- FinTech World
- The main challenges that fintechs face and how they can overcome them. #issue 2
The main challenges that fintechs face and how they can overcome them. #issue 2
Fintechs offer new and innovative solutions that often require integration and interoperability with the existing systems and platforms that are used by traditional players, such as banks, payment networks, and regulators.
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This is the second issue of our newsletter on, The main challenges that fintechs face and how they can overcome them. On this issue like mentioned on the previous one we focus on Legacy systems and scaling. If you haven’t read #issue 1 start here.
Legacy systems and integration
A third challenge that fintechs face is dealing with the legacy systems and infrastructure that exist in the financial sector. Fintechs offer new and innovative solutions that often require integration and interoperability with the existing systems and platforms that are used by traditional players, such as banks, payment networks, and regulators.
These legacy systems and platforms are often outdated, inefficient, and incompatible with the new technologies and standards that fintechs use. Fintechs need to overcome the technical and operational challenges of integrating and interfacing with the legacy systems and infrastructure.
Some of the ways that fintechs are overcoming the legacy systems and integration are:
APIs: Fintechs use APIs to enable the exchange of data and functionality between different systems and platforms. APIs are interfaces that define how different software components can communicate and interact with each other. For example, yoco.com, a South African fintech that provides point-of-sale solutions, uses APIs to connect its devices and applications with various payment networks and platforms, such as visa.com, mastercard.com, and SnapScan.com
Cloud: Fintechs use cloud to access and leverage the computing resources and services that are provided by third-party providers over the internet. Cloud enables fintechs to scale up and down their operations and capabilities, as well as reduce their costs and risks. For example, onafriq.com formerly MFS Africa , a Pan-African fintech that connects mobile money platforms, uses cloud to host and manage its platform and services, as well as to ensure the reliability and security of its transactions.
Open banking: Fintechs use open banking to access and offer the financial data and services that are held by traditional players, such as banks and payment networks. Open banking is a system that allows customers to share their financial data and access financial services from different providers, using APIs and consent mechanisms.
For example, carbon.co, a Nigerian fintech that provides digital banking and lending services, uses open banking to access and verify the bank account and transaction history of its customers, as well as to offer them tailored products and services.
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Financing and scaling
A fourth challenge that fintechs face is securing adequate funding and resources to grow and expand their operations and customer base. Fintechs operate in a highly competitive and dynamic environment, where they have to constantly innovate and improve their products and services, as well as reach and acquire new customers and markets.
However, fintechs also face difficulties and constraints in raising capital and attracting talent and partners to support their growth and innovation. Fintechs need to demonstrate and communicate their value proposition and potential to investors, partners, and talent, as well as to leverage the opportunities and networks that are available to them.
Some of the ways that fintechs are securing financing and scaling are:
Investors: Fintechs seek and attract investors that can provide them with the capital and expertise that they need to grow and succeed. Investors can be individuals, such as angel investors and venture capitalists, or institutions, such as banks, corporates, and development agencies. For example, Chipper Cash, a Pan-African fintech that offers cross-border payment services, raised $100 million in a Series C funding round led by SVB Capital, a venture capital firm that focuses on technology companies, in June 2021.
Partners: Fintechs collaborate and partner with other players that can offer them access and exposure to new customers and markets, as well as complementary products and services. Partners can be other fintechs, traditional players, such as banks, payment networks, and regulators, or non-financial players, such as telecoms, retailers, and media.
For example, mypaga.com, a Nigerian fintech that provides mobile payment services, partnered with Visa, a global payment network, to enable its customers to transact with Visa’s 61 million merchant locations worldwide, in March 2020.
Talent: Fintechs recruit and retain talent that can provide them with the skills and capabilities that they need to innovate and excel. Talent can be local or global, technical or non-technical, experienced or fresh. Currently in Africa statistic shows that there is an open gap when it comes to technical skills, of which it is a big challenge in the fintech space, hence why some companies outsource skills to be able to execute. But programs like wethinkcode.co.za offer such skills to help reduce technical skills in the fintech space.
We really hope you enjoyed this Newsletter. If you think you got value from it, come on share it. Not only did you gather knowledge to help improve your organization or skills to land your next career in the fintech space, but you can now Think and Act smarter.
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Fintech World Team