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The 5 Biggest Risks Facing Fintech Businesses in 2020

Staff Writer

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fintech

Fintechs face a unique set of threats when compared to traditional financial services, CCRS Brokers and CFC Underwriting have rounded up their top 5 risks facing fintech businesses today.

The fintech industry is booming, disrupting the financial sector and attracting billions in investment globally. The UK has over 1,600 fintech businesses; a number which is estimated to more than double by 2030.

These technology-led financial services firms are increasing transparency and efficiency, reducing costs of services as well as providing the most vulnerable access to financial products.

They provide consumers and businesses with innovative tools and products through which to manage and control their money, whether it be app-based banking, online lending, investment platforms, trading platforms or Artificial Intelligence (AI) led wealth management.

Fintech businesses have a unique combination of exposures that are not contemplated by traditional financial institutions products. Below we have rounded up the top five risks facing fintech businesses today:

Professional liability

Negligent advice and failings in client services are common risks for any company providing financial services, especially fintechs who offer new financial products through new distribution models. Fintechs can also have a reliance on third-party contractors, adding an extra liability risk due to third-party negligence.

Regulatory environment

New technology, new products and new distribution brings a wealth of opportunities, but also new regulatory exposures. Fintech companies will need to ensure they keep on top of the implementation of suitable and satisfactory risk management systems.

As the fintech market evolves, so will the regulatory environment, and a major risk for fintechs will be keeping pace with the regulators’ latest updates. Fintechs will also have to consider differing regulations in multiple territories should they operate internationally.

Theft of funds

The majority of FinTechs deal with a high frequency of funds movement. High volumes of payments, transactions and customer accounts, as well as the fast growth and implementation of new technology, leaves them vulnerable to theft. These thefts could be by an employee or an external party.

Cyber event

Given the nature of their operations, fintech companies are prime targets for cybercriminals. Network security, data breaches or even a denial-of-service attack – as well as damage and rectification costs following these incidents – should be a major concern for fintech companies.

Technology failure

Innovative technology is essential for fintech companies – it is how they have disrupted traditional financial services – but this heavy reliance on technology infrastructure means firms can be vulnerable. Technology failure can mean customers are unable to access services resulting in lost income or lost customers.

Technology failure

Innovative technology is essential for fintech companies – it is how they have disrupted traditional financial services – but this heavy reliance on technology infrastructure means firms can be vulnerable. Technology failure can mean customers are unable to access services resulting in lost income or lost customers.

Fintech businesses will need a dedicated policy to manage their evolving risks. A fintech policy should offer coverage for both liabilities arising from financial services and technology services, as well as management liability, theft of funds and cyber coverage.

Coverage can be found spread across multiple policies but a single, comprehensive policy is more cost-efficient and will prevent gaps in coverage and complications in the event of a claim.

DIGIT Staff Writer Robot

Staff Writer

Staff Writer - DIGIT

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