Fintech is one of the hottest industries right now. New and innovative Fintech businesses are continually popping up, and investors look happy to splash the cash backing these businesses. Yet, despite this seemingly fast-paced growth, many Fintech startups seem to be failing. According to the Wall Street Journal, around 75 percent of venture-backed startups fail. There a whole host of factors as to why promising Fintech startups may fail, but these three factors seem to be the most common:
- A Lack of Capital
Despite more and more investors pouring money into the Fintech industry, the risks are still high for a Fintech startup, even if they manage to receive a reasonable level of funding. Costs such as technology, equipment and staff can very quickly eat into funds before the business is even up and running. It doesn’t matter what line of business you’re in, if you run out of money, you’re going to fail.
Suppose you’re a Fintech entrepreneur that’s seeking out an investor. In that case, you must choose an investor that can not only provide the necessary funds, but has the experience and know-how to take your company to the highest level. An investor who has a proven track record in helping propel Fintech businesses could deliver far more value than just money.
- Not Understanding Customers
Some Fintech businesses don’t have a clear understanding of who exactly they are trying to target – which is a mistake. Every person has different financial needs; for example, a millennials financial requirements will be different from that of a retiree. Fintech businesses must learn to understand how different demographics manage their money to serve them best. As the saying goes ‘If you try and sell to everyone, you end up selling to no-one.’
It’s also important to note that some people (particularly among the older generation) are not that bothered about adopting new Fintech products. Many are already happy simply using their existing banking and financial services. Just because the service on offer may be new and innovative, doesn’t mean customers are going to come flooding in.
- Competing on Price
Whilst Fintech is certainly making financial services cheaper and more accessible, it’s a mistake for Fintechs to try and differentiate themselves based on price.
Banks are likely to catch up with the level of services Fintechs offer eventually, and when they do, the ones who have been competing on price will probably be wiped out. Banks and financial institutions have massive scale advantages and will not have an issue in undercutting Fintech businesses on cost.
Fintech businesses have to find a real differentiating factor to succeed. If a company starts competing on price, then it just becomes a race to the bottom, and when that happens, you can say goodbye to your dreams of becoming the next innovative Fintech.
Understand the Risks and Learn How to Avoid Them
If you own a Fintech business or are considering starting one, you may be feeling overwhelmed by all the challenges that come your way. However, if you learn to understand the common pitfalls Fintechs face and how to avoid them, then failure shouldn’t be an issue for you.