The global financial technology (fintech) market is expected to grow to 1.5 trillion USD by 2030 (per BCG and QED Investors). Whether you are an SME or a startup, the fintech sector looks promising with more opportunities than ever. However, Fintech is an industry with a lot of challenges, along with opportunities of course, and scaling is even harder to achieve. Many founders and business owners struggle to scale their fintech products. Many have faced technical implementation challenges, as well as data breaches and loss of trusts.
And this is not the only challenge facing fintech companies. From our experience developing fintech software solutions for clients, we know all the ins and outs, including technical, operational and business challenges that SMEs and startups need to mitigate.
That’s what we’ll share in this guide, along with solutions you can implement to scale your fintech products. If you want to benefit from the growth and scale up your fintech products, be prepared for the challenges ahead.
Top 10 Challenges in Fintech Products Development
Fintech companies are racing to raise capital, validate their ideas, and bring their products to market quickly. However, when they try to do so, they sometimes fail to notice or ignore these challenges.
#1 Scalability Difficulties
Many or almost all fintech startups face the Scalability challenge as they witness the rapid growth of their app’s user-base. If they can’t scale up their resources and infrastructure to accommodate the increased traffic loads, the customer experience will likely deteriorate. Slow loading screens, failed transactions, or app errors will damage the trust of customers and ultimately investors in their business.
Fintech products depend heavily on technology infrastructure such as servers, databases, networks, and other technology infrastructure to deliver a smooth, low-latency performance. But scaling fintech software isn’t limited to merely solving technical problems. Instead, you should also consider areas like customer service, safeguarding data privacy, and security risks.
Solution
Scalability is a key issue. Thus, when building your fintech product, keep scalability in mind. Instead, you should prioritize scalability during the initial development process.
However, this doesn’t mean you have to invest in abundant resources and processing power from the start. Instead, it’s about choosing the right technology stacks and development methods.
For example, you can use these techniques to build scalable products.
- Leverage cloud computing solutions: Build and deploy fintech solutions on a secure cloud infrastructure.
- Using Micro-services: Build solutions using Micro-services architect instead of using solid, monolithic code.
- Apply Agile methodologies and DevOps CI/CD techniques to quickly respond to changing needs.
And if you’re not sure how to get started, Trustify technology can help. We’ve employed this approach for years to build scalable applications for fintech and other industries, and now we offer world-class financial services software development programs. Tell us about your project and our team of experts will be happy to help you.
#2 Users Experience & Retention
Although fintech organizations have equipped their applications with advanced technology, the fintech solutions can fail if they struggle to deliver an exceptional user experience. Many fintech companies face the common challenge of not being able to attract and retain customers.
For instance, your fintech application enables peer-to-peer (P2P) payment so that users can transfer money to one another instantly. However, if your app is difficult to use or fails to transfer money in the matters of seconds and consistently, users will likely abandon your app and opt for a competing one.
Moreover, skipping certain details, such as being able to track transaction history, can negatively impact the user experience. When an app doesn’t meet customer requirements, it will not be able to scale up to gain mass traction.
Solution
An effective way to retain customers is to pay attention to UI/UX principles when developing fintech apps. However, it is equally important to find a balance between security and usability. The first priority a fintech application must have is to be secured, which requires authentication (including 2FA) and other security measures.
For example, users should not have to authenticate multiple times before they can log into the home screen to see their balance. Instead, applications can store different levels of security so that users can perform specific tasks like making transfers or viewing transaction history. Thus, it is important to have a clear customer journey and design the product to support that journey.
#3 Delays in Bringing Products to Market
In Fintech operations, delays in sales, development, and opportunities are costly. Thus, Fintech startups cannot afford to delay their product development. However, delays can happen if you try to tackle significant tasks such as development or solving complex technical problems as well as scaling a fintech solution on your own. This is a challenge specific to fintech startups that are trying to release their products to the market.
