Fintech

What are the potential risks and challenges associated with adopting fintech?

Published

7 months ago

27 June, 2024

What are the potential risks and challenges associated with adopting fintech?

As companies embrace the cutting-edge world of fintech, we’ve gathered insights from CEOs and tech experts about the obstacles they may face. From the critical importance of cybersecurity in fintech adoption to the need to overcome fintech integration challenges, explore the top eight risks and challenges these leaders highlight for companies adopting fintech solutions.

Cybersecurity in FinTech Adoption
Risks of dependence on third parties
Check Fintech security protocols
Preparing for Cybersecurity Unexpected Hazards
Ensure cloud provider security
Managing regulatory uncertainty
Mitigate data security and compliance risks
Overcoming Fintech Integration Challenges

Cybersecurity in FinTech Adoption

Since I have been associated with the fintech industry for 10 years, I have identified a potential risk that companies should be aware of when adopting fintech solutions: cybersecurity. As the fintech industry has evolved rapidly over the past decade, integrating these solutions often involves handling sensitive financial data.

Increased connectivity and data sharing increases the risk of cyber attacks and data breaches. Ensuring robust security measures is critical to protecting yourself from potential threats and maintaining customer trust.

Tushar Chhabhaiya

CTO and Chief Technology Officer, SpeedBot

Risks of dependence on third parties

There is a risk of dependency on third-party providers. Many fintech solutions are offered by third parties, which can lead to issues of reliability and control.

Businesses may find themselves dependent on the ongoing operation and maintenance of these solutions by another business, which can pose risks if the vendor fails to provide expected service levels or discontinues its services.

To mitigate this issue, we recommend diversifying fintech solutions and maintaining a certain level of in-house expertise so that operations can continue smoothly even if one vendor fails to deliver the desired results.

Alari Aho

CEO & Founder, Toggl Inc

Check Fintech security protocols

One potential risk that companies should be aware of when adopting fintech solutions is the security of their data. We worked with a client who adopted a new fintech platform a few years ago without adequate security measures. In a matter of weeks, they suffered a significant data breach that compromised sensitive customer information. This incident caused substantial financial loss and damaged their reputation.

Security is paramount when integrating new technologies. Businesses need to ensure that their fintech provider follows strict security protocols, which include regular compliance audits and security assessments. Businesses need more than to trust the vendor to handle security; they must verify and understand the measures in place. Those that actively engage in their security processes achieve better results in the long run.

Additionally, companies should properly train their staff to use fintech solutions safely. Human error often leads to vulnerabilities. Investing in cybersecurity training can mitigate these risks. Our client’s situation improved significantly after implementing regular training sessions and security reviews.

Corrado Martin

CEO, technical consultants

Preparing for Cyber Security Emergencies

Fintech solutions help simplify financial management for any business that adopts such solutions. However, fintech solutions are also among the most aggressively targeted by hackers due to their access to critical information and the financial incentives to do so.

Companies adopting fintech solutions must be aware of these risks and prepare a contingency plan to ensure the integrity of corporate and customer data. It is highly recommended to choose solutions that are regulated and also have security features such as multi-factor and two-factor authentication.

Clooney Wang

CEO, TrackingMore

Ensure cloud service provider security

The main risk is sharing all your financial information with a cloud provider. If I adopt a fintech solution and they need all our financial data, we put it in the cloud; There is a risk of data breach or corruption because these servers do not reside on our network.

When choosing a fintech provider, make sure it is trustworthy. Ask about their security protocols and make sure they follow industry standards for encryption, backup, and redundancy.

Merrill Cache

Founder, Zibtek

Managing regulatory uncertainty

One of the most important challenges companies face when adopting blockchain-based fintech solutions is regulatory uncertainty. Blockchain technology is still relatively new and regulations around its use are constantly changing. This can create a volatile environment for businesses, making it difficult to stay compliant.

Companies must be prepared for the possibility of sudden changes in regulations. Having a proactive approach to compliance is key. This involves regularly consulting legal experts and learning about new laws and regulations. This way, companies can mitigate the risks associated with regulatory uncertainty and make more informed decisions about adopting blockchain fintech solutions.

