Future-Proofing Fintech
Lessons in Resilience and Growth Management (And 3 Common Pitfalls to Avoid)
With the fintech industry rebounding from sluggish growth over the past few years, many firms are looking for aggressive ways to spur rapid performance and outshine their competitors. However, this approach can lead to significant vulnerabilities that threaten the survival of many fintech firms. In this article, we look at three ways fintech companies can strengthen their resilience and navigate often overlooked hurdles to growth.
1 - Prioritising Growth Ahead of Risk Management
Fintech companies must prioritize risk management alongside growth. This axiom can be overlooked in a dogged sprint to expand, leading to significant challenges and (sometimes) fines. For example, early warning signs of potential risks, like customer complaints or technical issues, can be ignored or underestimated. Teams can downplay these early warning signs until they escalate into significant problems. Integrating risk management strategies into your growth decisions can help limit risk exposure and potential regulatory hassles.
In the highly regulated fintech environment, safeguards like creating a risk management framework to identify, assess, mitigate, and monitor risks become paramount for sustainable growth. Continuous efforts to conduct thorough risk assessments for all strategic decisions will create an ongoing net against foreseeable hurdles that a fintech firm may face, especially during growth.
2 - Celebrating Product Market Fit Too Early.
Product market fit is often idolized as the sweet spot for maximum returns in all startups. However, finding the right fit for a fintech company seems to be underlined twice. This is because adopting a fintech product can heavily rely on happy recommendations from existing customers - a signifier of customer trust.
Abias that can overstate the success of initial traction is the presence of overenthusiastic early adopters. They can provide significant positive feedback early on, which leads to fintech assuming that the market validates their new product or services. This then leads to skewed decision-making regarding available resources and possible complacency in the improvement cycles of each product. Setting high standards for product market fit or requiring the continual validation of a product can help meet the evolving needs of users - and ensure that a fintech product is welcomed by the market.
3 - Ignoring Business Cycles
Market fluctuations can significantly impact the evolution of a business, and with fintech solutions so closely tied to the economic cycle, these firms need to keep a close eye on economic indicators. In a competitive environment, the temptation to focus heavily on immediate market opportunities without preparing for downturns can leave a firm vulnerable. Diversifying product offerings or revenue streams can help fintech firms remain resilient during these times - and give them more options to pivot or adjust their business models accordingly.
A fintech business is affected not just by economic downturns but also by the actions taken during times of expansion. Fintech firms, in pursuit of growth, can incur high costs and take on more debt to fund growth strategies - carrying over the burden to times of economic slowdown and, in turn, adding more pressure to the business. Regularly conducting stress tests and practicing cautious expansion can help fintech firms prepare better for economic downturns.
In the quest for rapid performance and competitive edge, fintech firms must remember the importance of resilience and strategic planning. Ignoring business cycles, celebrating product-market fit too early, and neglecting risk management are pitfalls that have led many to falter. Fintech companies can navigate complex growth challenges by focusing on these critical areas while maintaining stability. This approach mitigates risks and enhances the firm's ability to adapt and thrive in a fluctuating economic environment.