Whether you’re running an SMB or a startup, the fintech industry looks more promising than ever. By 2032, the global fintech market is predicted to hit USD 1,15 trillion, compared to USD 294.74 billion in 2023. But if you want to leverage the growth to expand your fintech product, be prepared for the challenges that lie ahead.
Fintech is a tough industry to be in and even tougher to grow. Many founders and business owners have it rough when they scale their fintech products. Some suffer data breaches, heavy penalties, and loss of trust as they grapple with various fintech challenges.
For example, Evolve Bank was hit by a ransomware attack in 2024. Subsequently, customer information, such as their names, bank account numbers, and contact details, was leaked. Although the bank didn’t reveal the financial implications it suffered, we know it would be substantial. According to IBM, the cost of a data breach stands at $4.88 million on average.
But that’s not the only challenge that fintech companies face. From our experience building fintech apps for the clients like Aspiration and Cardless, we’re aware of other technological, operational, and business challenges that SMBs and startups must mitigate.
And that’s what we’ll share in this guide, along with solutions you can implement to scale your fintech product.
Top 5 Challenges in Fintech for Startups
Fintech startups are in a race to raise funds, validate their ideas, and get their product quickly to the market. But in their bid to do so, they might overlook or sometimes fail to address these challenges.
Scaling challenge
Scalability is a key fintech challenge that many startups face when they experience rapid user growth. If they can’t scale their computing resources to meet the growing traffic, customer experience will suffer. Slow-loading screens, inability to transact, or crashing apps will hamper customers and, subsequently, investors’ confidence in your company.
Fintech products rely on servers, databases, networks, and other technological infrastructures to deliver consistent and low-latency performance. But scaling your fintech software isn’t limited to resolving technological issues. Instead, you’ll also need to consider customer support, data handling, and security risks.
Solution
Don’t let scalability be an afterthought when developing your fintech product. Instead, make it a priority early in the development. Now, this doesn’t mean you’ll need to operate with extensive resources and computing capacity from the start. Rather, it’s about choosing the right tech stacks and approaches in development.
For example, you can build scalable products with these practices.
- Build and deploy fintech solutions on secure, on-demand cloud infrastructure.
- Architect the solution with microservices instead of developing rigid, monolithic codes.
- Apply Agile and CI/CD coding practices so that we can respond to growing needs quickly.
And if you’re not sure how to start, Uptech can help. For years, we applied these practices to build scalable apps for fintech and other industries and now we offer top financial software development services. Tell us about your project and our expert team will be happy to help.
Regulatory сompliance challenge
Another major hurdle that you’ll need to address is the various regulations that govern banking and alternative products. Depending on the country you operate in, and the customers you serve, the requirements might vary. And failure to comply can result in hefty penalties.
For example, fintech bank N26 was fined $10 million by the German financial authorities because of a delay in submitting suspected money laundering reports.
If you’re serving the US or European market, make sure your fintech app adheres to these acts.
- General Data Protection Regulation (GDPR), a data privacy act that regulates how businesses collect and use customer data in the European Union.
- Gramm-Leach-Bliley Act (GLBA), which governs how financial institutions in the US manage and secure sensitive customer information.
- Electronic Fund Transfer Act (EFTA), which ensures customers are protected against fraud and errors when transferring funds.
On top of that, fintech companies must comply with local know-your-customers (KYC) and anti-money laundering (AML) laws.
Solution
Constant awareness and deep understanding of fintech regulations help you stay on the right side of the law and protect your customer’s interests. To do that, you’ll need to set up an internal compliance audit team, which ensures your financial product adheres to the mandatory requirements.
To help our clients meet compliance requirements, we
- Apply data privacy measures, such as encryption, user authentication, and data residency controls.
- Update fintech products promptly according to regulatory changes.
- Automate compliance monitoring and risk management with artificial intelligence and machine learning.
If you need help, we have an experienced fintech development team that offers the necessary services needed to scale your product or you can start with checking th fintech security checklist we prepared. Our team gathered the main regulations you should be aware of while developing a fintech product. It's clear, straightforward and handy.
Get our fintech security checklist
SaaS/BaaS vendor challenge
Startups usually integrate their fintech app with SaaS and BaaS vendors to save costs. The move lets founders tap into existing services like payment gateway, marketing automation, and customer analytics without building them from scratch.
While it makes financial sense in the beginning, most founders often face these hurdles down the line.
