The main challenges that fintechs face and how they can overcome them. #issue 1

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Fintechs are companies that use technology to provide innovative and efficient financial services. They are transforming the future of finance by offering new products, platforms, and solutions that cater to the needs and preferences of customers. According to statista.com, the global fintech market is expected to grow from $127.66 billion in 2018 to $350+ billion in 2024, with a compound annual growth rate of 25%+.

In Africa, the fintech industry is booming, with over 600 active fintech startups across 33 countries, raising over $320 million in funding in 2019. Some of the main trends and opportunities that fintechs are pursuing include digital-only banking, blockchain, AI, payment innovations, and financial inclusion.

Nigeria is leading the African countries when it comes to creating unicorns.

However, fintechs also face many challenges and obstacles that hinder their growth and success. In this newsletter, we will discuss some of the main challenges that fintechs face and how they can overcome them.

This newsletter is broken down into two issues on this part we will focus on security and regulations in the Fintech landscape. We really hope you enjoy all this weekly newsletter of which we release every Sunday to make you think more innovative and smarter in the fintech world.

Security and trust

One of the most critical challenges that fintechs face is ensuring the security and trust of their customers’ data and transactions. Fintechs operate in a highly competitive and dynamic environment, where they are exposed to various cyber threats and fraud risks.

According to kpmg.com, 48% of global CEOs in the banking and capital markets sector see cyber security as the biggest threat to their growth. Fintechs need to adopt robust and reliable security measures to protect their customers and themselves from cyberattacks and fraud.

Some of the ways that fintechs are enhancing their security and trust are:

• Encryption: Fintechs use encryption to secure the data and transactions that they process and store. Encryption is the process of converting information into a code that can only be accessed by authorized parties. For example, paystack.com, a Nigerian fintech that provides online payment solutions, uses encryption to protect the card details and bank accounts of its customers and merchants.

• Biometrics: Fintechs use biometrics to authenticate and verify the identity of their customers. Biometrics are physical or behavioral characteristics that can be used to identify a person, such as fingerprints, face, voice, or iris. For example, Zoona.com, a Zambian fintech that offers mobile money services, uses biometrics to enroll and identify its customers and agents.

• Blockchain: Fintechs use blockchain to create a decentralized and transparent ledger of transactions that can be verified and validated by multiple parties. Blockchain is a system of records that are linked and secured using cryptography. For example, BitPesa.com, a Kenyan fintech that enables cross-border payments, uses blockchain to facilitate fast and low-cost transactions between Africa and the rest of the world.

Now let’s get to the regulation part. If you enjoy the newsletter so far kindly share it with others to get the same value.

Regulation and compliance

Another major challenge that fintechs face is navigating the complex and evolving regulatory landscape in different markets and jurisdictions. Fintechs operate in a highly regulated and supervised industry, where they have to comply with various laws and regulations that govern the financial sector. For instance financial laws in south Africa are not the same as financial laws in USA or United Arab emirates. This is why you see most fintech startups/companies remain within their regions rather than global scale.

These laws and regulations aim to ensure the stability, integrity, and fairness of the financial system, as well as the protection of consumers and data. However, these laws and regulations also pose significant barriers and costs for fintechs, especially when they vary across countries and regions. Fintechs need to adapt and comply with the regulatory requirements and expectations that apply to their activities and operations.

Some of the ways that fintechs are complying with the regulation and compliance are:

• Anti-money laundering: Fintechs have to comply with the anti-money laundering (AML) laws and regulations that aim to prevent and combat the use of the financial system for illicit activities, such as money laundering, terrorism financing, and tax evasion. Fintechs have to implement AML policies and procedures, such as customer due diligence, transaction monitoring, and reporting of suspicious activities. For example, Flutterwave.com, a Nigerian fintech that provides payment infrastructure, has an AML policy that outlines its compliance obligations and responsibilities, as well as its risk assessment and mitigation measures.

• For example, JUMO.com, a South African fintech that offers credit and savings products, has a customer protection policy that outlines its commitment and principles to treat customers fairly and respectfully, as well as its complaint resolution process.

• Data protection: Fintechs have to comply with the data protection laws and regulations that aim to protect the privacy and security of personal data that they collect, process, and share. Fintechs have to obtain the consent of customers before collecting and using their data, as well as inform them of their rights and choices regarding their data. Fintechs also have to implement data protection measures, such as encryption, anonymization, and access control.

  For example, Lendable.com, a Kenyan fintech that provides financing to alternative lenders, has a data protection policy that outlines its compliance with the General Data Protection Regulation (GDPR), the European Union’s data protection law, as well as its data protection practices and procedures.

So far we have covered the rest of our #Issue 1, Stay tuned for #issue 2 where will cover legacy systems and financial scaling.

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yours,

Fintech World Team