Comply or die: Why fintechs need to grow up
Rivka Abramson| Sep 14, 2023
Welcome back to Fintech for CFOs, Papaya Global’s fintech news digest for finance pros and leaders.
This week, we’re talking about growth and compliance 👮♀️
What you need to know right now:
High hopes, rocky realities: Europe’s new banks struggle to grow up – The Financial Times.
The Financial Times reports that European neobanks – for years the darlings of the global fintech revolution – are experiencing some growing pains.
First, the obvious: rising interest rates and shaky investor confidence have slammed the door shut on a decade-long fundingpalooza.
But dig a little deeper, and you’ll find a more concerning source of anxiety: regulatory scrutiny.
The FT reports that regulators are increasingly unhappy with many neo-banks for their:
🔍 Poor know-your-customer (KYC) checks.
💵 Weak anti-money laundering (AML) controls.
🧐 Widespread “organizational weaknesses.”
The final point is unusually vague for the FT, but we guess it concerns corporate leadership, company culture, and employment practices.
“Without any doubt, neobanks are currently facing extreme challenges,” said Max Flötotto, a senior McKinsey partner who advises the sector.
These problems run deep.
Corporate culture can be fixed, but compliance is a different story.
Banking and money transfer licenses take years to acquire but can be lost in a matter of weeks. One poor decision or lapse of standards is all it takes.
Without your licenses, you cannot do meaningful business. And yesterday’s hypergrowth counts for nothing if your assets are frozen 🥶
Regulators care about the health and safety of markets and customers. The bigger your business becomes, the more risk you bring into the system – and the more scrutiny you’ll receive.
If your compliance standards are poor and your customers are unhappy, it’s a huge red flag 🚩
That’s why fintech companies must apply the highest compliance standards from day one. It’s in the best interest of the industry as a whole.
A little hard work today prepares the way for sustainable growth tomorrow.
Because if you’re prioritizing hypergrowth over compliance, it might be time to grow up.
What else to read:
African fintech startups raised $2.7bn funding in last 2 years 🌍 – Disrupt Africa.
- The fourth edition of the Finnovating for Africa report highlights the growth of Africa’s fintech ecosystem.
- In the past two years, African fintech startups have raised over $2.7 billion in venture capital funding.
- The number of fintech startups in Africa has increased by 17.7% to 678 in 2023 compared to 2021.
- Fintech funding in Africa has grown significantly, with 540 startups raising a total of $3.64 billion since 2015, more than any other sector.
- Nigeria leads in fintech investment in Africa, attracting over $1.5 billion in funding since January 2015, with the “big four” ecosystems (Nigeria, South Africa, Egypt, and Kenya) dominating 91.2% of the investments.
For more African fintech insights, get the full report here 👉 Finnovating for Africa.
Latin American fintechs embrace AI 🦾 – Finextra.
- Latin America’s financial payments sector is changing, with Brazil and Mexico becoming fintech hubs driven by AI initiatives.
- Despite 7 out of 10 people in the region being unbanked or underbanked, the number of fintech companies has doubled since 2020, catalyzed by the pandemic.
- AI adoption is projected to boost Latin America’s GDP by over 5% by 2030, but the region ranks low in the Government AI Readiness Index.
- The financial sector has attracted significant investment in the region, with 40% going to fintech firms, leading to the growth of fintech unicorns.
- AI is being implemented in healthcare and agriculture, while open banking is focused on enhancing financial services accessibility.
- National AI strategies vary across Latin America, with some countries prioritizing talent development and technology infrastructure and others lagging due to political changes.
- Data privacy and ethical AI are top concerns for regulation; however, standards lack consistency across the region. Challenges include education access, resource limitations, and Western technology influence.
See you next time for more fintech news and insights!
The Papaya Global Team