Will fintech overturn financial institutions and regulations?
ANSWER: NO
To stage a revolution in the banking industry, fintechs can’t go it alone.
These startups depend on existing structures and regulations to gain market access. That means fintech founders must mix their entrepreneurial drive with an ability to work within the rules. Only some are able to walk that tightrope, which often require a reliable relationship with established banks and other financial institutions to strike the right balance.
Founders starting out in fintech need to know that they’re entering an established market, and adjust their attitude, experts say.
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“Fintech is really hard and the hubris I see in entrepreneurs and investors entering the space makes me worry that people have no idea what they’re getting into,” entrepreneur Savneet Singh wrote in a recent post on Medium.
Singh says fintech is hard to scale internationally and doesn’t respond to “regular” methods of growth hacking.
“It’s really hard to convince a random person to hand over their bank info, DOB [date of birth] and personal info. No matter how great the product is, that’s still a tough sell,” he says.
Banks are already leveraging their customer’s trust and data in creating new products to compete with fintechs. For instance, BMO’s SmartFolio, a digital advisor product, is fully integrated with its online banking system, an advantage that new startups can’t offer.
Even established startups are finding financial markets, and their regulations, to be challenging. Square is losing money according to its first quarterly report in March. And online processing service Dwolla was fined $100,000 for running afoul of data security regulations.
Given these issues, what does a fintech startup need to succeed?
Danish Yusuf, founder of Zensurance, a startup that offers pay-as-you-go insurance aimed at small businesses, says partnerships within existing structures is the way forward.
“Fintech is different from some other industries given the massive regulatory challenges,” says Yusuf. “Also, fintech startups love to claim that they are fighting the system and going against the existing powers. It makes for a great raison d’être.”
As a startup, find a quiet niche that doesn’t depend on existing financial infrastructure for customers, or find a way to work within the rules, not overturn them. Standing alone means you go nowhere – which is why so many startups partner with existing institutions.
See also
Will Fintech Force The Banks To Change?
Will Blockchain Revolutionize The World of Financial Contracts?
Frequently Asked Questions
Will fintech startups overturn financial institutions and regulations?
The article's answer was no. Fintechs depend on existing structures and regulations to reach the market, so founders must combine entrepreneurial drive with an ability to work within the rules.
Why is fintech hard to scale, according to Savneet Singh?
Singh said fintech is hard to scale internationally and does not respond to regular growth hacking, because it is very hard to convince a stranger to hand over bank details, date of birth and personal information.
What advantage do banks have over fintech startups?
Banks can use their customers' trust and data to build competing products. For example, BMO's SmartFolio digital advisor is fully integrated with BMO's online banking, which new startups cannot offer.
What problems were established fintechs facing?
Square was losing money according to its first quarterly report in March, and online processing service Dwolla was fined $100,000 for breaching data security regulations.
What does a fintech startup need to succeed?
Zensurance founder Danish Yusuf said partnerships within existing structures are the way forward. The article advised finding a quiet niche that does not depend on existing infrastructure, or working within the rules rather than trying to overturn them.