Fintech products have become very popular in recent years thanks to the unparalleled degree of convenience they offer users. That doesn’t mean every fintech product will succeed. To create something users embrace, it’s important to avoid certain key mistakes.
The following examples illustrate some of the missteps fintech entrepreneurs need to be aware of. By knowing what could cause a fintech product to fail, innovators can strategize accordingly.
The fintech revolution happened fast. That said, there are certain barriers which have slowed its progress. Regulation is a key example. Offering financial services to customers involves navigating complex regulatory waters. Fintech entrepreneurs who don’t have experience in the overall financial services industry could run into unexpected difficulties if they don’t plan carefully.
For example, the team behind the mobile investment app Robinhood hoped to add checking and saving accounts to its product last year. However, the plan had to be amended shortly thereafter.
The team had failed to alert an industry watchdog before launching its service. Because alerting the watchdog was not legally required, Robinhood’s team overlooked this step. That’s why it may be important for fintech startups to collaborate with banks.
Banks can leverage the innovations fintech companies offer. Fintech companies can leverage banks’ familiarity with applicable regulations. This approach yields a mutually beneficial relationship in which errors are less likely to occur.
Collaboration between fintech startups and traditional financial institutions is advantageous to both parties. However, not all entrepreneurs see it that way. They start companies with the assumption that banks are competitors. They should identify opportunities to work with banks rather than attempt to disrupt the industry completely.
The fintech revolution absolutely has had a major impact on the continued relevance of banks. However, the trust consumers have in major financial institutions remains. These institutions are not disappearing any time soon. Striving to make that happen is a mistake.
Failing to Prioritize Security
Assuming fintech products are comparable to those in other industries is another common mistake that can spell doom for a startup. People are generally slower to adopt fintech services than other digital products, such as social media or gaming apps. That’s because any product that stores their money and financial information needs to be as secure as possible before they’re willing to use it.
Fintech entrepreneurs need to prioritize strong security in their products. They also need to emphasize security in marketing campaigns. Even if a fintech product is capable of safely storing user information, potential customers may refuse to use it if they are unaware of the steps the company has taken to keep their information away from hackers.
Counting on Low Cost to Draw in Customers
Many fintech companies attract new users by offering existing financial services at low costs. By taking advantage of new technological developments, they streamline key processes in ways banks haven’t.
This strategy can only work temporarily. Major financial institutions have access to greater resources than startups do. While they may not immediately be able to match a fintech product’s lower prices, they can certainly achieve that goal sooner rather than later.
Fintech entrepreneurs who rely on the appeal of low cost alone will not succeed in the long run. Pricing is only one factor that enables companies to stand out among the competition. To create a product which thrives, it’s necessary to find additional ways to set it apart from existing financial products and services.
Working with Inexperienced Investors
Securing funding from venture capitalists is typically a requirement for any startup to succeed. However, some startups treat VCs as sources of funding and nothing more. They don’t realize that partnering with VCs who have some experience in or understanding of their industry is key to leveraging this relationship to its full potential.
Fintech entrepreneurs should seek investors who understand financial services. By doing so, they’ll get more than just funding. They’ll also gain a partner who can help them better understand the complexities of this sector.
This highlights the importance of collaboration in fintech. Even if a startup doesn’t directly coordinate with a bank, its product is more likely to succeed if the team building it utilizes their expertise. Tech developers without knowledge of the financial services industry aren’t likely to build products that stand the test of time.
That’s the most important point. Fintech is complex. The biggest mistake any fintech entrepreneur could make is to simply assume they’re an expert.