Contributor: Temitope Daramola
The recent shutdown of LazerPay prompted me to ask: Why do fintech companies fail?
Many of us saw this coming, and the forecast was correct, but we were waiting for a miracle. The fintech industry is rattled right now; startups are seeking funding from investors, swimming deeper in the competitive market (not necessarily niche market), and over-employing personnel instead of focusing on growth.
I hope this improves in the future, because what they do has inspired or given birth to other industries.
From my research, I found that a lot of tech startups are falling short due to the following challenges:
- Access to capital is crucial for any startup, and this can be a major challenge for fintech startups in Nigeria currently. Investors may be hesitant to invest in these startups due to the high risk associated with new technologies and uncertain regulatory environments.
- Many Nigerians may be hesitant to adopt new fintech services due to a lack of trust in these platforms and limited awareness of their benefits. Fintech startups may need to invest in building trust and educating consumers about their services to drive adoption.
- The regulatory environment for fintech in Nigeria can be complex and uncertain, with new rules and requirements emerging frequently. This can make it difficult for startups to keep up and comply with all the necessary regulations, which can slow down their growth.
- The lack of robust financial and technological infrastructure in Nigeria can also pose challenges for fintech startups. For example, limited internet connectivity, an inconsistent power supply, and outdated banking systems can hinder the growth and adoption of fintech services.
Solutions
Here are some broad bits of advice for Nigerian fintech startups to consider:
- Focus on building a strong foundation instead of employing numerous staff as growth. Fintech companies should prioritize building a strong foundation in terms of governance, risk management, and compliance. This includes having robust internal controls, risk assessment frameworks, and compliance policies that are regularly reviewed and updated.
- Fintech startups should be transparent with their stakeholders, including investors, regulators, and customers. They should communicate clearly and openly about their business model, risks, and financial performance, and provide regular updates to stakeholders.
- Fintech companies should prioritize cybersecurity and take steps to protect their systems and data from cyber threats. This includes implementing strong security protocols, conducting regular security audits, and providing training to employees on how to identify and respond to security threats.
- Fintech startups should consider diversifying their revenue streams to reduce reliance on any one product or service. This can help mitigate the risk of revenue shortfalls or losses in one particular area of the business.
- Should be prepared to learn from their failures and adapt their business strategies accordingly. This can involve conducting post-mortems on failed projects or initiatives, identifying areas for improvement, and implementing changes to prevent similar failures from occurring in the future.
Overall, these are the best practices that fintech companies in Nigeria can use to reduce the risks involved with doing business in the sector and increase their prospects of long-term success.
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