Biggest FinTech fails and what startups can learn

We don’t like to think about fintech failures, but unfortunately this is a fact of life. Not every fintech will make it, and the past few years are littered with fintech startup failures. Fintech is all about the new, with innovative technology taking traditional financial services and products into bold new direction – the possibilities are endless which is why these are so exciting. Some of these can take a concept, combine it with some winning technology and a lot of hard work, and then become success stories.

This has created huge names such as Revolut, Klarna, Stripe, Chime and Monzo – the list goes on. However it’s important to remember those that don’t make it, and lessons that can be taken away from the fintech failure case studies.

Market timing

Fintechs thrive on disruption, just look at the way the digital-first challenger banks upset the established traditional banking sector by reimagining how banks work and how they should look to end customers. A lot of fintech teams believe they are sitting on the “next big idea,” but much can be said for fintech startup due diligence as launching at the wrong time can be a common reason for fintech business model failures.

Beenz.com is a prime example of this. Launched during the dot com boom, Beenz.com was – for all intents and purposes – a crypto platform before the crypto world as we know it today exists. This site would allow users to earn ‘Beenz’ which could then be used on partner sites. This created a lot of buzz but failed to gain traction as many consumers and merchants were sceptical alike about the concept. The dot com crash didn’t help…

Today, crypto platforms can be huge business, and billions are traded daily in these tokens. This poses an important lesson that though the technology and the business are ready, sometimes the market isn’t.

Compliance and ethics

Some of the highest profile – and worst – fintech brand failures come down to compliance and ethics. Fintech is ultimately financial services and operates in a very heavily regulated space. Fintech financial control failures can occur, with these fintechs particularly prone to being targeted by criminal gangs – using fintechs’ systems to launder money and open numerous false accounts with. This can make it very challenge for fintechs to design their technology, make it workable and all the while compliant with the regulatory standards expected of it.

It can be challenging enough to keep track of compliance, but sometimes ethics can be outright ignored – case in point Wonga. For a time, Wonga was one of the best known payday lenders in the UK and used efficient fintech solutions to quickly issue loans to millions of customers. Payday lending finance was controversial enough, but Wonga drew additional unwanted attention due to its excessive fees and high rates that punished vulnerable borrowers. Wonga ultimately went bust in 2018, suffering from heavy losses and reputational damage beyond repair – some of which still tarnishes (innocent, unrelated) fintechs to this day.

Customer experience

The best fintechs thrive because they take a certain product or service, such as payments, and make it extremely efficient to access and use through innovative technology. This means the customer experience has to be perfect, to enable people to quickly sign up and use, with some fintechs dedicating entire teams to ensuring there is as little friction as possible. Unfortunately, this is easy to get wrong and this isn’t helped by the fact we – as a society – probably have some of the highest expectations in terms of customer experience ever. Amazon has arguably set the bar with next-day Prime delivery on nearly any product.

When looking at, and learning from, fintech customer experience failures it’s important to remember Clinkle. Clinkle was a payments app with innovative technology that promised to revolutionise the payments space. However Clinkle was – to put it simply – badly run and this quickly bled through to the customer experience. Customers suffered from poor app updates, poor communication and a general lack of good service.

Fintech customer retention failures are arguably one of the biggest issues for fintechs and have consigned many once-hopeful startups to the tip. Fintech solutions often rely upon scale, so they can monetise customer banks and have a better chance of growth. If customers sign up but then go elsewhere, most fintechs – without the scale and resources of more established, traditional financial services players – will quickly falter.

Technology issues

It may sound like it goes without saying, but it helps if a fintech’s technology actually works! Fintech technology failures are a blight and often not easy to fix. Given the rise in fintech, there is growing competition for the best coding talent and good programmers are in high demand. This can make it very costly for cash-poor fintechs to ensure they have the right teams on hand to design their solutions and then be around to handle issues when they arise.

Getting the technology right at a fintech is easier said than done, and numerous players have fallen by the wayside due to fintech technology adoption failures. Boo.com is an often looked-to example, with this company at the time aiming to transform e-commerce and enhance the online shopping experience. Unfortunately, the gap between idea and success was too wide and Boo.com spent too much time and money investing in complex features such as 3D images and virtual sales assistants. This ate into valuable processing bandwidth, creating significant operational issues and ultimately led to a collapse with Boo.com thwarted by its own ambition.

These lessons of some of the biggest fintech fails may make for grim reading, but the lessons are valuable. It can be easy to get distracted by the potential of technology, but these are businesses and ultimately gain from good management, financial prudence and hard work. Thankfully, there are new fintechs learning from these fallen predecessors and succeeding every day and we can’t wait to continue following their journeys!

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