Fintech Startup companies are fast-growing financial technology firms embracing the new opportunities offered by technology and enjoying the profits from them. With over 1200 companies, there are many activities going on in the fintech sector. However, as large as the fintech opportunities are, they are also complex and have many pitfalls for even the most experienced entrepreneur.
Many governments are formulating rules to regulate the fintech sector. Some startup companies are finding it hard to get licensed on time. This is slowing startup companies that have new innovations. Another challenge for ever growing fintech sector comes from scrutiny and enforcement actions of government– mostly to avoid being related to the financing of terrorist activity and money laundering.
To comply with the laws, companies providing fintech services must comply with AML regulations. As soon as their business opens, fintech startup companies must have operational AML programs. The companies may unsuspectingly operate without complying with some regulations, and thus vulnerable to prosecution. For instance, in May 2015 in the US, the Financial Crimes Enforcement Network assessed a $700,000 civil money penaltyagainst Ripple Labfor its failure to maintain and implement an adequate AML program and its failure to register as an MSB.
Funding is a problem for new fintech start-up companies. There is an evidence that shows traditional sources of capital such as VCs are not too keen on this new technology. According to CBInsights, fintech startup sector saw a reduction in VC funding in the fourth quarter of 2015.
This year, VC-backed funding to fintech startup companies decreased. According to The Pulse of Fintech,the quarterly global report on fintech VC trends published jointly by CB Insights and KPMG International, investment to VC-backed fintech startups reduced by 49 percent in the second quarter of 2016.Thus, innovators who have good ideas but have insufficient or no funding find it hard to turn their ideas into reality.
- Building a good fintech team
Behind every successful fintech firm, there is an agile and well-diversified team of forward-thinkers. Since startup companies operate with limited resources, every employee counts. Therefore, it is imperative to have employees with a combination of experience and relevant skills for fintech companies. Even if you find skilled individuals, they will most likely ask higher wages because their opportunity cost is very high.
- Explaining Value proposition to investors and press
There are a lot of fintech startups out there nowadays. The majority of them are service-based and are therefore intangible. Unless one is speaking to a financially and technologically savvy investor, it’s often difficult for startups companies to describe the value proposition and more explanation is needed than in other industries. Therefore, fintech companies are required to know their products and to have efficient ways to tell their story for anyone to understand.
In conclusion, running a fintech startup is challenging. Every day, fintech companies are faced with many challenges that threaten the nature of their operations. However, despite these challenges, the future is still bright for the fintech industry. Feel free to give your idea a trial, “Stop being afraid of what could go wrong and start being positive about what could go right!”