RISK MANAGEMENT in FINTECH

Are there typical risks for fintechs?
While the Fintech market has emerged and progressed, a number of internal and external powers have caused it both an innovative and challenging business climate.

Market growth. The economic, social, demographic and technical transformations of the last decade have created perfect environment for fintechs. In particular, broadband-enabled consumers and smartphones continued to demand quicker, simpler and more direct access to financial goods and services. Fintechs responded with a combination of vibrant entrepreneurialism and technical and product creativity — fuelled by ample venture capital — that allowed them to scale and gain access to markets around the world.

Emerging technologies. These technical innovations, including the and use of mobile, robotic process automation, cognitive technology and blockchain, have contributed to new business models, modern product and service distribution platforms, and inventive ways to attracting, interacting and retaining customer loyalty.

Partnerships and partnerships. Initially engaged in competition with each other and conventional financial firms, fintechs has recently started to collaborate with other financial institutions through joint partnerships, collaborations or acquisitions.

Regulatory examination. Earlier, fintechs were largely unhindered by regulatory restrictions that tied banks and other financial institutions. But as the market progressed and fintechs and conventional financial institutions continued to share their rooms, regulators began to articulate their demands of fintechs.

The importance of effective risk management is clear in the light of the changing regulatory environment and the associated risks. However, it also raises the question of where to start if a company does not have some form of risk management program in place or if the existing program is rudimentary in scope and design.
Fintech executives and other stakeholders, such as private equity investors and outside counsel, can benefit from an understanding of the following basic principles of effective risk management:

Tone at the top. Effective risk assessment begins and finishes with top sound. It is. It is important for the board of directors and senior management of the corporation to consider the essential procedures, internal controls and mitigation plans of the organisation and to lead to the development of a corporate environment and culture under which “risk appetite” is recognized and adhered to.

An end-to-end outlook with a clear emphasis on risk-based behaviour. With a top-level tone and a risk management organization in place, it is important to identify and record a risk structure that aligns with the regulatory and organizational challenges found by a structured corporate risk evaluation.

Efficient benefits. With specific risk tolerances defined and shared by the board, management and risk committee within the company, staff at all levels should be encouraged to move forward if they have risk-related issues.

While fintechs are not considered to be banks, their bank-like offerings continue to permeate and threaten the financial services market, whether in banking, financing, deposit-taking or other sectors. These results are expected to draw an increasing degree of oversight from regulators focusing on repeatable, sustainable and consistent operating efficiency for the financial services sector. The result is that many Fintech firms would definitely need to rely on their own risk management skills in order to keep pace.

JCash co-founder, fintech/blockchain expert. Interested in innovations in digital payments and AI technologies.