Mr. Jared Stern

Managing Member, Uplift Legal Funding

Mitigate data security and compliance risks

One of the key risks companies face when adopting fintech solutions is data security and compliance issues. As financial operations increasingly rely on digital platforms, the volume of sensitive financial data processed and stored increases. This exposes companies to greater risks of data breaches and cyber attacks.

Additionally, the regulatory landscape for financial technology is often complex and rapidly evolving. Businesses must ensure compliance with all relevant laws, which can vary greatly by region and type of financial activity.

Failure to comply can result in large fines, legal repercussions and reputational damage. Therefore, while fintech offers transformative potential in efficiency and customer service, companies must invest in robust cybersecurity measures and stay abreast of regulatory requirements to mitigate these risks effectively.

Rosa Jimenez

Chief Financial Officer, Culture.org

Overcoming the challenges of Fintech integration

Here is a more detailed explanation of the integration challenges that companies should be aware of when adopting fintech solutions:

Integration headaches: The hidden obstacle in fintech adoption

Fintech solutions hold enormous promise for businesses by streamlining processes, improving customer experiences, and unlocking new revenue streams. However, the road to achieving these benefits is not always smooth. A significant challenge that businesses often underestimate is the complexity of integrating these innovative solutions with existing infrastructure.

Here is how obstacles to integration can manifest themselves:

Domino effect of disruption: Implementing a new fintech solution can disrupt established workflows and processes. This can lead to confusion and frustration among employees, potentially impacting customer service and overall productivity. Imagine a new payment processing system that doesn’t integrate seamlessly with your accounting software, creating double entries and reconciliation headaches.

Compatibility Conundrums: Fintech solutions operate within their own technology ecosystems. Integrating them with existing legacy systems or a patchwork of different software could lead to compatibility issues. Data formats may not translate smoothly, leading to errors and inefficiencies. This can be especially challenging for companies that have not prioritized digital transformation and have accumulated various software solutions over time.

Increased Hidden Costs: The upfront cost of acquiring a fintech solution is just one piece of the puzzle.

Integration often requires significant additional investment. Companies may have to pay for:

Customization: Adapting the fintech solution to fit seamlessly into existing systems.

Data Migration: Moving data from old systems to a new platform can be a complex and time-consuming process.

Employee training: Provide staff with the knowledge and skills needed to use the new fintech solution effectively.

Ongoing maintenance: Maintaining a smooth integration between the fintech solution and existing systems requires constant commitment and expertise.

By underestimating these integration challenges, companies can find themselves facing unexpected delays, cost overruns and a negative impact on their core businesses.

Omega Software

Marketing, Omega Software

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Fintech

US Agencies Request Information on Bank-Fintech Dealings

Published

6 months ago

30 July, 2024

FinCrypt Staff

Federal banking regulators have issued a statement reminding banks of the potential risks associated with third-party arrangements to provide bank deposit products and services.

The agencies support responsible innovation and banks that engage in these arrangements in a safe and fair manner and in compliance with applicable law. While these arrangements may offer benefits, supervisory experience has identified a number of safety and soundness, compliance, and consumer concerns with the management of these arrangements. The statement details potential risks and provides examples of effective risk management practices for these arrangements. Additionally, the statement reminds banks of existing legal requirements, guidance, and related resources and provides insights that the agencies have gained through their oversight. The statement does not establish new supervisory expectations.

Separately, the agencies requested additional information on a broad range of arrangements between banks and fintechs, including for deposit, payment, and lending products and services. The agencies are seeking input on the nature and implications of arrangements between banks and fintechs and effective risk management practices.

The agencies are considering whether to take additional steps to ensure that banks effectively manage the risks associated with these different types of arrangements.

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Fintech

What changes in financial regulation have impacted the development of financial technology?

