Tech companies are known for pushing the boundaries when it comes to innovation. Facebook’s ‘move fast and break things’ mantra epitomises the mentality of most new tech businesses. And for startups, getting new ideas to market fast increases the pace of innovation and the evolution of industries.
But in the fintech industry, startups can find themselves wading through treacle as their desire to move rapidly is checked by issues such as regulation, licensing or compliance. For a sector known for innovation, the time to market for start-ups has only gotten longer.
That’s because the barriers to entry - the necessary licensing, compliance, regulatory checks or more - have gotten more expensive, both in time and money, to do it all yourself. Because of this, it can take fintechs up to a year, or sometimes more to launch. By then competition will have steepend and customer needs may have changed as well as the regulatory landscape. It can then be hard for new fintechs to stand out against the crowd.These long time to market times can lead to a spiral of death for fintechs. Where the process becomes so expensive, that a fintech fails before it has even gotten to a point to test its new hypothesis.
The price of doing it yourself
Not only is the slow, onerous, but necessary, world of regulation one of the biggest factors for a fintech stalling. But the building and connecting of the payments ecosystem is also heavily increasing the drag in the race to the market.
The need to jump through compliance hoops slows down a fintechs ability to launch to market quickly, along with a suddenrush to try and find a place in the ecosystem. Many fintechs fail to launch as they race through licensing and registration processes in order to get to market quickly. This can result in rejected loan applications for fintechs starting out. This can have knock-on effects when it comes to growing revenue or attracting and raising capital to grow and expand from investors. This regulatory and time to market drag is destroying many great fintech ideas in an environment where financial innovation is becoming more important than ever.
Take Monzo for example. The fintech firm applied to the US authorities for a licence to further its stateside expansion. Due to regulation complexity, this could take Monzo between 18 months to two years to actually have their application approved.This is a big step back for the fintech giant, and has put a halt on their growth expansion further affecting its own innovation as a company.
Another example is N26, a Berlin-based digital bank, who planned a UK expansion earlier this year, in hopes to take on London based competitors Monzo and Revolut. But regulation caused a problem and N26 pulled the plug on its play in the UK. Since the UK’s departure from the European Union, the bank was unable to operate with it’s EU licence under regulatory rules.
These are two established, well thought of fintechs. And even they are facing issues. So it’s even harder for a new fintech just about to start. Juggling multiple back end processes and spending too much time focusing on compliance and regulatory issues, they fail to innovate or change their customer model to stay relevant.
Building and owning your own ecosystem is no longer working - the competitive market is proving this to be difficult and the fintech scene is swiftly becoming a fair level playing field. And if fintechs want to move quickly to market, there's another solution gaining ground.
The fintech revolution
Recently we have begun to see the emergence of businesses that operate a ‘one-stop-shop’ for fintechs. Enabling the purchasing of secure compliant and innovative go-to-market tools in one place. By turning to such a business fintechs can scale up quickly - and scale down if offerings are not working. This is not just easier and more cost effective, but also solves the issue of being able to get to market quicker.
By removing back-end processes, fintech start-ups can then focus on what makes themselves stand out against the crowded financial services scene, making it easier to attract investors to further grow operations. These services can abstract ecosystem business development; including any legal activity such as the negotiation of high-billing costs, as well as manage regulatory and licensing sponsorships to ensure that they are compliant to onboard customers. They then handle the ever-changing ecosystem integrations - which can be costly and hard to maintain.
The future of fintech relies on these specialist services that provide a regulation sandbox. And if fintechs want to stay ahead of the game and match the pace of competitors and overcome the barriers planted by incumbents, then they need to move quickly and launch to market at a much faster pace.