- Vendor lock-in. Startups are deeply tied to the service provider, which means any policy and cost changes have a substantial effect.
- Data transparency and control. When you send data to a third-party provider, you have no control over how they’re stored and secured. And this doesn’t bode well in some regions, where regulatory acts require fintech startups to comply with specific data residency and protection guidelines.
- Innovation constraints. Over-reliance on SaaS/BaaS vendors restricts product growth. You’ll find that customization is limited to the features that the vendor offers.
Eventually, startups need to revisit their SaaS/BaaS strategy to ensure continuous growth.
Solution
Like it or not, startups cannot totally cut off SaaS/BaaS vendors from their apps, particularly if it involves mission-critical services like banking or cloud storage. However, you can strategize how you collaborate with the service providers without limiting your ability to scale.
Often, it’s better to collaborate with fintech developers who are familiar with SaaS/BaaS and can integrate them while being mindful of potential limitations. For example,
- Don’t get locked to specific service providers.
- Have several options under the hood that you can easily switch between.
- Avoid over-reliance on third-party solutions because there are always limitations. Rather, build your own solutions or use additional services to meet your goals.
For example, we architected a fintech solution that supports multiple BaaS providers for different regions. We also did the same for card providers and transfer types based on the respective country. This way, our client can scale their product more flexibly, without being constrained to any specific vendor.
User experience and retention challenge
Another common challenge for fintech companies is failing to attract, engage, and retain customers. Despite powering their app with state-of-the-art technologies, fintech solutions might fail if they struggle to deliver exceptional user experience.
Let’s say you build a P2P payment app for users to transfer funds across borders. If your app is difficult to use or cannot consistently transact the money, users will drop the app for competitors.
Overlooking certain details, such as displaying account balances on the home screen, can also negatively impact user experience. When an app doesn’t fulfill customers’ needs for convenience, it will suffer a high churn rate.
Solution
The easiest way to retain customers is to prioritize UI/UX principles when developing a fintech app. Naturally, a fintech app must, first and foremost, be secure, which requires verification and other security measures.
However, it’s equally important to balance security and user-friendliness. For example, users shouldn’t be required to authenticate multiple times before they can view their balance. Rather, the app can impose different levels of security where users can perform specific tasks.
What’s important is to map the entire customer journey and design the app to support it. And that’s where Uptech’s experience will be helpful. Our UI/UX designers are skilled in creating engaging solutions based on users' needs.
Long time-to-market challenge
Fintech startups can ill afford delays when developing their products. Delays are costly in revenue, growth, and opportunities. But delays often happen if you try to take on the mammoth task of building or scaling a fintech solution alone.
Founders might find themselves overwhelmed when trying to comply with various industrial regulations. Plus, you must deal with the underlying technological complexities. Know this: building a fintech software, even the simplest one, involves
- putting together many software modules
- third-party integrations
- provisioning, migrating, and maintaining databases
Moreover, you need to test them extensively before you can make the solution public.
Solution
Break down the development into smaller, verifiable milestones. This will limit the risks you’re exposed to while accelerating fintech development. For example, we recommend our clients validate their ideas with prototypes before launching an MVP. Then, we gradually add more features that users will find useful.
Also, you can reduce development time by consulting fintech experts familiar with compliance, security, and other challenges that startups usually face. They’ll help you steer clear of pitfalls. In this case, our experience working with fintech startups like Aspiration and Cardless will prove helpful.
Top 5 Challenges in Fintech for SMBs
As a founder, the challenges you faced when growing your startup is probably still fresh in memory. But now, as your business grows, you face new challenges along with some old ones.
Uptech works with both startups and SMBs, and we can relate to your predicaments. No doubt, security, and compliance remain a common challenge. But there’s more at stake, particularly with a larger customer base and more ambitious goals.
In short, there’s simply no rooms for mistakes. So, let’s work together to resolve the bigger challenges you might face.
Сybersecurity challenge
Data risks are arguably the gravest concern that CTOs face when scaling their fintech software. As you’re aware, fintech software is a likely target for cybercriminals. Bad actors are constantly finding ways to steal customer data, including sensitive bank information, and gain illegal access to their accounts.
But that’s not all. Over the years, cybercrime tactics have evolved, making preventive measures more important than ever. In 2023, the finance industry suffered the most number of data breaches compared to other industries, according to a leading financial service provider.
We want to stress that cybersecurity threats are real, and they can be very costly. A survey pinned the cost of a cyberattack on SMBs in the US at $200K, an amount that not many business owners can afford. So, it’s very important to constantly revisit your security strategy, or better still, build robust fintech apps from the start.
