Fintech will be one of the fastest-growing businesses in 2021. Cloudification, blockchain, machine learning, and artificial intelligence, among other cutting-edge digital technologies and trends, are changing how we manage our accounts, pay for items and services, invest, and save. According to studies, consumer adoption of fintech increased from 16 percent to 64 percent in just five years. The COVID-19 pandemic has hastened the process: more people are using mobile banking apps, contactless payments, and cryptocurrency investments, while bank branches are seeing fewer visits, and cash payments are becoming less popular.
It’s not easy to start a business in such a competitive market as fintech, closely scrutinized by government regulators. A successful fintech firm that becomes a leading solution in its field, on the other hand, has the potential to serve millions of people around the world while also turning a profit.
Surf has built mobile apps for banks and a crypto trading platform for various fintech organizations, so we have a lot of experience handling financial problems. This article will go over the seven fintech industry challenges that practically every finance business has and offer advice on how to solve them.
Observance of regulations
Amongst many fintech industry challenges, the first is observing regulations. Government regulators in every country keep a close eye on fintech companies because they deal with personal and corporate finances and have access to a substantial amount of sensitive data. If you’re starting a fintech company, expect to contact regulatory organizations regularly, especially in the beginning as you work to obtain the necessary operating rights.
Every country has its own set of standards for financial services, so hiring someone who is well-versed in local legislation and, preferably, has a legal background is a sensible option. To avoid hefty fines and other restrictions, you must understand what license will be required for operation from the start. Here are the limits that your financial organization will most likely have to follow if you establish a project in the United States.
It’s a series of bank laws aimed at raising minimum capital requirements, increasing the ownership of high-quality liquid assets, and reducing bank leverage.
Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)
It is a series of rules aiming at safeguarding customers against high-risk financial products such as derivatives.
Current Expected Credit Losses (CECL)
It is a mandatory credit loss accounting standard for banks and other financial institutions that provide loans.
Telephone Consumer Protection Act
Telemarketing is subject to several constraints.
Laws Governing Security Breach Notification
They require a corporation to tell its customers if their personal information has been compromised in a data breach.
CAN-SPAM Act of 2003
It protects customers from fraudulent or misleading information and subject titles by regulating marketing.
It compels financial service providers, such as lenders, investment advisers, and insurance companies to educate customers about their data-sharing practices and preserve their personal information.
Partnering with a company that has already received the relevant licenses is one method to reduce fintech regulatory obstacles. Many neobanks, for example, work in collaboration with conventional, fully regulated banks. In this scenario, it’s critical to analyze the benefits of a partnership, hash out the terms, and determine whether the collaboration is a short-term fix or a long-term strategy.
Maintaining a high level of security
One of the most significant fintech industry challenges is cybercrime. Banks, according to analysts, are the target of malware assaults in over 25% of all incidents across all businesses. A single successful attack can result in millions of dollars in losses as well as, more importantly, user confidence. Consider this: if you were robbed utilizing a company’s services, would you ever trust it with your assets again?
An assault on a company’s infrastructure and servers, as well as a mobile app, is possible. Cyberattacks on apps come in numerous forms, including pirate programs, man-in-the-middle attacks, and clickjacking. In most cases, the success of such attacks is determined by code quality, insufficient cryptography, or unsecured app parts. You can read more about typical banking app security issues in our dedicated article.
Surf understands that security is the cornerstone of finance, and we consistently utilize the most outstanding security solutions to safeguard app users’ sensitive data. We constantly highlight the following security elements in fintech apps as must-haves:
- Every connection uses HTTPS and SSL security standards.
- End-to-End Encryption (E2EE) of transactions and private messages use cryptographic keys and both endpoints to prevent third-party interference.
- Biometric authentication with voice or facial features, or two-factor authentication with single-use credentials obtained by SMS or e-mail, are sophisticated authentication systems.
- If a user’s phone is lost or stolen, they can utilize the remote wipe feature to erase their data.
