What to Consider before starting a Fintech Venture

A Fintech venture is exciting, regardless of whether you are a startup or an incumbent looking to diversify into this new disruptive space.  That said, launching a Fintech venture is a challenging task that needs to be approached with careful strategy and planning.

It’ll come as no surprise when I say that the current financial system needs radical change. Traditional banking and other financial services businesses need to evolve or risk being left behind in the wake of the current technology and changing consumer behaviour-led disruption.  Let’s face it, the old system was known to lack transparency and, as in some cases, the old models didn’t put the customer at the centre of their business model.

Fintech Venture – One way to Transform Financial Services

Fintech doesn’t have to be all about startups.  Fintech is really about 3 things

  1. Disruption – somethings that is synonymous with a Fintech venture.
  2. Operational efficiency – bringing about cost reduction and speed.
  3. Better customer experience – putting the customer at the heart of the business and ensuring they have the best experience when engaging with the financial services firm.

Whilst startups have been successful in disrupting the status quo, incumbents can leverage Fintech to bring about operational efficiency and design better customer experiences. Of course, there is no reason why incumbents can’t also disrupt their very own market. However, I realise this takes boldness and forward thinking. Incumbents have too much to risk or lose by disrupting their own market.

So the hope of disruption is with new ventures, be they startups or intrapreneurial ventures within incumbents. That said, launching any such venture is not without challenge. Being prepared will ensure success. Let’s explore six of the biggest challenges and how to overcome them.

6 Biggest Challenges when  Launching a Fintech Venture

1. Fintech Regulation and Compliance

This is probably one of the most important points you need to explore. The detailed web of regulation and compliance that covers the financial sector can easily snare those ventures who don’t do their homework. Tight regulations can be a major headache for fintech ventures and result in very serious consequences if there is failure to comply.

It’s easy for high-growth fintech ventures to get so distracted with driving their expansion that they overlook details of compliance. Due to the innovative nature of fintech, sometimes compliance itself is a bit of a grey area, as fintech ventures break boundaries and build new parametres with the services and products they offer. There are major consequences for those who are caught not being compliant, often costing huge sums in fines – not to mention the impact it can have on a company’s reputation.

2. Competition

Large, incumbent banking institutions may be in need of a structural overhaul, but they still hold a lot of power … and assets. They are certainly not going to just roll over and die. Many of them are either funding their own fintech branches or looking to buy out those who have made a success of their ideas. The fintech sector has proven to be incredibly lucrative and startups don’t always have the longevity to take on the big boys. You need to decide how far you’re willing to go to make your idea work.

3. Customer trust

One of the biggest challenges that a fintech venture faces is acquiring customers. Customer acquisition costs are high. However, the bigger challenge is that customers are loath to switch service providers. Even if they hate their bank, they rather deal with the devil they know than one that they don’t. Many customers will be suspicious of new fintech ventures driven by technology. Customers need to be educated before they engage and build trust.

On a further point, anyone holding sensitive information about their customers’ financial needs, need be aware of and protect their clients from cyberattacks. People are understandably cautious in handing over this type of information and customer trust is vital to your success. This means you need to implement fool-proof methods to protect their data and then convince your customer to trust you.

4. Dynamic teams

Talent is what will dictate whether a fintech venture will be high growth or mediocre. Attracting and retaining talent will prove to be a significant challenge. Often, fintech talent is grown and not acquired. Learn to recognise potential, rather than have the urge to “steal” staff from banks and other incumbents.

The expertise required from your team in the fintech industry are not easy to come by. You’ll need to invest considerably in your team and ensure they have the relevant qualifications to meet all regulation requirements.

5. Unique and valuable services

Ensure your fintech solution is unique and offers a valuable service to your customer. This is a fast-paced and revolutionary sector and the goal posts are constantly changing. You’ll need to keep up with current developments and adjust your product appropriately. You’ll also need to keep an eye on your profit margin and ensure your business model has durability and growth – a hybridisation between a fast-growing Unicorn and a durable Cockroach, known by Vedanvi as a Uniroach.

6. Funding

Fintech is high growth, but the growth needs to be fed – and believe me, it needs a lot of feeding to grow a fintech Unicorn.  People, technology, regulation and marketing will be the biggest costs in the early days.  Trying to bootstrap a fintech venture is likely to result in failure and the venture having to shut its doors.

Investors are getting wise to the risks and opportunities in fintech and are becoming more selective in who they back.

Are you launching a Fintech venture? Are you facing any of the challenges above? Want to get a different perspective on your problem? Vedanvi has insights learnt from helping other fintech ventures launch their business – why not get in touch? There is no obligation whatsoever. We’re just here to help and maybe we can work more commercially in future.

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