Fintech Startups: 3 challenges you must be ready for before launch
If you are prepared for these challenges, you will be in a good position to launch a successful FinTech startup.
FinTech startups are on the rise today. Thanks to innovative technologies such as blockchain and artificial intelligence (AI), it is easier than ever to revolutionize the financial sector. However, getting a FinTech startup off the ground is far from easy. It requires enormous amounts of research and planning to be properly ready for launch. Despite your best efforts, unexpected problems can arise during or after the start-up phase – which is why it is crucial to be aware of the potential problems in advance. In this article, we’ll cover three common challenges associated with launching a FinTech company, so you can make sure your business takes off!
Data security
The Sonic Mid-Year Cyber Threat Report for 2022 showed a worrying statistic: 2.8 billion malware attacks occurred in the first six months of 2022, an increase of 11% from 2021. There has also been a dramatic jump in internet of things (IoT) malware (77%) and encrypted threats sent via hypertext transfer protocol (HTTPS) (132%). With this increase, data security has become a major concern for financial firms worldwide.
Digital technologies enable the collection and storage of large amounts of data, which are often personal and sensitive. If information gets into the hands of malicious individuals, the risk of a data breach or identity theft increases.
ET’s analysis found that over 98% of the top 100 FinTech companies are vulnerable to cyber attacks, such as hacking and mobile/web app security risks. For example, in September 2022, Revolut, best known for its banking app, ended up disclosing the personal information of 50,000 customers worldwide, including names, email addresses, phone numbers and partial payment card information.
Cybersecurity threats don’t just affect tech giants; public bodies are also at risk! The Costa Rican Ministry of Finance was overrun by hackers in 2022. When the government refused to pay a US$10 million ransom, the hackers took down around 30 federal agencies.
This worrying trend means that the technology giants are not well prepared to secure customer data, which can lead to major consequences for companies 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 their customers’ data is protected.
Talent acquisition and retention
It’s no secret that developing reliable and user-friendly FinTech solutions requires a high level of expertise. To create safe and effective banking apps, for example, developers must have in-depth knowledge of the latest technology trends and be able to identify potential security risks. Finding the right talent with the necessary skills can be difficult, and keeping them motivated and engaged can be even more difficult.
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 vendors or outsource teams that may not have the same level of expertise or commitment to quality. This can lead to inferior apps that are either insecure or difficult to use, neither of which are acceptable in the current market.
To overcome this challenge, companies must 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 technological advances. It also means offering competitive salary and benefits packages that will attract the best and brightest minds in the industry. The battle for talent is intense, and FinTech startups must be strategic in their approach to recruiting and retaining the best and brightest.
Compliance
Without a doubt, compliance is a pressing issue for all FinTech companies. It is important for FinTech companies to comply with regulatory requirements to protect customers’ security and data. Be prepared to set aside funds to obtain licenses or other insurance and time for paperwork and staying up-to-date on regulatory requirements. Getting everything in place can be daunting at first, but it’s important, as irresponsible handling of compliance can prove costly in terms of fines or reputational damage.
The good news is that there are steps you can take to make the process of compliance less daunting. First, you must have a clear understanding of fintech legislation and regulations, as well as follow any changes or updates. For businesses in the United States, the Federal Trade Commission is the leading regulatory body to be aware of. Important US laws, such as anti-money laundering regulations, electronic funds transfer, the Fair Credit Reporting Act and the Federal Deposit Insurance Corporation (FDIC), may be relevant depending on the specific financial services offered. If your business is in Europe, you need to understand and comply with the General Data Protection Regulation.
Second, you need to put robust internal controls in place. This means having guidelines and procedures in place to ensure that your employees follow the rules and regulations. Also ensure you have systems in place to monitor compliance and identify potential risks.
Third, ensure that you have sufficient resources dedicated to compliance. This includes having enough employees with the necessary skills, as well as budgeting for compliance-related expenses. Finally, build trust with regulators. This can be done by proactively disclosing information about your business, being responsive to regulatory inquiries and cooperating with investigations.
To succeed in this new world of finance, entrepreneurs must be prepared for three key challenges: ensuring data security, complying with regulations and hiring skilled talent. Entrepreneurs will have a better chance of success if they understand and are prepared for these three challenges in advance.
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Top image courtesy of Freepik