The level of app security is primarily defined during development – good coding and thorough testing protect against future attacks. Surf attempts to test the complete app code when designing finance apps. We use autotests instead of manual tests to achieve this as rapidly as feasible. For example, during the development of an app for a large European bank, we automated 75% of sanity tests performed by testers rather than programmers, resulting in a reduction of more than half of the total number of testing hours.
Keeping up with the latest technological advancements
Another one of the fintech industry challenges is to keep up with the latest technological advancements. Fintech’s use of cutting-edge technologies and early adoption of new solutions is one of its main advantages. Companies must leverage technology such as machine learning, cloud solutions, and blockchain to reduce the expenses of day-to-day operations, risk management, and compliance to stay on top of the game.
As more individuals use smartphones to manage their finances, the “mobile-first” strategy is gaining traction – establishing a bank account through an app without ever visiting a branch is gradually becoming the new standard. A B2C finance firm must intelligently invest in its consumer app – a user-friendly interface and attractive design are critical for user retention.
Native app development for iOS and Android takes a lot of time and money; in fact, you’ll be paying two different development teams to construct two separate apps. For many entrepreneurs, developing an app using a cross-platform framework may be a preferable option.
The surf was one of the first companies to use Google’s Futter cross-platform framework introduced in 2017. We utilized it to create the first Flutter-based banking app in Russia for Rosbank corporate clients. Cross-platform development required only one team of developers and a lesser budget – in essence, one code set was utilized for both Android and iOS apps.
Flutter also has a high level of security: the framework’s Dart code is compiled into non-human readable code, complicating the reverse rendering process and further enhancing app security. Tagline Awards, Russia’s highest prize for interactive projects, named the Rosbank app “the best app” in the Banking, Finance, and Insurance category in 2020.
Obtaining long-term customers
A well-thought-out marketing plan is required for cost-effective user acquisition. While B2C companies can rely on virality, B2B product marketing is more complicated. It begins with persuading other businesses that you can increase their revenue, and in the end, the B2C component of your marketing often plays a decisive role. One of the issues in fintech is determining the most successful methods for attracting new users: try out search engine ads, social media, content marketing, and affiliate networks to see what works best for you.
People are less inclined to try out several banking apps and switch them frequently than streaming platforms or food delivery apps. The majority of consumers select their fintech software solutions only once and for an extended period. The reliability of a mobile app is critical for B2C fintech firms that communicate with clients via mobile apps to create long-term customer relationships. If the app is a game, a 30-second freeze isn’t amongst significant fintech industry challenges. Still, if it’s a trading platform, you may expect to lose investors who were unable to settle their positions in time, as well as legal demands for damages.
When selecting a development company for your fintech app, pay special attention to their portfolio and related experience – for more information, see our dedicated post on outsourcing fintech development, including advice on selecting the proper developer.
Raising venture capital
Fintech is attracting a lot of interest from investors because of its quick expansion and many success stories. Nonetheless, acquiring the correct venture financing for your project is one of the biggest fintech industry challenges.
Strategic investors, ideally with prior fintech experience, can bring not only capital to the table but also items that are valuable to any early-stage fintech firm, such as:
- Familiarity in marketing and growth strategy that is applicable;
- Intelligence and insights into competitors and the industry’s current status;
- Introductions to possible customers, partners, and members of the team
To pique the interest of such investors, demonstrate that your company is “extremely focused on the problem you want to solve and very clear on the solution you propose,” according to Paolo Gesess, Co-Founder of United Ventures. Also, remember to offer a well-thought-out long-term financial plan and an awareness of the competitive landscape in the country where you intend to debut.
Another piece of advice for fintech firms seeking venture funding is to avoid tailoring your product to the investor’s needs or giving them too many rights (such as the first refusal of the company’s sale). That’s because this may drive off other investors and mergers and acquisitions prospects.
Taking on banks and large businesses
Fintech startups face stiff competition from existing banks, other financial institutions, and so-called BigTech firms like Google, Apple, Amazon, and Facebook. They are rapidly introducing their financial services. A new company must offer better convenience, faster processing, and lower fees to convince clients to pick its services over those of a well-known large brand.