Solution
To prevent your business from falling prey to cybercriminals, it’s pivotal to implement security measures in your app. Data security and customer privacy are top priorities, and they should be supported by protective mechanisms and development approaches.
For example, SMBs can:
- Encrypt data collected, stored and transferred by their fintech software.
- Ensure all third-party services they use comply with required data privacy regulations and security standards.
- Practice secure coding to prevent latent vulnerabilities from compromising customer safety.
- Conduct periodical security audits, to identify security flaws and remediate them promptly.
- Include security features like multi-factor authentication, security alerts, and fraud detection mechanisms.
Rapid technological innovation challenge
Your ability to scale and stand out from a competitive market depends on how fast your business can adopt and leverage technologies like artificial intelligence (AI), machine learning (ML), and blockchain.
For example, banking software powered by an AI chatbot can provide 24/7 assistance to customers while reducing operational expenses. Likewise, using machine learning for credit scoring reduces loan provider’s risk when granting approval.
Unfortunately, not all SMBs are prepared to innovate their fintech products according to technological trends and demands. As such, fintech businesses risk being outcompeted by their more agile rivals if they remain shackled with obsolete technologies.
Solution
If you want your fintech business to remain relevant amidst technological growth, there’s no choice but to invest in learning and development. You’ll need to dedicate time and resources to experiment with technologies like AI/ML, blockchain, robotic process automation and fit them into your product’s growth plan.
Alternatively, you can collaborate with leading tech experts like Uptech. We have the knowledge, skills, and experience in AI/ML, ChatGPT integration into your software. We have an extensive expertise in developing products with generative AI, and other innovative technologies that fintech companies need.
Changing regulations challenge
Governing bodies worldwide are constantly adjusting regulatory guidelines to better reflect the current financial landscape and protect customer’s interests. SMBs might face difficulties keeping track of regulatory changes or reflecting them in their fintech products. This puts SMBs at risk of hefty penalties or could cause their license to operate in specific regions to be revoked.
Of course, some countries impose more regulations than others, which could complicate compliance efforts. For example, if you’re marketing your fintech solution in the US, you must comply with SEC, CFPB, CCPA, and other state-level acts. Any revision to the act, even a minor one, requires auditing your entire product and potentially making significant adjustments.
Solution
Continuously monitor regulatory compliance and be prepared for changes. At a higher level, engage with policymakers to stay updated on where the fintech industry is heading. Simultaneously, set up a compliance committee to streamline policies across your products.
You can also integrate regulatory technologies (RegTech) with your fintech app to continuously monitor and streamline compliance requirements. Generative AI, specifically, is useful for compliance monitoring, particularly when regulations are becoming more complex.
Tech experts challenge
If you want to scale your fintech business, you face another challenge common in many tech industries — hiring and retaining tech talents. Building a fintech product requires professionals adept in specialized skills, such as app development, AI/ML, UI/UX, and data security.
To attract these talents, SMBs must compete with large organizations which can offer more lucrative compensations. On top of that, some expertise, like deep learning, is scarce in certain countries. And that means CTOs must turn to alternative hiring methods to solve their talent woes.
Solution
Talent scarcity isn’t unique to fintech companies. Many companies in other industries face the same issue. Having a competitive compensation package and a healthy working culture can help attract talent. But in some cases, you’ll find engaging an independent development team more helpful.
Rather than spending time recruiting, training, and managing in-house talents, fintech companies can outsource their product development to experienced agencies like Uptech. Doing this gives you immediate access to multi-disciplinary expertise to drive your growth.
Customer acquisition challenge
Fintech companies also face notable challenges in expanding their customer base. As more competitors enter the market, it becomes more difficult to attract, nurture, and convert prospects into customers. On top of that, pricing strategy, marketing, branding, and other factors can impact a fintech company’s customer growth.
The factors we mentioned can contribute to a higher customer acquisition cost, which makes the business model less profitable than initially projected. Without new customers, fintech companies risk stagnation or losing their market share to new competitors.
Solution
You can diversify your marketing channels to widen customer reach. But more importantly, your product must be fitted for the right audience. In simple words, your fintech app must solve a real problem, which customers are willing to pay for. Without that, any marketing strategy you apply will unlikely drive results.
So, it’s important to ensure a product-market fit when you build your fintech app. At Uptech, we help business owners conduct the discovery phase, where we survey customers to see what they need and use the feedback to guide how we build the product.
