The total value of global fintech deals in the first six months of 2019 was $22 billion. While this figure may seem staggering, when compared to $31.2 billion in the same period the year before, this is a steep decline of 29%.
Investment has supported the fintech industry, but new financial services entrants cannot rely solely on funding to protect their business and grow at a competitive rate any longer.
Growth in the fintech industry is achievable. All new entrants need to do is build a defence against financial crime, accelerate innovation with analytics and ensure they are making profitable, risk-based decisions even as they rapidly scale their customer base.
Finextra spoke to Tim Burton, director - fraud, cyber & compliance at FICO about the recent report ‘How to Protect and Grow in the Fintech Industry’ and how to generate revenue and become profitable.
Burton highlights that whilst fintech organisations are operating at an advantage for not being burdened by the challenges of delivering necessary regulatory changes on legacy infrastructure, they may not suffer less from financial crime than traditional banks and therefore still need to invest in the appropriate control mechanisms.
“Building on a strong software platform is the key here. If you invest in the right platform with the right partner, then the implementation challenges and costs of consuming new services quickly and efficiently start to go away,” Burton said.
“Traditional players are already facing the challenge of juggling the rationalisation of their IT footprint and introducing new capabilities. If a fintech can build out on a software platform that combines proven machine learning and artificial intelligence on modern architecture that brings the radical flexibility required to navigate todays financial crime ecosystem, then substantial business growth can be achieved without incurring high levels of loss,” Burton explains.
Further to this, fintech firms must capitalise on the opportunities created by regulations such as PSD2 and establish themselves as providers of innovative consumer products, while being compliant and not jeopardising customer experience.
Burton explored how fintech companies must understand the impact of upcoming regulations on their market differentiators, because this is harder than it looks. “Firstly, does your differentiator actually work when overlaying the impacts of regulatory requirements? If so then it’s about how well you execute financial crime compliance, protecting that differentiator at all times.
“Technology should be able to empower fintechs to choose when to introduce friction and how to do it, it should give them the ability to introduce controls dynamically, maximise the value of data that is on hand with robust and explainable machine learning and then finally be able to choose when to be active or passive in the enforcement of process controls.”
This does not mean that customer experience processes should be remodeled. While there is what Burton refers to as a “general nervousness about the maturity of new business models and their ability to break into the mainstream,” it must be understood that those that have struggled to make profit have been tremendously successful in transforming banking customer experiences.
Therefore, new financial entrants need to do more in order to keep afloat. Click here to read: ‘How to Protect and Grow in the Fintech Industry: A 3-Step Guide to Generating Revenue and Becoming Profitable.’