Consider neobanks that provide digital banking services. Compared to brick-and-mortar banks, they were chosen by more than 40 million customers because they charged much cheaper commissions on transactions and ATM withdrawals and opened accounts twice as quickly.
Fintech firms’ ace in the hole is, of course, easy-to-use and dependable mobile apps. While bank applications are notorious for having a bad user interface and being slow to respond, fintech apps are designed to deliver a seamless experience when managing funds from home, the workplace, or on the road.
When creating a fintech app, keep current mobile app functionality and design trends in mind, such as the dark theme, which was formerly only used in e-books but is now a standard feature in applications across the board, including finance. For example, because traders frequently purchase and sell stocks on foreign exchanges in different time zones and non-professional investors evaluate their portfolios after hours, investment apps with a dark mode are helpful. Surf utilized a dark grey background with brilliant orange and white text to create a dark mode that is less taxing on the eyes and does not inhibit the secretion of the sleep hormone melatonin when developing an app for the Twim crypto trading platform.
Developing a successful company concept
Without sufficient income, a high burn rate (the rate at which a business’s venture capital is spent) can swiftly spiral out of control and ruin an early-stage company. As a result, it is critical to plan expenses and revenue sources from the start. Before establishing a revenue trajectory, companies should only spend the bare minimum in each of these categories:
Avoid overly quick team expansion, pricey offices, and team-building events by hiring those necessary professionals for the organization. Also, don’t try to match your employees’ pay to that of large banks or organizations. Instead, please provide them with additional advantages of working for your company, such as a flexible work environment or company stock for chief executives.
Marketing and sales
Don’t spend too much money promoting your products until you’ve established a clear market and audience for them.
Development of a product
Startups are all about getting to market quickly, therefore strive to deliver a minimum viable product (MVP) as soon as possible so you can show potential investors and clients something that works.
Fintech firms are upending not simply how traditional businesses provide services but also how they make money. We can mention the following fintech business models:
Small ticket loans
Because of low margins and considerable risks, big banks rarely give reasonable terms on small loans. Fintech businesses are flooding this market segment, implementing one-click buttons one-store web pages to provide a quick loan on the requested item without a lengthy authentication process.
Banks charge online retailers high transaction costs, whereas fintech startups like Stripe and Zettle offer small enterprises low-cost card acceptance and payment processing services.
Collaborations with other companies
If your business’s product is a free personal financial app, you can see how and where your consumers spend money and recommend products from partners at discounted pricing.
Alternative credit scoring
Many trustworthy people fail to pass loan screenings because banks utilize obsolete or overly rigid criteria. Fintech startups like CreditKudos and Juvo are changing this by using consumer transaction and mobile network data to establish financial identities and assess creditworthiness.
Insurance startups (InsureTech) can gain insights into various parameters and generate an accurate insurance premium with big data and AI algorithms. Capre Data, for example, collects data from social media and online platforms to provide insurers with improved risk profiling.
Commission-free stock trading was made possible by investment applications like Robinhood. Customers benefit from rebates from market makers and trading venues, which, combined with fees for money management and premium services, allows the platform to provide a $0 trading commission.
Because financial businesses are tightly linked to other people’s money and vast personal data, there are numerous fintech industry challenges. As more money flows through fintech, state regulators’ attention will inevitably increase, and any firm should be prepared to engage in extensive and fruitful engagement with them.
Also, established banks and financial firms do not intend to give up their consumers easily, and upstart enterprises face stiff competition due to their large budgets and strong brand images. New technologies, such as artificial intelligence and big data, the ability to offer lower fees and faster processing times, and the underbanked populations of developing countries, on the other hand, provide a new fintech company with every opportunity to create a revolutionary product and reach its target audience.
Mobile apps are the primary means of offering services for many fintech firms. If you want to start a business in the field, you’ll need to choose a reputable app development firm with a track record. Surf has extensive fintech experience developing apps for banks and crypto trading platforms, and we’d be happy to talk about your project and provide an estimate. Fill out the form, and we’ll get back to you as soon as possible.