Fintech Startup Failure: How to Avoid It
Fintech is among the latest trends in the tech sector. The fintech market is anticipated to be about 460 billion dollars by 2020. Fintech Startups are driving this expansion and driving the digital revolution.
They’re launching new services and products using technological advances. But, making it to the top in this area is not without obstacles. While fintech companies begin with appropriate funds and investments but there is also a higher risk for business.
Many Fintech entrepreneurs believe they’re creating the next million-dollar enterprise. However, they have issues when it comes to scaling their business. There are also issues with the process of charging customers for their services.
Here’s the way fintech startups have faced failures and what they can do to prevent the same.
10 Reasons Why the majority of Fintech Startups Failing
1. Not receiving enough funds
A dramatic increase in investment is evident in the fintech industry which is the amount of USD 135.7 billion being invested in the fintech sector in 2019, as contrasted with USD 9 billion during the year 2010.
Even though we’ve seen an increase in investment in the Fintech sector, if you’re not receiving enough funding to fund your Fintech startup is more likely to fail.
To provide Fintech startup grow, using high-quality tools, skilled personnel, and other resources, they have to bear constant costs. Thus, having cash at the beginning with ongoing investment is crucial for fintech companies.
The lack of funding causes things to spiral uncontrollably for Fintech companies and causes failures. Fintech startup costs are high it is also necessary to maintain your business until you’ve got solid proof of the concept. Then, you will be able to maintain a steady flow of paying customers.
But, doing prior research on your product is vital. It is essential to create your business plan with rigour and include all costs that could be incurred to ensure that you make enough money to keep your business running.
You should consider the creation of the Minimum Viable Prototype (MVP) to prove your business plan and your idea.
An MVP can help with the testing of your company plan but also receives your audience’s feedback before launching. In the end, you’ll avoid financial loss and continually attract funding.
Investors are the most important aspect at the beginning of a fintech startup. and obtaining enough funds from them can increase the likelihood of success by providing the potential for returns.
2. Choosing the Wrong VC
While funds are important but the source of them you are equally important. The venture capitalists you work with do not just provide their funds. They also attach their brand name and expertise to aid you in running your business. If you choose the wrong financial institution, it could result in several mistakes.
It is always beneficial to pick an investor with experience in the realm of finance. A partner in investment from the same area can assist you in understanding the market since their knowledge is vital for the success of your business. In addition, investors who do not have financial background could stop financing your business in a short time.
You must communicate with your investors about their role in the company. Also, you need to determine the type of reporting they are expecting from you. and the type of governance they want for the business.
Being open about these expectations promptly will improve the odds of your business being successful. This promising start is an upward trend that was not present in the previous year, which saw fintech firms backed & raise $41.7 billion, the second largest annual amount in the past decade.
3. Doing too much Compliant
Compliance with regulations is crucial. However, not doing so excessively could lead to an early death for your fintech business.
A solid complaint strategy is essential. Particularly, stakeholders in Fintech discuss cyber laws as well as several other regulations. You don’t have to worry about every one of these. Discover the top ones for your products and the business locations.
Cyber laws cover legal information technology eCommerce sales, legal informatics, as well as information security. Fintech companies also have to be exposed to anti-money laundering and funding regulations, and security of payments.
Therefore, you need to do thorough compliance planning before starting your fintech business. You must plan for costs and choose the best ways to comply.
Not being compliant enough without need is best avoided. However, you should seek advice from an experienced lawyer when you begin your fintech. Failure to follow this advice could fail.
4. Like Another Tech Startup
There are many different startups, particularly Fintech. The strategies and working models to progress are completely distinct in Fintech startups. However, they do make an error when they set up their business operations similar to other tech startups.
A majority of them have no grasp of how businesses work. They cannot also innovate their offerings.
If a fintech is to succeed, it must be to understand the mentality of its target audience. They must find out the way they spend their money, what is their fears about investing, and more. Furthermore, they need to understand the issues from both sides on both a consumer as well as a corporate level, since they each have their perspectives.
There are unique marketing strategies you need to employ in comparison to other companies. As a founder of a startup, you are not able to compromise the individuality of your business and perform everything like every other startup. Knowledge of your clients and the market is crucial for ensuring that you do this correctly.
5. Thinking of Cost as a Factor to Eliminate Competition
You might think of reducing the price of your products as an intention to cut out the competitors. But, if your customers are aware of your usual discounting methods and it only increases with time. Particularly, when your regular pricing for your products is discounted.
Additionally, since the discounts, you have offered previously have reduced the price of the product, however, what are your plans for future profits? And why should consumers pay for additional discounts later on?
Therefore, discounting creates unprofessional behaviour that reduces your opportunities to improve margins. So, don’t try to complete expenses, particularly if you are a Fintech start-up.