It can be overwhelming for founders trying to comply with various industry regulations. In general, developing fintech software solutions, even the simplest one, involves:
- Development of many software modules that are interconnected
- Third-party software integrations
- Build and maintain databases
In addition, you should thoroughly test your solution before releasing it to the market. Overall, the whole process can be effort and time consuming
Solution
Divide the project into small, verifiable milestones. This will reduce the risks you face in fintech development. For example, we recommend that clients validate their ideas with a prototype before launching an MVP. We will gradually add additional features that users find useful.
You can also speed up development time by consulting with fintech experts who have already worked on projects similar to yours and are experienced with compliance, security, and other issues that startups face. They can help you avoid setbacks.
#4 Regulatory Compliance Challenge
When it comes to the fintech industry, one common challenge you will have to face is the different regulations surrounding banking and alternative products. Requirements can vary depending on the regions or countries your businesses operate in and the customers you serve. And failure to comply can result in penalties.
If you operate in the US or European market, make sure your fintech application complies with these:
- General Data Protection Regulation (GDPR), the data protection law that governs how companies collect and use customer data in the EU.
- In addition, fintech companies must comply with local know-your-customer (KYC) and anti-money laundering (AML) laws.
- And other applicable laws and regulations.
Solution
Staying informed and having a deep understanding of fintech regulations will help you comply with the law and protect the interests of your business and customers. To this end, you should have an internal compliance audit team to ensure that your fintech products meet the necessary requirements. Below are a few measures we apply to help our client, including:
- Implement data security measures such as encryption, user authentication and data retention controls.
- Rapidly update fintech products in line with regulatory changes.
- Automated compliance monitoring and risk management using artificial intelligence and machine learning.
#5 Third-Party SaaS Dependencies
Fintechs startups often integrate their applications with SaaS providers to save on development costs. This approach allows founders to leverage existing services such as payment gateways, marketing automation, and customer analytics without having to build them from scratch.
While this may seem advantageous in the beginning, most startups often run into these obstacles down the road:
- Vendor lock-in: Startups are heavily dependent on service providers, meaning any changes in the services’ policies and pricing can have a big impact on the startup’s operation and costs.
- Data processing and governance. When your apps use services provided by a third-party provider, you have little to no control over how your customer’s data is stored and processed. And that doesn’t bode well in some areas where regulatory action requires fintech startups to follow specific local data protection guidelines.
- Continuous improvement issues. Over-dependant on SaaS providers may limit the product growth. You’ll find that your app improvement or upgrade is limited to the features offered by the provider.
While integrating with SaaS providers can be beneficial early on, fintech startups still need to refine SaaS strategy to ensure continued growth.
Solution
All in all, startups can’t completely eliminate SaaS/BaaS providers from their applications, especially if it involves essential services like banking or cloud storage. However, you can plan how to work with service providers without restricting your ability to scale. For examples:
- Don’t lock yourself into a specific service provider. Consider and have in place alternative options that you can easily change to.
- Try not to depend entirely on third-party solutions, as there are always limitations. Instead, build your own solution or use additional services to achieve your goals.
Once you are aware of the potential limitations, it’s usually best to work with fintech developers who know and can integrate SaaS/BaaS. At Trustify Technology, we have helped clients develop a fintech solution that supports multiple 3rd party software providers for different regions. This way, our clients can grow their products more flexibly without being locked into a specific vendor.
#6 Bridging the Gap Between Innovation and Adoption
The ability to scale and stand out in a competitive market depends on how well your business can adopt and leverage technologies such as artificial intelligence (AI), machine learning (ML), and Big data.
For example, banking solutions powered with AI chatbots can provide 24/7 customer support while reducing operational costs. Similarly, using machine learning for credit scoring reduces approval risk for lenders.
Unfortunately, not all SMEs are ready to innovate fintech products to keep up with the latest technological trends and needs. Thus, if fintech companies continue to rely on outdated technologies, they risk being overtaken by smarter competitors.