Published

6 months ago

30 July, 2024

FinCrypt Staff

Exploring the complex landscape of global financial regulation, we gather insights from leading fintech leaders, including CEOs and finance experts. From the game-changing impact of PSD2 to the significant role of GDPR in data security, explore the four key regulatory changes that have reshaped fintech development, answering the question: “What changes in financial regulation have impacted fintech development?”

PSD2 revolutionizes access to financial technology
GDPR Improves Fintech Data Privacy
Regulatory Sandboxes Drive Fintech Innovation
GDPR Impacts Fintech Data Security

PSD2 revolutionizes access to financial technology

When it comes to regulatory impact on fintech development, nothing comes close to PSD2. This EU regulation has created a new level playing field for market players of all sizes, from fintech startups to established banks. It has had a ripple effect on other markets around the world, inspiring similar regulatory frameworks and driving global innovation in fintech.

The Payment Services Directive (PSD2), the EU law in force since 2018, has revolutionized the fintech industry by requiring banks to provide third-party payment providers (TPPs) with access to payment services and customer account information via open APIs. This has democratized access to financial data, fostering the development of personalized financial instruments and seamless payment solutions. Advanced security measures such as Strong Customer Authentication (SCA) have increased consumer trust, pushing both fintech companies and traditional banks to innovate and collaborate more effectively, resulting in a dynamic and consumer-friendly financial ecosystem.

The impact of PSD2 has extended beyond the EU, inspiring similar regulations around the world. Countries such as the UK, Australia and Canada have launched their own open banking initiatives, spurred by the benefits seen in the EU. PSD2 has highlighted the benefits of open banking, also prompting US financial institutions and fintech companies to explore similar initiatives voluntarily.

This has led to a global wave of fintech innovation, with financial institutions and fintech companies offering more integrated, personalized and secure services. The EU’s leadership in open banking through PSD2 has set a global standard, promoting regulatory harmonization and fostering an interconnected and innovative global financial ecosystem.

Looking ahead, the EU’s PSD3 proposals and Financial Data Access (FIDA) regulations promise to further advance open banking. PSD3 aims to refine and build on PSD2, with a focus on improving transaction security, fraud prevention, and integration between banks and TPPs. FIDA will expand data sharing beyond payment accounts to include areas such as insurance and investments, paving the way for more comprehensive financial products and services.

These developments are set to further enhance connectivity, efficiency and innovation in financial services, cementing open banking as a key component of the global financial infrastructure.

Sebastian Malczyk

General Manager, Technology and Product Consultant Fintech, Insurtech, Miquido

GDPR Improves Fintech Data Privacy

Privacy and data protection have been taken to another level by the General Data Protection Regulation (GDPR), forcing fintech companies to tighten their data management. In compliance with the GDPR, organizations must ensure that personal data is processed fairly, transparently, and securely.

This has led to increased innovation in fintech towards technologies such as encryption and anonymization for data protection. GDPR was described as a top priority in the data protection strategies of 92% of US-based companies surveyed by PwC.

Arid Islam

Financial Expert, Sterlinx Global

Regulatory Sandboxes Drive Fintech Innovation

Since the UK’s Financial Conduct Authority (FCA) pioneered sandbox regulatory frameworks in 2016 to enable fintech startups to explore new products and services, similar frameworks have been introduced in other countries.

This has reduced the “crippling effect on innovation” caused by a “one size fits all” regulatory approach, which would also require machines to be built to complete regulatory compliance before any testing. Successful applications within sandboxes give regulators the confidence to move forward and address gaps in laws, regulations, or supervisory approaches. This has led to widespread adoption of new technologies and business models and helped channel private sector dynamism, while keeping consumers protected and imposing appropriate regulatory requirements.

George Blandford

Co-founder, UK Linkology

GDPR Impacts Fintech Data Security

A big change in financial regulations that has had a real impact on fintech is the 2018 EU General Data Protection Regulation (GDPR). I have seen how GDPR has pushed us to focus more on user privacy and data security.

GDPR means we have to handle personal data much more carefully. At Leverage, we have had to step up our game to meet these new rules. We have improved our data encryption and started doing regular security audits. It was a little tricky at first, but it has made our systems much more secure.

