FinTech is the new emerging industry of finance which has already disrupted several traditional institutions such as banks, by providing the financial services that are more efficient and fast than traditional ones. But, as any new technology grows by the time, the challenges and risks follow it. So, there are challenges and risks which FinTech is facing right now or it will face in the future as the industry goes.
CHALLENGES AND RISKS IN FINTECH
- Fintech provides the number of financial services that mostly work online and accessed through personal computers and smartphones, so there are potential risks of security and malware, so FinTech specialists should focus working or re-developing the security architectures which can handle security in the modern era of cloud storage and internet of things
- Data privacy is another big issue in these services. As financial services gather more data and information about their customers and they use that data in data analytics and machine learning algorithms to understand the customer behaviors in order to make personalized applications but it also generates the opportunities of data breaches which financial service providers need to work on
- Financial services such as peer-to-peer lending platforms face the issues when giving the loans to their customers, as these services do not have many regulations and high standards like banks have, so they sometimes require need from the banks for assistance
- There are examples of some financial services being failed because of limited knowledge of financial compliance, regulations and handling risks, like banks have the large team of experts who work on risk management. But, FinTech startups initially have the small team or they have technological knowledge but they sometimes lack the knowledge of risk management in terms of handling financial risks such as credit risks or operational risks, so they should train their people to handle these issues in such circumstances
- Some financial startups work on existing business models or business models which are not completely developed according to they want to operate. So, they should decide what business model is best for their purposes or goals, and selecting best business model also depends on the service they are providing such as Payment, Wealth Management, Lending, Crowdfunding, Insurance, and Capital Market etc
- Financial service providers should embrace the use of technologies like Robotics, Artificial Intelligence, Natural Language Processing, and Machine Learning, as this is the primary thought behind the FinTech, means applying the technologies into financial services, and these technologies reduce costs but also provide analysis or foresight of emerging risk issues