6. Underestimating your Competitors
Many fintech startups are forming and if you think they’re not going to affect you, you’re creating one of the most costly errors.
Here are some ways to ensure that you don’t underestimate your competition Here are some ways to not underestimate your competitors:
- You must continue to improve your products and services to your customers and investors to make sure that your competition can’t attract your customers.
- It is essential to update and upgrade your product regularly to take advantage of the latest technological advances
- Pay attention to the processes used by your competitors to make decisions and business decisions
- Develop better strategies for marketing and implement new business strategies in comparison to your competitors
Even if you’ve become a household company in the Fintech sector, you are expected to keep a careful check on your competitors because you are never sure when the situation will be altered in this extremely competitive field.
7. Understanding your Customers: A Step-by-Step Guide
It is crucial to know the way that customers take when it comes to their finances. If you don’t grasp the nuances of consumers’ behaviour, you won’t succeed as a fintech start-up.
In a hurry to catch up with your competitors and vendors You could be unable the opportunity to know your customers and their needs.
Listening to your customers’ feedback and converting their feedback into innovative product features is a huge challenge. However, this will result in positive outcomes, particularly if are a Fintech start-up.
It is essential to understand the way your target audience in each section saves money, makes investments, and manages their financial affairs. For instance, when it comes to banking apps on mobile devices customers, those who are between 20 and 30 are seeking out the latest financial tools. Contrarily, those who are 30 and older want to earn more rewards. In the meantime, those older than 40 are only looking for interest rates.
Therefore, you must learn these details to comprehend your customer base.
But, age is just one of the factors. Other aspects like gender, education level, and financial status along with other factors, have to be studied to better understand your clients.
Additionally, from a consumer’s perspective, embracing and using fintech products requires a thorough understanding. Therefore, not understanding your customers could result in the most serious mistakes.
People are attracted to what they know and their actions are easily tracked. Therefore, presenting your customers according to their behaviour can lead to growth in the Fintech sector.
According to research, consumers like the market’s biggest segment. is Digital Payments with an expected worth of US$8266,917 million by 2024.
8. The overloaded product offerings of their competitors
Since innovation and technology are the strengths of fintech, they believe that all customers would like more. Therefore the Fintech startups race to the finish line for new capabilities, speedier services, and more efficient solutions.
They fail to think about and understand what their customers want and over-produce their offerings.
Fintech companies should consider the experience of customers at the top of their list. It’s easy to forget what consumers are searching for when transitioning to new technology.
When you are making changes to your product ensure that you take note of your client base.
9. The ability to innovate without technical Functionalities
The new technical capabilities including Artificial Intelligence (AI) and Machine Learning (ML) features can take the risk out of financial decisions. Innovative learning tools further cut down on the inconsistency of investment and savings decision-making.
Chatbots can help you keep costs for staffing down. You can detect and respond to fraud through features that give you insight into your payments past.
All of these technical functions can help Fintech startups in their quest to develop with technology. Inadequately implementing continuous innovation after the product is launched could result in failures.
Also, Fintech startups need to simplify their services and products by constantly introducing new features.
To a certain extent, Fintech has led in the field of user-friendly technology and has provided consistent user experiences across various channels.
10. Uncertainty regarding the Revenue Model
Every startup’s revenue model is essential to its growth. For an entrepreneur in the fintech industry, it’s crucial. This is because customers ask fintech startups about their revenue model. For instance, consumers believe that if they are asked for the price of a product to be higher by a fintech business, it will be a part of the gains from investors.
But, gaining consumer trust is crucial for fintech firms and directly relates to the revenue models they employ.
According to Forbes, Startups that have received the highest money to date have created an affordable product variant of an existing financial product. The customers already pay for it, compared to a brand new product that has a distinct value offer.
Startups that have lower expenses for distribution and setup use the power that their connections have. In other situations, it is crucial to establish the most precise revenue model. Also, decide how as a fintech start-up, you can make a profit in the future.
It is essential to know about the sources of income that you can earn, whether from customers or through digital ads. A business model solely based on the creation of new customers without having a monetization strategy can lead to failure.
If you are starting the fintech industry you may feel as if you’re in the middle of the world. However, to avoid failure, improving customer experience and providing customer service is something fintech startups need to follow in 2023.
Whatever advanced products or services customer interaction is crucial, especially for businesses that deal with finances.
Failures take place, however, so do business successes. Learn from the failures and successes of similar Fintech Startups and ensure that you can implement specific strategies.
At Brisk Logic we are a leading Fintech App Development Company We have helped develop fintech startups across the globe. Start your journey to developing and releasing a full Fintech product in the App Store with Brisk Logic.
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