5 Key Challenges Before FinTech Startups (and How to Overcome Them)


Remember the last time you transferred money online to a friend or paid at a restaurant with your smartphone? Those were made possible because of products from the FinTech market. 

FinTech apps are becoming a part of our lives more than we realize. With digital payments and enterprise finance solutions, mobile banking is becoming a norm, and the FinTech industry is growing quickly.

“96% of consumers are aware of at least one FinTech service. 75% of them use a minimum of one FinTech product.” 

While consumers are open to adopting FinTech products, there’s still colossal competition and several challenges in this sector that companies need to overcome. Let’s discuss the top FinTech challenges and ways to conquer them. 

1. Build Trust and Credibility

With the introduction of new disruptive technologies and modern solutions, it is hard to convince early adopters to trust the brand. Even when that happens, it is challenging to retain customers in the face of new FinTech applications coming up.

Solution: Content strategy & social media campaigns.

To convert leads to loyal customers, you must first understand the four stages of a customer journey. It begins with attracting the customer, convincing and closing them towards a purchase, or any conversion for that matter, and finally creating repetitive customers and word-of-mouth advocates. 

So to do that, we need to understand the customer segmentation and prepare a marketing strategy to target them. This strategy will serve as the base for customer acquisition and sales pipelines for the next few months to get the early adopters rolling and create the buzz.

Once you’ve managed to rope in new customers, the key here is to retarget them with marketing messages to ensure you stay in their minds. You can use user stories, reviews, and educational material to help customers engage more with the product. 

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2. Choosing the Right Tech Stack & UX

The right tech stack plays a vital role at every turn in any business, especially for a technology-driven market like FinTech. The tech stack will determine the performance of your application. It will help your developers code faster, which means faster development cycles and product updates.

However, choose the wrong tech stack, and you’ll find yourself taking a long time to fix even the basic bugs. Sometimes, when a platform or a language becomes unsustainable, it can mess with the whole balance of your application. 

Solution: Look for commonly-used tech stacks in FinTech with your system architects.

When choosing the frameworks and programming languages to use for product development, you need to do in-depth research on every technology you choose. The right tech stack will make your job so much easier to maintain your codebase and spend less money on maintenance costs.

You can start by comparing the popular tech stacks already being used in the FinTech market and evaluate them based on your useability requirements and budget. Make sure to give your system architects a free hand to choose the best tech stack they believe would help implement your idea. 

Here are some of the common FinTech tech stacks used:

  • Java 
  • Python
  • PHP
  • C++
  • C#
  • Ruby
  • Kotlin
  • Node.js
  • MySQL
  • SQL Server

FinTech companies use Scala, Ruby on Rails, .NET, and Go for blockchain projects. You can choose the ones that work well with your product idea and integration requirements.

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 3. Ensuring Tight Security & Data Privacy

Did you hear about the ransomware attack on Finastra just a year back?

Finastra, one of the world’s largest FinTech companies with offices in 42 countries, took their servers offline voluntarily in March 2020 when they noticed a ransomware attack. 

When such top financial firms are vulnerable to unscrupulous attacks, it is even scarier for any new and upcoming FinTech company. 

“71% of adopters worry about the “security of their personal data when dealing with companies online.”

A survey by EY on global FinTech adoption in 2019.

With customers being concerned about their data security and privacy, it is essential more than ever to reassure them with foolproof security features.

Solution: Establish high-level security

Customers trust FinTech apps to keep their confidential banking information safe and secure. 

You should employ high-level security features like AI fuzzing, data encryption and obfuscation, behavior analysis, and other relevant technologies to make your process secure. 

On the customer side, you can implement two-factor authentication, biometric authentication, and real-time alerts through messages, emails, and phone calls and educate them often about the best ways to keep their information secure. 

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4. Scaling the Startup

The lifecycle of a startup looks something like this: Create a product, customize it regularly to fit the market needs, generate loyal customers, reduce customer acquisition costs than customer lifetime revenue, create a loop of happy customers bringing in more, and finally, scale.

While numerous FinTech startups excel at most of these initial stages, only a few have entered the scale-up mode. This is majorly due to a few specific reasons:

Solution: Collaboration between the fast-growing FinTech startups and corporates

One potential and effective solution for scaling-up challenges is a collaboration between the startup and corporates.

While there are collaborations in the FinTech market between lenders, banking service providers and startups, a partnership between a FinTech startup and a large organization for scaling would be different. 

Based on the space you’ve carved out in your niche, you can add value to corporates in exchange for taking a load off your scaling needs. This could prove beneficial in increasing reach and cutting acquisition costs.

Complying with Government Regulations

FinTech companies are under tremendous pressure to understand and comply with government regulations. When there’s a breach in compliance, it can lead to major trust issues from the end-users, not to mention the struggle with the government.

“According to a survey by PwC, 82% of people believe the government should regulate the data used by companies, and 80% agree that government regulations are crucial for protecting customer information.”

With customers stressing the importance of compliance, it is essential for companies to be on top of it.

Solution: Hire a consultant to oversee the compliance

Government regulations are in place to protect the customers. So, companies must ensure that their transactions and operations are well within the observations. And one of the best ways to do that is to hire a legal consultant. 

This consultant can help ensure that you’re following all the regulations and keep you informed about any new regulation updates. The consultant can also sit in for new features or product developments and advise the team on the rules. 

For US FinTech companies, here are some of the regulatory laws and institutions that need to be followed:

  • Federal Trade Commission
  • Consumer Financial Protection Bureau
  • State’s data breach notification laws
  • Gramm-Leach-Bliley Act
  • Financial Industry Regulatory Authority 
  • Fair Credit Reporting Act 
  • Fund Transfer Act 
  • Federal Deposit Insurance Corporation
  • Securities and Exchange Commission
  • Commodity Futures Trading Commission
  • New York Department of Financial Services Cybersecurity Rules
  • Financial Crimes Enforcement Network’s Anti-Money Laundering laws

You should also comply with the European Union’s GDPR if you have customers from Europe. 

Wrapping Up

FinTech apps are growing in number, and competition is becoming intense. While there are many challenges, you can turn them into an advantage with a few purposeful strategies. It is vital to stay on top of your customer requirements, security features, and regulations to register that initial success and make way for scaling and keep providing the best user experience.

Also, read our article How Startups Can Leverage Artificial Intelligence and Machine Learning for more information that can help you. What is your biggest challenge as a FInTech startup? Let us know in the comments below.

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