3 Challenges Every Fintech Startup Must Pass Through

What is Fintech?

The word ‘Fintech’ comes from the phrase financial technology and it refers to any innovation in how people transact business. It is the digitizing of transactions instead of human interaction and the handling of paper money. It involves everything from the invention of digital money to double-entry bookkeeping. Common fintech that we may use in the day-to-day include; PayPal, Flutterwave, Paystack, PiggyVest, and our banking apps.

To put it simply, fintech refers to the innovative technologies that solve problems in the financial services industry.

It has been said of Fintech that it is “bringing seismic changes to banking and finance”. FinTech makes it easy for customers to save money, invest, pay bills, access loans or other financial products at little or no additional costs.

However, it is not so easy a field for entrepreneurs to enter. Here are 4 challenges for the fintech startup to overcome:

1. Navigating the Regulations

For a fintech startup’s success, it is necessary that the founders follow the rules and regulations set out by regulators like Central Bank of Nigeria (CBN) and law enforcement. Although the CBN doesn’t have a cohesive FinTech regulation, there are several guidelines that have been issued especially in the digital payments sub-sector. These regulations aim to improve financial inclusion while allowing for continuous innovation.

For example, in 2015 the FinTech Fine Pay faced an issue when the police blocked their accounts after a 50-million-naira transaction. Fine Pay didn’t know the police had done this until the following week when a customer tried to use their service. When they followed up the case with CBN and the police, they said that there had been some fraudulent activity and the accounts wouldn’t be freed until after investigations. Before the Police released the accounts FinePay had to present a chart showing how its platform works, as well as a copy of its certificate of incorporation, a copy of its Central Bank of Nigeria (CBN) license and Proof of Registration with the Special Control Unit Against Money Laundering (SCUML).

2. Launching prematurely before the product is ready

It is ill-advised to launch your product prematurely. Even if you are a disciplined entrepreneur who is self-motivated and determined to meet self-imposed deadlines and launch dates, or maybe you are feeling the pressure from investors. However, if your product isn’t ready, DO NOT LAUNCH!

In particular, software and cloud-based products fall victim to this because founders can make updates and fixes regularly, but especially where the media and PR are involved, this is a big mistake. The media is already skeptical of startups and so are potential customers, afraid of being scammed or losing money, so sowing doubt harms your chances in the future and makes potential clients less receptive.

Even if investors are putting pressure on you, it is better to be open and honest about the fact that the product isn’t yet ready. In the long run, they will thank you because their money, as well as your brand name, is on the line.

3. Making changes to the concept

Founders need to be prepared to change their business model if need be. For example, PiggyVest, formerly PiggyBank, used to be mainly for helping millennials to save money and promote a savings culture, but their business model changed slightly to now include encouraging investing and setting aside money so it can grow and be used on a rainy day.

A tip given by Mr. Daniel Simon, author of the book: The Money Hackers: How a Group of Misfits Took on Wall Street and Changed Finance Forever, is to “Start with one idea, but don’t be narrow-minded about what your platform or company can be and accomplish.”

The overall takeaway is that it takes a lot of work to get a fintech product up and running, it’s not impossible but keep in mind that above are some of the challenges every fintech startup must pass through.