US fintechs continue to transform the financial services landscape. They raised $12.8 billion in Q1 of 2021, a 220 percent YoY increase in investments . Driven by consumer adoption, fintechs’ transactional value is growing at 8.6 percent . An estimated one out of three digital consumers today use at least two fintech services . Fintechs across the spectrum continue to outpace the market and traditional players.
While fintechs want to build reliable, cost-effective operations and compliance, their growth concerns need to answer these pertinent questions:
How to keep the advantage of staying “lean” as they continue to grow?
How to grow the business without losing the innovation, agility and responsiveness that made them attractive in the first place?
How best to navigate operational challenges?
Let’s look at the four big challenges that today’s fast-moving fintechs face, and what they can do to keep from stumbling and slowing their growth.
1. Managing operations with limited resources
In the initial growth stage, fintechs usually operate with a small group of professionals — who work well as a team with speed and agility — to a small customer base. With rapid growth, fintechs have a need to set up independent functions and expand their back-office capabilities. Functions such as payments, customer data management, billing, collections, regulatory compliance, transaction monitoring, customer support, dispute management, and so forth are all critical to overall success.
Setting up cross-functional infrastructure, running everyday operations hiring and training professionals with the necessary expertise incurs initial setup costs and extracts significant time and effort from management. During this critical phase, fintechs must continue to focus on offering speed and convenience to customers, which propelled their growth in the first place. It is indeed crucial to stay lean and operate with agility to sustain this important competitive edge.
Fintechs can set up all functions and teams internally during this growth phase. Another option is offloading some or all functions to a capable partner who will keep the cost of operations low using their experience and expertise, thereby allowing fintechs to focus solely on their core competencies.
2. Establishing a deeper customer connection
In financial services, establishing customer trust is critical for long-term success. Backed by innovation and technology, the fintech business model is built for speed and convenience, requiring little or no people interaction. Starting from customer acquisition to onboarding and servicing, the primary mode of customer engagement is digital in nature. Establishing a personalized customer connection in this scenario can be challenging.
In the case of an issue or a dispute, customers don’t necessarily follow up in the same channel. They can register their issue in one channel (web or chatbot) and then look for a resolution in another channel (in‑app) while expecting a consistent experience. They typically expect the customer experience professional to be insightful of their issue if they choose to interact over audio or video.
Creating an engaging omnichannel customer experience backed by AI, analytics and automation with a human touch can enhance customer value at every touchpoint. If fintechs understand their customers and their journey better, they will be able to build customer trust and confidence.
3. Addressing financial regulations and compliance
Regulators continue to promote innovation in financial services. However, as fintechs grow, they are also subject to regulations by different regulatory bodies — both domestic and international — that vary by state, country and region. Compliance then becomes a high priority business function.
Crucial to regulatory compliance is data. For example, a true understanding of the customer is necessary to prevent fraud and money laundering. Fintechs need the ability to manage more information and assess risks faster in the most in cost efficient way.
A well-planned approach to regulatory challenges results in better understanding and management of risks that can support their growth momentum. Building a strong compliance function around statutory stipulations like KYC, AML, FATCA and so forth prepare fintechs to address compliance challenges.
4. Managing cybersecurity and business critical risks
Increased hacker attacks make fighting cybercrime a daily responsibility for fintechs and an immediate challenge to data privacy and security. Spotting a data breach late — or worse, failing to detect one at all — can lead to steep fines and legal ramifications, not to mention significant detrimental exposure that can destroy a business and cripple a customer’s financial well-being.
It’s important for fintechs to explore proven, trusted avenues for protecting themselves and their employees, customers and business partners against today’s sophisticated and constant security threats. By leveraging security best practices and data governance principles, fintechs are better able to mitigate risks arising from such cybersecurity threats.
Let a growth partner help you scale faster in a cost-efficient way
Building operational pillars can be time consuming and cost prohibitive. Fintechs should choose specialists who can provide an end-to-end, off-the-shelf fintech support system. With experienced professionals fully capable of running operations, fintechs can significantly cut costs while enhancing operational performance and customer value. Doing so can pave the way for exponential growth for years to come while staying lean. Let’s talk.
1. CB Insights