Fintech – financial technology — is booming, and the UK is leading the way with some of the most innovative digital technology like blockchain and artificial intelligence (AI) that are inspiring new ways of working in banking, insurance, and wealth management.
The growth of the fintech market has been accelerated by the COVID-19 pandemic as consumers consider alternatives to services that they would have accessed previously on the high street. Less tech savvy consumers are now also looking to take advantage of services that are accessible remotely.
But with new, technology-driven financial services comes risk – and plenty of it. These fast-growing companies need to ensure they are managing risk effectively if they are to last the course and withstand the pressure of more well-established competition.
Here are 5 reasons why fintech start-ups need to have effective risk management processes in place from the outset:
The fintech sector is a prime target for cybercriminals looking to take advantage of vulnerabilities inherent in services such as mobile payment. Priority will be given to establishing robust processes around network and consumer data security to mitigate the risk of breaches. That said, a survey conducted by The Economist Intelligence Unit revealed that fintech’s are actually better placed to deal with cyber-related crime because there are fewer legacy products, internal systems, and processes – making it easier for the risk team to spot anomalies.
- Technology failure
Technology failures and resulting service breakdowns are a huge risk for fintechs.What is your plan if a moderately disruptive technology failure were to occur? What about for a worst-case scenario? What would be the impact on your company and your customers? What actions can you take now to lessen—or eliminate — these impacts?These are just some of the questions that the FCA is asking financial services businesses to consider more systemically in a bid to strengthen operational resilience. Interest in this topic is expected to grow as the consultation process around the proposed new regulations is due to reach a conclusion on October 1st.
- Professional liability
With many new financial products and distribution methods, fintech companies are vulnerable to risks associated with mistakes when it comes to customer service and delivery. As with any new product or process, there is learning period for the customer-facing team, and this is a particularly risky time for companies providing financial services. New processes may require manual data entry, which promotes a greater risk of human error. Third-party risk is also a potential weakness for many fintechs that rely heavily on contractors to perform crucial services on their behalf.
- Increased attention from regulators
As fintech companies bring innovative technology and service delivery to the marketplace, regulators are sure to be hot on the tails of any signs of negligence.It is crucial for fintechs to keep on top of regulatory obligations and updates with a suitable risk management system. Fintechs that operate internationally will have an even greater need for a centralized system to navigate regulations in multiple countries.
- Establishing and keeping consumer trust
Consumers expect a smooth and safe experience whenever their funds are being handled digitally. In this era of social media, all it takes is one significant data breach, or a series of less significant incidents, to lose the trust of customers and damage your reputation.If you are a fintech start-up, there is clearly a fine balance to strike between offering innovative solutions that encourage more efficient and effective ways of working and ensuring that hidden risks are addressed and mitigated. Do you have what it takes to manage risks for long-term success?
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