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Four Factors Affecting the Growth of Fintech Startups

Peter Musila 5 months ago

Fintech has long been lauded as a disruptor, a technology that comes in and destabilizes the existing infrastructure for better or worse when it comes to banking and financial services. But what happens when other factors come into play to disrupt the disruptor?

Fintech companies are well placed to deal with the increasing demand on digital and remote working conditions. Fintechs have provided the required security, low-cost, and contactless financial tools to a vast client base. However, facing key challenges against growth, as the article will highlight.

Underlying Problems

  • Regulations

Digital technologies have proven to reduce the barriers that have existed in banks. Fintechs have been able to make it possible to bring services to clients who have had no access to the bank services. 

However, regulations have been a factor inherent to the startups; the companies feel the pressure as many cannot meet the requirements despite their financial muscle. 

  • Business models inspired by traditional finance

Customary business models are posing a pivotal challenge to the fintech industry. The big banks have now started stepping up and still have the potentiality to skew the market.

Notably, the banks have been in existence for decades, so they still can replicate the new trends hence outdo the startups. 

  • Credibility issues

The regulator has raised an issue with the startups being unable to explain how they came up with the algorithms they use in calculating interest rates for lenders and small businesses.

Many of the companies often fail to make it open. These companies’ data security concerns and cybersecurity practices to handle consumers’ financial data have also raised eyebrows.

  • Fintech bubble

An economic bubble is a cycle where asset prices surge rapidly and contradict fundamentals of the asset, usually driven by exuberant market behavior triggered by hyped-up innovations and fear of missing out.

The market is at the point of considering that the fintech will cause significant disruption, even though it will not be at a point of overtaking the traditional banking and hence the questions on the fintech bubble.

What are the factors you think are affecting the growth of fintech startups in the country, and how can they be addressed? 

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