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Media outlets continuously present stories about the success of FinTech firms, whose number keeps growing as time goes by. However, those who do not reach the same heights are rarely talked about, which makes us forget how complicated it is to bring a brilliant idea to life. Here, we have taken the most widespread lethal mistakes that an emerging FinTech venture can make.
Realizing that additional funding is necessary is far from actually receiving money from investors to the company’s account, as all the intermediary steps must also be taken into consideration. It can take from a couple of months to a year to get someone interested and engaged into your project. Meanwhile, regardless of product’s quality there won’t be much demand on it as buying from a financially unhealthy company isn’t a sane decision. The strength and viability of the company is directly derived from the funding it has received. The most suggested timing for starting to raise venture capital is at least six months before you need it.
Careless choice of investors
In the financial services industry experience truly matters. VCs chose for fundraising must be selected on the basis of experience and understanding of the space. If a startup decides to go with a bank or insurance company all the nuances including regulatory approval, type of reporting and governance etc. must be considered. Various organizations work under various rules and have different operational dynamics, which is why investors must be chosen with proper attention.
Disregarding legal aspects
The tough regulations in the financial services industry include securities law in capital markets, laws protecting borrowers, privacy laws on personal data and much more. Without carefully studying the legal environment when developing a business plan companies risk to find themselves in legal traps that are difficult to get out from. Proper licensing and all relevant laws and requirements must, therefore, be prioritized by FinTech companies.
Weak compliance procedures in place
Compliance is crucial for the successful development of startups that operate in the financial sector. This matter concerns everything from anti-money laundering, know-your-customer, counter-terrorist funding (AML/KYC/CLF) measures, as well as the recently issued PSD2 and consumer data protection means. Hiring a competent compliance officer becomes a key step for ensuring future success with no obstacles. Growing a FinTech startup is not the same as any other tech one, so all the industry’s peculiarities must be accounted for.
Too much attention to cost
The cheaper price on financial products and services is truly highly attractive. However, FinTech startups often make a common mistake by overlooking the great advantages of traditional banking institutions. The best solution for FinTechs is finding an intrinsic differentiator, rather than focusing on lower costs enabled by the innovative technology application.
Payment sector is quite simple to enter, yet highly challenging to succeed at. Many mistake the ease of entrance for easy success, which inevitably leads to failure. One of the main reasons for this is the fact that the sector is already highly crowded, especially with tech giants developing their own mobile payment platforms. FinTech startups in the sector need to take into consideration the number of stakeholders they will have to deal with and the networks that already exist in the sector.
Ignoring economic cycles
Expansions and contractions of economy will inevitably affect a FinTech startup. When developing a business model for the company the current business cycle must be considered with all of its nuances.