Three Things that Fintech Firms get Wrong

They underestimate the vital importance of regulation 

Generally speaking, no one likes regulation.  However, for the alternative finance sector, these regulations may have actually contributed to it’s rapid growth.  Benefits of regulation are:

  • Competitive advantage, as weaker players are weeded out, or lose market share because of non-compliance;
  • Improved systems and controls required by regulations, leading to greater operational efficiency and enhanced profitability;
  • Better treatment of customers imposed by the regulations, that enhance customer loyalty and improves overall customer experience; and
  • Increased company valuation (for an exit) because of well defined, documented and embedded processes vetted by the regulators, stronger governance and focus on risk management, and robust feedback loops through upward and outward regulatory reporting.

The process is deliberately designed by the FCA to be a gruelling one, ensuring that only the strongest firms get through. Getting through the authorisation process is not like passing an exam, where you maintain your hard earned certificate forever.  Firms will have to comply on an ongoing basis or face regulatory censure, investigation, fines, customer redress, or closure through withdrawal of their authorisation.

Despite this, there are in fact ways that Fintech firms can tap into the sector without being caught in the regulatory net.  Donation and reward based crowdfunding is not currently regulated, but a recent call for input by the FCA, and the interim feedback document that pursued, shows that they will be tightening rules and regulation in this sector in 2017, due to the sector’s explosive growth.  An obvious way to avoid being directly regulated by the FCA is to become an appointed representative of a firm that is already authorized.  Then under this arrangement, the Principal firm (the authorized firm) takes full responsibility for the regulated activities of the appointed representative.

They don’t develop enough strategic and product innovation to excite the market 

For Fintech firms to easily acquire new investors and customers, their product has to be ten times better and more exciting than that of the competitors.  Acquiring new customers is extremely difficult.  Even if you have an innovative product, it still takes time and effort to educate your investors and show them why it’s better.  This is not only hard, but it can be expensive too.  Getting investors and customers to try out a new service costs a lot of money, and you just have to be willing to take this risk if it means landing yourself great customers.  It’s an iterative process where you need to experiment a lot until your investor acquisition is lower than you customer lifetime value.

They don’t deliver on their promise to customers 

Investor and customer trust is extremely vital to the survival of every Fintech start up.  At the end of the day investors need to trust companies with their hard earned money, whether or not they count on those funds for subsistence.  Customers and investors will remain extremely loyal to those firms that keep their promised and provide a transparent service.

Regulation is currently our core competence and we’ve helped several innovative financial services firms become authorised. Here are some ways in which we can help you:

  • Avoid being regulated – We can show you ways in which you can trade without being regulated.
  • Helping to accelerate your launch – We can show you ways to take advantage of regulatory exemptions while you go about preparing for authorisation.  You don’t have to wait to earn revenue with such a strategy.
  • Complete end to end support for FCA authorisation – working with you throughout the process until you are successfully authorised.
  • FCA Application – We can also help you submit an application to change your business strategy if you are already regulated, or to get certain key personnel authorised.
  • Advice and support – Whilst you take charge of the application process, we can provide support and guidance along the way.
  • Review – Why not let us review your application and get absolute certainty before you press the “Submit” button.
  • Preparing documentation – The authorisation process needs certain key documents on which your application can stand or fall.  Let us prepare them for you.
  • Preparing for FCA Interviews – We can help to prepare senior personnel who may face a comprehenisve FCA interview, prepare through a simulated mock interview.
  • Answer FCA questions – You will need to turn around questions put to you by the FCA.  Let us help you respond positively.

Call us today and we will be more than happy to do an assessment of your business or business plan.  We will review it, answer any questions you might have, and hopefully help you avoid huge costly mistakes.

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