Other Common Fintech Challenges
We’ve addressed the major challenges faced by fintech companies, but let’s not forget lesser but equally important ones.
Third-party integrations
A fintech app integrates with payment processors, data analytics, CRM, and possibly many other third-party services. Some of these services may not be able to scale in tandem with your app. So, you might need to replace existing vendors with others, which requires additional customization.
Generally, maintaining third-party integrations and keeping up with changes can consume substantial resources. One way to reduce integration complexities is to adopt a modular and scalable software architecture. Also, choose your vendor wisely by considering compliance, cost, and scalability.
Increasing competition
There are 5.8k fintech SaaS globally in 2024, and that marks a market that’s getting more competitive. New startups need to be more creative in their offering to compete in crowded markets. And they’re pressured to do that at an increasingly shorter timeline.
The truth is, smaller fintech companies face the mammoth task of competing with established fintech providers head-on. A smarter way is to be hyper-focused on solving a very targeted problem. For example, Incuto provides digital tools that make it easier for lending institutions to digitalize their business.
Demand for personalization
Customers are no longer content with a seamless but generic user experience. Rather, they want an experience tailored to their preference and needs. Personalizing a fintech app requires sophisticated machine learning algorithms, which consolidate user data and use them to respond, recommend products, or follow up.
Personalization keeps your customers happy, and it can boost revenue by 40%. But not all fintech apps support personalization. To do so, you’ll need to introduce machine learning capabilities across various customer touchpoints. Again, this is not a simple task, but requires specialized AI/ML development expertise.
Managing development costs
As much as you want to keep development costs low, there’s only so much you can save when building a fintech app. The process is complex and often requires a team of various specialists. Furthermore, if you’re based in the US, UK, Canada, or other developed countries, your hiring cost can be considerably expensive.
A high development cost results in slower returns. To prevent that, many fintech companies outsource part of their development to developers in a more affordable country. For example, they hire fintech developers from Ukraine at $50 / hour instead of $100/hour or more in the US.
How We at Uptech Solve Fintech Challenges for Our Clients
Over the years, Uptech has helped several startups and fintech businesses build, launch, and scale their products to different audiences. We’re mindful of the challenges that fintech startups and SMBs face.
From securing customer data to keeping up with fast-paced trends, our team’s wide range of expertise comes in handy. We’re also adept at integrating AI/ML technologies, aligning products to market needs, ensuring compliance, and more.
Because of our customer-centric approach, fintech companies from various countries partner with us to develop their solutions. We share some notable projects below.
Aspiration
Aspiration allows users to spend and contribute to charitable causes. In 2016, we helped Aspiration to build secure, reliable, and intuitive apps for iOS and Android. Through rigorous testing and incremental releases, we managed to keep Aspiration 99% crash-free since it was launched.
This wouldn’t be possible if Aspiration hadn’t opted to outsource to achieve a better balance between cost and value. Listen to what Aspiration’s Senior Director of Engineering said about their experience working with us.
Cardless
Cardless lets organizations set up their credit card in weeks. When the startup reached out to Uptech, they tasked us to build an Android app and release it in a very short period. We did, in 3 months, by also incorporating elements that help Cardless build trust among its users. Today, Cardless is favored by sports fans because it inspires trust and is user-friendly.
Tired Banker
TiredBanker is a web app that turns complex financial reports into easy-to-understand information. When taking on the project, we had to balance a user-friendly interface with state-of-the-art AI technologies. To do that, we integrated the app with GPT while creating an engaging layout inspired by the nostalgic 90s.
Green Investment app
In this app, the founder wanted to turn a PoC into a marketable product. However, they face two immediate challenges: a vague target audience and securing data collected for analytics.
To address the first challenge, we work closely with the client through a discovery stage to gather user feedback. As for the second, we introduced features that allow users more control and visibility on how their data is collected and processed.
Check out the full case study, where we share how we solve the client’s challenges in detail.
Fintech startups and companies face security, legal, technological, and other challenges as they seek to scale their product. Unless you address the problems, they will eventually hinder product growth and contribute to revenue losses. And that’s what some fintech companies are experiencing.
Still, there are ways to overcome the issues besetting the fintech industry. In this article, we’ve highlighted possible solutions you can implement to scale your fintech app more effortlessly. We’ve also shown how our team partnered with fintech companies to deliver apps their users love.
Learn more about the fintech software development services we offer.