Fintech challenges in the Post Soviet space

There are many challenging areas for the traditional Fintech industry to get into, with one of the most challenging areas in the world being the Post Soviet space. This includes Russia and any country that used to be part of this space. The issues faced by the Fintech industry are many, and solving them goes beyond simply offering a superior service. It would require tackling some specific social issues that are often encountered within the countries within the space. There are three issues that are faced by all of the industries in the countries within the space, mostly related to societal issues that were perpetrated by Soviet rule. Today, and the company that has made its goal to establish itself as a go-to Fintech solution locally needs to face three problems of the Post Soviet union and be able to work with them. 

Lack of local investment

Any company, especially a Fintech company that wishes to start operating within the Post Soviet sphere is going to be facing trouble with local financing. According to the Kapitali.ge, a company that has recently started operating within Georgia, one of the many Post Soviet countries of the modern-day, the issues with financing seem to be ingrained within the financial culture that came with Soviet rule. The experts from the website claim that one of the reasons that it is hard to find local financing is associated with the culture of expecting the government to provide direct investment into any company that starts working within the country. While the leadership of a Fintech company might understand that the financial investment must come from sources other than the government, many would-be investors themselves fail to understand the concept. Which is why Fintech companies in their early stages will often face issues associated with having a hard time finding any funding at all. This has become a problem not only with the Fintech industry but also for creating a healthy startup culture within the country. This is why many local Fintech companies struggle to last past the first year of being self-funded, as government investment into local businesses is much lower than it should be. 

Change takes time

But the culture of expecting the government to invest has slowly been ending. With large companies and banks appearing all over the countries, the investment atmosphere within the Post Soviet area is changing. Large companies are starting to look for smaller ones to invest in, and banks are starting to look to work with or create Fintech solutions that are quite innovative. A good example of this would be the online “Space Bank” created by TBC. TBC is a bank that is native to Georgia, a small country that lies within the Post Soviet space. It is one of the biggest banks in the country and has recently started investing in different areas of the industry. One of their most recent investments has been Space Bank. The application is an online banking solution that allows people to receive loans whenever and wherever they want. The is becoming a trend across the Post DSoviet area, with more banks and large companies looking to start investing, but Fintech companies are still struggling to attract the kind of attention and investment they need in order to have a big impact. 

Money laundering and lack of international trust 

Another big issue that is faced by many Post Soviet countries is the fact that there have been many instances of money laundering associated with investment activity from large scale investors. One of the biggest perpetrators of this is the Russian Federation, where many investors and companies have been found to be guilty of money laundering. This issue persists across the board for the countries, like corruption, criminal presence and other illegal activity within these economies persist, seemingly endlessly. The Fintech companies that desire to be able to operate within these spaces need to be prepared to start dealing with this issue. The problem is, it is incredibly hard for a startup company, especially in the Fintech sphere, to be able to tell whether an investor is providing clean funding or if they are dealing with some kind of money laundering scheme. Furthermore, for some companies, the temptation of dealing with money laundering and receiving the money for their benefit is also quite big. Which is why you will often see large, international companies avoid investing in smaller local Fintech companies. They have no clear cut guarantee that these companies have not, at one point, dealt with money laundering or have accidentally ended up being victims of a money-laundering scheme. Large companies that are associated with smaller companies that launder money end up losing reputation and money as a result. 

This is why companies that originate within the area need to be able to provide thorough vetting of their investors, and this creates another level of a problem in the industry, in general. The pool of investors that companies have to deal with gets much smaller. The number of clean investors that are willing to invest in businesses that come along is far too small to support a healthy startup ecosystem, causing the Fintech companies within the area to struggle to operate. 

A distrustful user base 

But, the two issues described above can be dealt with. While it might not be easy, work can be done in order to avoid dealing with the above-described issues. But, the biggest issue has yet to be solved. The people within the Post Soviet list of countries are not the best customer base for a Fintech company. It has been shown over the years that people who live in the area often have two problems that do not permit them to become effective users for Fintech companies. The first issue is that of financial literacy. Many people within the Post Soviet countries suffer from not being able to manage their funds appropriately. Many people are in debt and are unsure how to manage the debt inappropriate ways. Furthermore, many have failed to have any savings simply because they are unable to manage the funds appropriately and also do not earn enough to be able to afford savings. Financial literacy can be taught, but no Fintech company is capable of tackling this issue without large investments. Furthermore, an aging population is the one with the relatively large amounts of savings, and targeting them is hard for any Fintech company, if only because convincing them to use the internet for their financial transactions is incredibly hard. 

The complexity of convincing the older generations and even the younger generations of using the internet for finance lies with the fact that a lot of people harbor a great deal of distrust for companies, governments, and financial institutions. Many of these people have had to live through multiple economic collapses and financial crises, all of which have resulted in them either having no money or losing all of the assets they might have held at any point. This has caused them to rely mostly on keeping hard cash in their safes. They perceive dealing with financial institutions as intrinsically dangerous. As a result, the user base that a Fintech company could deal with is incredibly limited. The existence of a Fintech company in such a space is thus made even more complicated. IF there is no user base, there is no reason for anyone to invest in the company. 

Final thoughts

There are more issues that could be getting in the way of Fintech companies operating and existing in these markets. Tackling these issues is not the responsibility of Fintech companies, but of already established institutions. But, it looks like these companies will have to start working their way around these issues and might even have to tackle some of them head-on if they want to start offering an effective service within these countries.