20 Reasons Why Most Fintech Start-Ups Fail

In as much as financial Technology (fintech) companies have in recent time shown signs of revolutionalizing the way we handle our daily finances, it does not remove the fact that majority fintech start-ups fail. There are a number of reasons why most fintech start-ups fail but this article will concentrate on the most common reason why most fintech start-ups fail.

We know that fintech as a concept will not fail but start-ups that tries to dabble into it wrongly will fail. This post is written to bring to light those reasons why most fintech start-ups fail.


Reasons why fintech fail19 Top Reasons Why Most Fintech Start-Ups Fail

1. Overtrading
Overtrading in its broadest sense is when a company bites more than it can chew at a time. Start-ups are notoriously known to be too optimistic and fintech companies are not an exception. Whenever I look at the activities of fin techs, all I can see are signs of overtrading. Until this is changed, we will continue to have large number of fintech start-ups fail.

2. Lack of Managerial Experience
The fact one can coding very well does not make that person an expert in management. Although one does not need to be experienced to be an entrepreneur, but fintech is a specialised industry that takes a little more than entrepreneurial spirit to excel at.

There are business Angels and other venture capitalists that are willing to assist if they see the idea as being bright.

3. Pure Hype
A major reason why most fintech fail even before they take off the ground is because a lot of things that we claim can be done by fintechs are pure hype without real substance. The idea of ‘let me quickly take advantage of it now that everyone is talking about it’ has to be stopped.
But where will the innovation and creativity come from if many talented people does not go into fin tech you may ask, well, my answer to that is; if it must be done, let it be done correctly.

4. Not Performing Due Diligence
We all seem to be in a hurry that we tend to either ignore or forget to perform due diligence before launching our fintech business. We assume that because it is relatively new that people will somehow ignore our mistakes. Starting a business without proper due diligence is like sailing into an unknown territory without asking the right probing questions.

5. Rapid Change in Technology
Another factor that contributes to the high failure rate in fintech start-ups is the fact that we now live in a world where technology changes within a twinkle of an eye. What we consider novel today quickly becomes obsolete within months of being launched.


This is making it difficult for fintech spring out to cope with. The best we can do in this regard is to have open mind as fintechpreneurs and ready to quickly incorporate changes into our original plans.

6. Partnering with Inexperienced JV
One of the ingredients of succeeding as an entrepreneur is to find an experienced person or an entity in your area of interest to partner with. Fintechs for sure seek partners to help make their business launch a success but most times the partners are not experienced in handling startup payment processing outfits.

7. Expensive Law Suits
What would have otherwise been a promising payment processing start-ups end up being swallowed by legal heavyweights. The reason for this is the fact that many entrepreneurs tend to leave many stones unturned from legality perspectives. A common mistake is when fintechprenuers hurriedly adopt terms and conditions that they used in their other successful starts (non finance info tech related)

8. Inability to Raise Cheap Funds
Expensive capital is a major drawback that affects fintech start-ups. Banks and other lenders of fund would always raise the cost of fund. You would not blame investors and other sources of finance to ask for high premium from fintech as the risk of losing it all in this sector is quite high.

9. Making wrong strategic choice
Strategic choice can make or mare any business regardless of how brilliant the ideas of the founders may be. Wrong strategic choices are a plague that is very common with fintech starters. They always believe that engaging in price war will win the battle for them. Enough of trying to be a cost leader as this is obviously not working for many. I think it’s time to try differentiation technology strategic choice.

10. Poor Public Perception
Up until recently, the public have always approached fintech start-ups with caution. I remember back then how e-gold, libertyReserve and e-bullion all struggled to convince the public that they were legit. But would you blame the public? What then happened to these fintech pioneers? That would a discussion for another day.

11. Loosely regulated
There is no real regulation in the fintech industry as yet. All we currently have are indirect regulation and this has made it possible for us to have many entrepreneurs dabble into it. The number of payment solutions start-ups that have come and gone in this decade is phenomenal and mind blowing. A bit more regulation in this area will help straighten things a bit.

12. Poor Licence Management
Poor licence management has been identified by industry experts as a brutal killer of technically inclined start-ups. They either do make overly inadequate or make it too rigid that it scares prospective clients away.


13. Delay in releasing products
Fintechs operate in a dynamic and changing environment that requires constant innovation to be afloat for long. One of the reasons why Blackberry closed shop was because it took them too long to embrace the needs of Smartphone users. It became too late to recover from the lost grounds by the time they realised it.

14. Sloppy Change Management Process
Change management process is very important in the quest for survival of every business. Numerous fintechs have failed simply because they did not manage their change process very well. Things as little as rolling out new interface could cause a major problem.

15. Targeting of Wrong Market Segment
There is this idea by CEOs of fintech start-ups that a one cap fits it all when it comes to marketing their products. This has made it eminent to target the wrong audience thereby leading to wasting resources on wrong advertisement.

16. Working on Thin Margin
There is this believe that IT product has to be cheaper than its competitors to be appealing to the market and this is shrinking the profit margin of many IT related start-ups including the financial technology. Fintech start-ups will continue to struggle until this mindset is changed.

17. Inadequate Security
Security will always be an issue for financial software companies. One of the reasons why Bitcoin has still not blown is the fact that headlines are always made of one Bitcoin or the other being hacked. Complete security of financial software cannot be 100% guaranteed but there is massive relentless work going on to significantly improve the level of financial software security.

18. Insatiable Taste of Millennial
Millennial are in constant search for excellence and this is putting a lot of pressure on developers of financial services software especially mobile payment innovations. One of my millennial friends was complaining the other day that ApplePay is not flexible enough to meet her busy schedule. This just tells you that we are in a very insatiable world of IT finance.


19. Over Hiring
Premature hiring of high flying professionals is another thing that kills new finance Technology Company. In the rush of adrenaline of that brilliant idea, founders start hiring top end staff under the delusion that the more smart people you have on ground the more the public will embrace your product. In as much as it is good to hire smart people for your business, it has to be done at the right time.

20. Over Remuneration of Founders
Founders and CEOs of Fintech start-ups are guilty of over paying themselves at the very early stage of a company and this is really causing lots of financial problems for these new companies. Most of them do this just to get the money and experience and then start something similar with the money and experience that has been gathered.

This article has dwelt on reasons why most fintech start-ups fail. We don’t need to say that avoiding the problems identified in this article will make things a lot better.