whilst the capital and technological barriers to entry can be measured on a scale, regulatory barriers are binary.  Either you get the regulatory license or you don’t.  If you don’t, then you can start a regulated Fintech venture.  It’s as simple as that.

In this case, you would have to go back to the drawing board to see how you could launch in a segment of the Fintech market that is not so regulated (for example, adopting an exempt model or becoming a supplier to the regulated market.)

Even if you get through the regulatory gateway by getting your license, you are still left with ensuring that you are compliant with the rules continuously.  Any significant regulatory breeches can result in the business being closed down.  However, if this barrier can be overcome by developing the right regulatory mind set, fully understanding the regulations and ensure careful planning to implement regulatory compliance in every business process.

Feeling overwhelmed or don’t have enough time to sit back and really plan your strategic approach?  Struggling to understand which regulations apply to your business model?  Then contact me for a Bespoke Strategy Session, and I will help develop a customized plan for your venture and help you make the right connections to get your Fintech business launched quickly.

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