If you’re prepared for these challenges, then you’ll be in a good position to launch a successful FinTech startup.
FinTech startups are on the rise nowadays. Thanks to innovative technologies like blockchain and artificial intelligence (AI), it’s easier than ever to revolutionize the finance sector. However, getting a FinTech startup off the ground is far from simple. It requires immense amounts of research and planning in order to be properly ready for launch. Despite best efforts, unexpected issues may arise during or after the startup phase—which is why it’s crucial to be familiar with the potential problems ahead of time. In this article, we will cover three common challenges associated with launching a FinTech company, so you can make sure your business takes flight!
Data security
The Sonic Mid-Year Cyber Threat Report for 2022 showed a concerning statistic: 2.8 billion malware assaults happened in the first six months of 2022, up 11% from 2021. There has also been a dramatic jump on the internet of things (IoT) malware (77%) and encrypted threats sent via hypertext transfer protocol (HTTPS) (132%). With this increase, data security has become a big worry for financial businesses all around the world.
Digital technologies enable the collection and storage of vast volumes of data, which are often personal and sensitive in nature. If information enters into the hands of malicious people, the risk of data breaches or identity theft shoots up.
ET’s analysis found that over 98% of the top 100 FinTech businesses are exposed to cyber-attacks, such as hacking and mobile/web app security risks. For instance, in September 2022, Revolut, best known for its banking app, ended up exposing the personal information of 50,000 customers worldwide, including their names, email addresses, phone numbers and partial payment card information.
Cybersecurity threats do not just affect tech giants; government bodies are also at risk! The Costa Rican finance ministry was overrun by hackers in 2022. When the government refused to pay US$10 million ransom, the hackers took down around 30 federal agencies.
This worrying trend implies that tech giants are not well-prepared to secure customer data, which can lead to major ramifications for businesses and their customers. To reduce the risk of cyberattacks, FinTech startups must take several steps, such as using strong passwords for authentication, encrypting data both in transit and at rest and investing in reliable security infrastructure. By taking such measures, these startups can ensure customers’ data is protected.
Talent acquisition and retention
It is no secret that the development of reliable and user-friendly FinTech solutions requires a high level of expertise. To create safe and efficient banking apps, for example, developers need to have in-depth knowledge of the latest technology trends and be able to identify potential security risks. Finding the right talent with the necessary skill sets can be difficult, and keeping them motivated and engaged can be even harder.
Not all companies are able to invest in building an experienced and qualified in-house team of engineers. As a result, they often have to rely on third-party providers or outsource the team who may not have the same level of expertise or commitment to quality. This can lead to subpar apps that are either insecure or difficult to use, neither of which is acceptable in the current market.
To overcome this challenge, companies need to focus on attracting and retaining top talent. This means investing in employee training and development programs that will help workers stay up-to-date with the latest tech advancements. It also means offering competitive salaries and benefits packages that will attract the best and brightest minds in the industry. The war for talent is intense, and FinTech startups must be strategic in their approach to recruiting and retaining the best and brightest.
Compliance
No doubt, compliance is a pressing issue for all FinTech businesses. It is essential for FinTech companies to stay compliant with regulatory requirements to protect their customers’ safety and data. Be prepared to put aside funds for obtaining licenses or other assurances and time for paperwork and keeping yourself up-to-date on regulation requirements. It can be intimidating at first to get everything in place, but it is essential, as irresponsibly managing regulatory compliance could prove costly in terms of penalties or reputational harm.
The good news is that there are some steps you can take to make the process of compliance less daunting. First, you need to have a clear understanding of the fintech legislations and regulations, as well as keeping up with any changes or updates. For businesses in the U.S., the Federal Trade Commission is the leading regulatory body to be mindful of. Important legislative regulations in the U.S., such as Anti Money Laundering Regulations, Electronic Fund Transfer Act, Fair Credit Reporting Act, and the Federal Deposit Insurance Corporation (FDIC), might be pertinent depending on the specific financial services offered. If your company is in Europe, you need to understand and abide by the General Data Protection Regulation.
Second, you need to put in place robust internal controls. This means having policies and procedures in place to ensure that your employees are following the rules and regulations. Also, make sure to have systems in place to monitor compliance and identify any potential risks.
Third, you need to make sure you have adequate resources dedicated to compliance. This includes having enough staff members with the necessary expertise, as well as budgeting for compliance-related expenses. Lastly, building trust with regulators. This can be done by proactively disclosing information about your business, being responsive to regulator inquiries, and cooperating with investigations.
To succeed in this new world of finance, entrepreneurs must be prepared for three key challenges: ensuring data security, staying compliant to regulations and hiring skilled talent. Entrepreneurs will have a greater chance of success if they understand and are prepared for these three challenges ahead of time.
Also read:
- The Rapid Rise of FinTech in India
- Which Sectors in India Are Good for Investment in 2022?
- [ Press Release ] From startup to scale-up: How fintech startups can get on the front foot
- How Does the Reserve Bank of India Promote FinTech?
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