Louise Nickson recently sent me the below article entitled Why fintech startups fail. 5 mistakes and conclusions, which inspired me to do a little primary research of my own into the reasons promising FinTech start-ups have toppled in recent years. We’re not talking “couldn’t get off the ground”, but more “couldn’t survive” or “couldn’t scale”. As a consultant by trade, I’m sworn to be ‘action-oriented’ in all my conclusions, so here, then, are three actions the numbers say FinTechs could be focusing on about more than it seems they are.
To start with, the five reasons the authors lists for FinTech failure are:
- Ignoring legal aspects
- Ignoring the concept of money (understanding psychological behaviours around money, credit, savings, payments, etc.)
- Choosing the wrong strategic investor
- Ignoring the customer adoption challenges
- Being trapped by “financial institutions are our competitors”
But what does that mean FinTechs can do differently?
- My colleague Noorneet Singh has already mentioned the potential for Fintechs to collaborate with banks and this list of 7 Financial Institutions Taking Innovation Labs to the Next Level tells us that not all incumbents are trapped by the notion 'FinTechs are our competitors'. As well as a potential solution to the question of ‘collaboration vs. competition’ (which we in Deloitte help solve through our Upside programme), accelerators such as as these may start to answer some of the funding woes that have plagued start-ups, one of which is often “we ran out of funding” before shiping a completed product.
- We might add to that working not just with banks but also with regulators. Cases where legislation was violated from the beginning, are rare. One of the commonest pitfalls, though, relates to changing legislation, rendering a startup’s business model inviable. Examples range from the UK’s rules around redress claims to regulatory pressure on cryptocurrencies in many markets. Here, too, the solution is not one-sided, but taking advantage of existing regulatory sandboxes to test products and services in a controlled environment has proven a starting point for many FinTechs (see our reports on start-up experiences in the FCA Sandbox and on Fintech hubs for a fuller picture).
- Lastly, there is the question of customer adoption. I recall a successful entrepreneur advising me once that “just because you and your mates can’t find a cheap tour operator for weekend trips to Bali, it doesn’t mean the world wants one”. Cryptocurrencies seem to be especially prone to a knowledgeable handful imagining the rest of the world thinks the same way as they do. Does anyone actually feel a need to tip good website content in cryptocurrency? How about a wallet to store the rich variety of ‘coloured coin’ (that’s cryptocurrency representations of real-world assets) that just keeps falling down the back of your sofa? No? FinTechs must balance what the technology can do with the market readiness (yes, that’s market testing again) and, if there’s a discrepancy, there might be a case for watching and waiting, using the right technology when the time is right…
So that’s three actions to stop your FinTech from failing, but it’s far from the three actions. What are the lessons learnt from FinTech’s success and failure of recent years future FinTechs would be wise to follow?