For example, we’ve added features that give users more control over their data, like simple consent tools and clear privacy notices. These changes have helped us comply with GDPR and made our customers feel more confident in how we handle their information.

I believe that GDPR has made fintech companies, including us at Leverage, more transparent and secure. It has helped build trust with our users, showing them that we take data protection seriously.

Dr. Rhett Stubbendeck

CEO & Co-Founder, Leverage Planning

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Fintech

M2P Fintech About to Raise $80M

Published

6 months ago

30 July, 2024

FinCrypt Staff

Application Programming Interface (API) Infrastructure Platform M2P Financial Technology has reached the final round to raise $80 million, at a valuation of $900 million.

Specifically, M2P Fintech, formerly known as Yap, is closing a new funding round involving new and existing investors, according to entrackr.com. The India-based company, which last raised funding two and a half years ago, previously secured $56 million in a round led by Insight Partners, earning a post-money valuation of $650 million.

A source indicated that M2P Fintech is ready to raise $80 million in this new funding round, led by a new investor. Existing backers, including Insight Partners, are also expected to participate. The new funding is expected to go toward enhancing the company’s technology infrastructure and driving growth in domestic and international markets.

What does M2P Fintech do?

M2P Fintech’s API platform enables businesses to provide branded financial services through partnerships with fintech companies while maintaining regulatory compliance. In addition to its operations in India, the company is active in Nepal, UAE, Australia, New Zealand, Philippines, Bahrain, Egypt, and many other countries.

Another source revealed that M2P Fintech’s valuation in this funding round is expected to be between USD 880 million and USD 900 million (post-money). The company has reportedly received a term sheet and the deal is expected to be publicly announced soon. The Tiger Global-backed company has acquired six companies to date, including Goals101, Syntizen, and BSG ITSOFT, to enhance its service offerings.

According to TheKredible, Beenext is the company’s largest shareholder with over 13% ownership, while the co-founders collectively own 34% of the company. Although M2P Fintech has yet to release its FY24 financials, it has reported a significant increase in operating revenue. However, this growth has also been accompanied by a substantial increase in losses.

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Fintech

Scottish financial technology firm Aveni secures £11m to expand AI offering

Published

6 months ago

30 July, 2024

FinCrypt Staff

Aveni, Investment Management, AI, NLP, UK

By Gloria Methri

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Artificial intelligence Financial Technology Aveni has announced one of the largest Series A investments in a Scottish company this year, amounting to £11 million. The investment is led by Puma Private Equity with participation from Par Equity, Lloyds Banking Group and Nationwide.

Aveni combines AI expertise with extensive financial services experience to create large language models (LLMs) and AI products designed specifically for the financial services industry. It is trusted by some of the UK’s leading financial services firms. It has seen significant business growth over the past two years through its conformity and productivity solutions, Aveni Detect and Aveni Assist.

This investment will enable Aveni to build on the success of its existing products, further consolidate its presence in the sector and introduce advanced technologies through FinLLM, a large-scale language model specifically for financial services.

FinLLM is being developed in partnership with new investors Lloyds Banking Group and Nationwide. It is a large, industry-aligned language model that aims to set the standard for transparent, responsible and ethical adoption of generative AI in UK financial services.

Following the investment, the team developing the FinLLM will be based at the Edinburgh Futures Institute, in a state-of-the-art facility.

Joseph Twigg, CEO of Aveniexplained, “The financial services industry doesn’t need AI models that can quote Shakespeare; it needs AI models that deliver transparency, trust, and most importantly, fairness. The way to achieve this is to develop small, highly tuned language models, trained on financial services data, and reviewed by financial services experts for specific financial services use cases. Generative AI is the most significant technological evolution of our generation, and we are in the early stages of adoption. This represents a significant opportunity for Aveni and our partners. The goal with FinLLM is to set a new standard for the controlled, responsible, and ethical adoption of generative AI, outperforming all other generic models in our select financial services use cases.”