FinTech without borders: the real challenge to FinTechs’ growth ambitions is regulatory compliance

There’s no question that regulatory compliance is one of the main issues FinTech companies face when growing their company.

In fact, according to our survey conducted on LinkedIn, it’s the number one issue when it comes to scaling a FinTech globally. Half of our responses cited “dealing with regulatory complexity” as the biggest challenge, followed by “defining go-to market strategy”, “getting funding” and “finding good talent”.

FinTech companies reading this won’t be surprised: dealing with regulation can be incredibly time-consuming, dull and complicated.

Considering this, let’s look at the main regulatory challenges facing FinTech companies and some of the benefits that come with being prepared.

Main regulatory challenges for FinTechs expanding globally

We’ve collected some of the main regulatory challenges that FinTechs face when expanding globally. Here are three issues that our network mentioned:

Expanding digital investment products and services into another country

FinTech companies such as robo advisors and digital wealth managers face quite an intricate problem when it comes to growing in another country: Not only do they face licensing issues, but they also need to understand what products and services they can offer customers. This will depend on the customer’s nationality, domicile and expertise, and will require aggregating this knowledge across all countries involved.

Offering credit cards in another country

What are the requirements to offer a (free) credit card to a prospect? You’ve probably guessed: the requirements vary greatly from country to country. Understanding these rules can be a massive challenge, which can hamper even the most successful growth strategies from the likes of Revolut, N26 or Nubank, such as handing out free credit cards in exchange for an account opening.

AML requirements when onboarding a client from another country

Just like banks, FinTechs need to map and investigate suspicious activities. That means they require an effective risk management policy when it comes to onboarding clients from a different country. 

But different countries will have different AML requirements. A good example is the UK and the EU after Brexit. Before, UK companies had to follow EU regulations for AML and KYC. With Brexit, they are now required to follow local rules. 

This has led to the discontinuation of passporting across the EU, new implications for transferring and protecting data and mandatory compliance to new regulations. Now, if a company based in the UK wants to onboard an EU customer, the company now must acquire a license in an EU country, or understand the local rules of every country individually.

Benefits of having regulatory answers ready

Regarding regulation, FinTechs have a harder job than many other startup industries: they enter a highly regulated market that puts a serious strain on their plans for growth. The good news is that there are many benefits that come with being prepared. 

Scale globally 

For FinTech companies that want to scale globally, understanding the lay of the land in each country and region is more than just a competitive edge. It decreases the number of mistakes, enables the right partnerships and allows an expansion that is a lot more calculated and set up for success.

Plan strategically 

Investors will expect FinTech companies to have considered and planned out financial regulation as part of the roadmap. That’s because regulations can affect a business model, so it’s important to be strategic and plan ahead. Depending on the products and services, it might make sense to expand to one country rather than another.

For example, when looking at South America, it might make more sense to expand to Mexico —  a country that has a framework for Open Banking and has even issued a “fintech law” — rather than another country like Chile which might not have progressed as much.

Pick up speed 

One of the issues with compliance is that responses take a considerable amount of time —  even when they’re negative. The lengthy procedures often result in delays in product development, expansion and investment plans.

Having the regulation answers ready via an enterprise-ready solution helps bring down the time to market and costs of market entry. Instead of waiting for weeks or months, team members can get a clear “yes or no” a lot more quickly. 

Preserve brand value 

And finally, having the answers drastically decreases the risks of regulatory and reputational damage. As we’ve already seen with some FinTechs around the world, getting a fine or receiving a warning from the financial regulator can seriously damage the public’s perception of that company. 

The financial technology world is still a new one, which means that the barrier to earning trust is higher. Being regulation-ready allows FinTech companies to remain compliant and therefore earn the trust of their customers early on. 

Expanding to another country has plenty of challenges, and dealing with regulation will remain top of the list for a long time. FinTech companies that are not prepared will spend endless time, resources and energy on remaining compliant — resources that could be spent on growing the company. 

But with the right tools and solutions, FinTech companies can use regulation as an enabler for global expansion, and therefore a catalyst for growth. We call this embedded compliance: the availability of immediate, reliable answers to FinTechs’ and financial institutions’ most pressing regulatory questions, embedded into their existing systems, tools and processes.

About Apiax

Apiax helps financial institutions to expand their business opportunities with compliance automation. Welcome to our blog!