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Drawing upon our extensive expertise of the fintech landscape, WinYield has compiled a how-to guide for avoiding common pitfalls and setting your fintech on the path to sustainable growth and success. With a proven track record in pioneering innovative financial solutions and strategic investments in industry leaders, including more recently Aria and TaxScouts, WinYield brings a wealth of knowledge on the fintech sector.
The fintech industry is an exciting and rapidly growing industry, and revenues are expected to outpace that of the traditional banking sector between 2022-2028, with three times the expected revenue growth over the next few years. In fact, the global fintech market is projected to reach USD 556.58 billion by 2030.
However, fintechs today have a success rate of 25%, and, more times than not, their failures come from common, avoidable pitfalls. Read on to learn how your fintech can avoid common failures and create a strategy for success.
In the competitive, expanding fintech sector, without a clear, persuasive value proposition, fintechs can get lost at sea. Ask yourself: What issue does my fintech solution address? Am I solving a genuine financing issue or taking excessive credit risk? You should be able to articulate what you offer and why users should choose your product. Ensure your value proposition is distinct and resonates with your target audience. To help you establish a compelling value proposition, you can create a Value Proposition Canvas using a template like this one.
Who is your fintech product for? Success of your fintech hinges on understanding who your customers are and what they need. Failure often results from neglecting users. Continuously collect feedback, ask questions, conduct user testing, and refine your product or service based on customer insights. A customer-centric approach is essential for fostering loyalty and long-term success. To learn more about customer centricity, we recommend David J. Bland and Alex Osterwalder’s practical guide Testing Business Ideas. Consumer demand is a primary driver for growth, so working for and with your customers can lead to success for your fintech.
Lending is first and foremost about taking risks. In our 20 years of experience working with alternative lenders and fintechs, we noticed that a combination of a customer centric approach and risk management is required to sustain companies. There should be both sales DNA and credit DNA present at the top management in order to succeed. Advisors can be a temporary solution but as lending predominantly is about credit risk, integrating a risk management strategy and expertise into the core of your fintech is crucial.
No matter what country or sector you’re in, financial regulations can be difficult to navigate. Failing to adhere to regulatory requirements can lead to legal issues and damage your reputation. However complex they may be, working within established financial regulations is more profitable long-term than trying to find loopholes. Recent research from the World Economic Forum found that a majority of surveyed fintechs found their regulatory environment to be acceptable and even favorable for their activities, though this varied by region. Though costly, you should invest in legal expertise or consult with an advisor to ensure your fintech complies with pertinent laws and regulations from the beginning.
Many fintechs try to expand too rapidly or without a scalable technology infrastructure in place, leading to their failure. From the start, fintechs should prepare for growth by constructing a robust and adaptable technology stack. Scalability involves not only handling increased user volumes, but also adapting to meet evolving market demands.
Inadequate data security measures can be disastrous for any company, especially for fintechs handling sensitive, financial data. Data breaches erode trust and can result in substantial financial losses. Implement rigorous data security practices, encrypt sensitive data, and routinely assess and update security measures to safeguard against evolving threats. Fintechs should take a multifaceted approach to data security, from the front end (2FA or MFA) to the back end (AI, tokenization, encryption). Invest in a reputable cloud security provider that allows you to scale rapidly once your fintech grows.
Fintech failures can often occur due to financial mismanagement. Overextending resources or pursuing rapid growth without a sustainable financial plan can lead to insolvency. Define what ‘success’ looks like for your company in your market, and set clear objectives that align with this. Develop a clear financial strategy that encompasses operating costs, revenue projections, and risk management.
Fintechs should always understand their competitors, and never underestimate them. Perform thorough competitive analysis to identify your competitors’ strengths and weaknesses. Look at the wider industry, and don’t only focus on your direct competitors in order to identify gaps in the market. Consider the wider impacts of competitors - How are competitors changing perceptions and expectations of customers? How are competitors navigating and engaging with regulators? Pinpoint opportunities to differentiate your fintech and establish a competitive advantage. Competitive analysis should be an ongoing process, continually gathering and building your knowledge of competitors.
Fintech success relies on having a skilled team. Failing to attract and retain top talent can impede progress and innovation. Ensure your team possesses the necessary expertise, including fintech, finance, technology, and compliance. Consider partnering with experienced advisors to fill knowledge gaps. Once you’ve attracted the right talent, you need to retain and nurture your team. Encourage collaboration and innovation within the team and provide opportunities for progression and learning. Understand the motivators and drivers of your team, and build a team ethos and mission around this.
Fintech is one of the most rapidly evolving sectors, and so fintechs must adopt agility, flexibility, and adaptation at their core. The rapid pace of the fintech industry, defined by experimentation and innovation, is what distinguishes fintechs from traditional financial products like banks. Budding fintechs should embrace an agile mindset and remain open to pivoting their business model or product offerings as market dynamics change. Agility is the key to staying relevant and competitive.
Don’t be afraid to collaborate and partner with established financial services firms or with other fintechs. Leverage the strength, resources, and expertise of others to boost your own growth. For instance, in late 2023, fintech FX leader Wise announced a partnership with Swift, a global financial messaging platform, to make cross-border payments faster. Collaboration plays a major role in driving innovation, allowing you to gain a competitive edge, meet customer needs, and effectively deliver on your value proposition. Partnering allows one to avoid recreating the wheel and is pivotal for gaining speed and agility.
Finally, understand that setbacks and challenges are inherent in the fintech journey. You’d be hard-pressed to find a successful fintech founder that has not encountered multiple failures before achieving their goals. Learn and grow from failures, embracing them as part of the process of experimentation and innovation. Adopting the above strategies will help your fintech to foster resilience and perseverance.
While there isn’t a single fail-safe method to guarantee success, taking a multifaceted approach can help set your fintech on the right path. To avoid common failures, fintechs should develop a compelling value proposition, embrace a customer-centric mindset, build strong risk models, prioritize regulatory compliance, establish scalable technology infrastructure, invest in secure data management, ensure financial sustainability, understand competition, attract and retain talent, adapt agilely, collaborate, and cultivate resilience and perseverance.
The fintech frontier is challenging, but with the right strategies and an unwavering commitment to continuous improvement, you can be one of the 25% of fintechs that succeed. Draw lessons from those who have traversed this path before you and embrace these strategies to sidestep common pitfalls while building a successful fintech venture.
WinYield is dedicated to provide fast, flexible and well-crafted facilities for fintech companies.
We provide credit underwriting, forward flows and high LTV facilities to early and more mature fintechs and marketplaces.WinYield empowers fintechs to thrive in today's dynamic financial environment. Get in touch with us if you are interested in learning more.
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