Solution
If the fintech business wants to remain relevant in the constantly evolving technology landscape, they have no choice but to invest in research and development. Explore time and resources to experiment with technologies such as AI/ML, blockchain, robotic process automation, and incorporate them into your product development plan.
Plus, partner with leading technology experts like Trustify Technology. We have the AI/ML expertise, skills and experience to integrate with the latest AI solutions (like ChatGPT) into your application.
#7 Tech Talents Shortage
Another challenge common to many in the fintech industry is that if you want to grow your fintech business, you have to recruit and retain new tech talents. Building fintech products requires experts with specialized skills in application development, AI/ML, UI/UX and data security.
SMEs have to compete with larger organizations that can offer more attractive salaries to attract these talents. In addition, some specialized skills, such as deep learning, are rare in some countries. It also means business and technical leaders must turn to alternative hiring methods to solve their technical gap challenges.
Solution
The skills shortage is not unique to fintech companies. Many companies in other industries face similar problems. Competitive compensation packages and a healthy work culture can help attract talent. However, in some cases, hiring an independent software development team will seem more effective.
Instead of spending time recruiting, training and managing their own talent, fintech companies can hire experienced companies like Trustify Technologies to outsource product development. This provides immediate access to a multi-disciplinary team that will enhance your development.
#8 Users Acquisition
Fintech companies also face significant challenges in growing their customer base. As more competitors enter the market, it becomes increasingly difficult to attract, educate and convert potential customers into loyal ones. In addition, pricing strategy, marketing, branding and other factors can affect a fintech company’s growth.
The factors we identified may lead to higher customer acquisition costs and lower profitability of the business model than originally expected. Without new customers, fintech companies risk stagnating or losing market share to new competitors.
Solution
You can diversify your marketing channels to expand your customer reach. However, the most important thing is that your product must serve the right audience. In other words, your fintech application must solve a real problem, and it is a problem that customers are willing to pay for. Without this, any marketing strategy you implement is unlikely to yield results.
That is why it is important to ensure product-market fit when building fintech apps. At Trustify Technology, we help entrepreneurs navigate the discovery phase to ensure a right development strategy.
#9 Third-party integrations
A fintech application can integrate with payment processors, data analytics, CRM, and potentially many third-party services. Some of these services may not scale with your application. Therefore, you may need to replace existing vendors with other vendors that may require more customization.
It generally requires more resources to maintain third-party integrations and keep up with changes. One way to reduce integration complexity is to adopt a modular and scalable software architecture. Additionally, choose your vendor carefully in terms of compliance, pricing, and scalability.
#10 Other Common Fintech Challenges
Delivering Personalizations at Scale
Customers are no longer content with a simple but generic user experience. Instead, they want an experience that is tailored to their own needs and market demand. Personalization in fintech apps requires advanced machine learning algorithms that collect user data and use it to recommend products or other services.
Personalization delights customers and can potentially increase revenue. But not all fintech apps support customization. This requires implementing machine learning capabilities across multiple customer touch-points. Again, this is not an easy task but requires exceptional expertise in AI/ML development.
Balancing Development Costs
Even if you want to reduce development costs, you can only save so much when building a fintech application. This process is complex and often requires a team of different specialists. In addition, labor costs can be significantly higher if you are located in developed markets like the US or other countries.
High development costs reduce revenue in return. To avoid this, many fintech companies outsource part of their development to developers in a more affordable country like Vietnam or Malaysia in the SouthEast Asian Region.
Your Trusted Partner in Overcoming Fintech Challenges
Over the years, Trustify’s technology has helped many startups and fintech companies develop, and scale their products for different target audiences. We understand the challenges that fintech startups and SMBs face. We have a team of experts who can help integrate AI/ML technologies, adapting your products to market needs, ensuring compliance, while maintaining growth. From protecting customer data to keeping up with fast-changing trends, our team’s extensive experience comes in handy.