Nowadays, fintechs are operating in a challenging landscape characterized by heightened competition, mounting pressures for cost efficiency and profitability, and a rapid pace of change in the industry. This environment pushes companies to prioritize streamlining operations and adopt a more strategic and pragmatic approach to implementing digital and AI initiatives.
The first step to mastering these shifts is knowing what they entail. So, we’ve turned to our financial technology experts to compile this master resource presenting the most pressing 7 fintech challenges. Let’s dive in.
The push to prove AI's economic efficiency begins with a broader digital transformation trend, where businesses are under pressure to better prioritize technology investments based on these initiatives' economic benefits.
Although the potential impact of AI on companies in the financial services industry is substantial, these projects are met with skepticism due to poor ROI planning and limited access to information about information security.
Still, traditional incumbent institutions are slow to adapt, which poses an advantage for highly adaptive startups who know that AI is more than just a fintech trend.
Even so, the first-mover advantage had already been played. Certain financial players have long decided to bet big on AI adoption, investing in research and development. As expected, some breakthroughs are starting to show, as shown by a Sailpeak report on AI’s impact on the financial industry:
In addition, another fintech in the BNPL sector, Klarna, reduced its workforce from 5,000 to 3,800 in the past year. What’s more, they plan to reduce it to 2,000 employees, all with the help of AI.
Despite these advancements, widespread AI adoption remains challenging, often facing issues like:
There’s no denying the economic potential of this tech in the financial sector. As McKinsey suggests, Gen AI could boost operating profits by 9% to 15% through cost savings.
Still, AI is no one-size-fits-all solution nor a universal ROI generator. These investments come with risks, amplified by the lack of know-how behind deploying such technologies. That’s why Gartner predicts that by 2028, more than 50% of organizations invested in large AI models will abandon their initiatives.
As such, will financial players take a leap of faith and strategically invest in AI while facing uncertainty, or will resistance to change persist?
Remember that, if done right, implementing AI solutions for sustainable growth is a winning approach. The key to success is first to assess the level of change that the organization is ready and willing to undergo, the technical expertise and tool stack required, and the specific AI use case the entity wants to achieve.
Partner with technology leaders to define your strategy, assess business risks, and test your digital endeavours’ viability with a tailored Proof of Concept. Reach out today.
The challenge of cost optimization is, in fact, the challenge of ensuring that the approach is sustainable and aligned with long-term strategic goals. Effective cost optimization goes beyond plain cost-cutting. It involves a 360 view of:
For companies keen on cutting fixed and variable costs, Gartner’s cost optimization frame narrows down some interesting areas of expenditure reconfiguration:
Still, we believe in cost-optimization through powerful technology investments that drive long-term value, rather than plain expenditure adjustments.
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Consider Pegasus Legal Capital, a firm blending financial services with legal expertise. As it expanded, Pegasus faced a considerable issue—its outdated CRM system couldn’t keep up with the influx of leads and contract management duties. By partnering with Zitec, the company switched to its freshly built Orion platform, which automates lead intake, contract generation, and digital signatures. The result? 👇 Pegasus saw contract generation time cut by over 30 times while digital signing rates soared from under 10% to over 50%. |
In a business environment where onboarding new customers costs 5x more than retaining existing ones, all while traditional advertising budgets are shrinking, targeting the right customers has become key.
Fintechs must focus on identifying high-value profiles that generate the most revenue. Then, they need to optimize acquisition efforts around these high-value customers. To achieve this, the focus should fall on making strategic marketing decisions, such as:
The challenge? Mastering customer operations requires a strategic approach to data governance and customer engagement — all of which require the talent and expertise typically found in enterprise-level institutions.
But what if enterprise-grade-level teams and top-level tech stacks were at your fingertips?With Zitec, that’s possible. Reach out today. |
As fintechs grow, they must handle growing volumes of transactions while ensuring little to no downtime against all potential failures. The stakes are high: downtime or performance lag can lead to financial losses, erode customer trust, and trigger regulatory scrutiny.
The challenge is particularly high in the financial sector, where real-time processing and high availability are crucial. How so? Let us exemplify this fintech challenge for more clarity:
Looking ahead, the ability to scale efficiently while maintaining resilience will be a real differentiator in the financial space.
The key? Fintechs must invest in cloud architectures, such as:
Migrating to the cloud is a tough challenge for financial institutions due to the mix of old legacy systems, modern technologies, and strict regulatory rules they must follow. These banks have heavily invested in on-premises setups, making the shift to the cloud expensive and risky. A mistake during this transition could have serious consequences.
So far, only 13% of banks have moved a large part of their IT to the cloud, but over half plan to do so by 2027 to fully maximize the benefits of cloud technology.
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Consider one of Zitec's clients, a financial services company based in Los Angeles. The company needed to streamline and scale its operations to manage thousands of transactions daily. By partnering with Zitec, they developed a personalized ERP platform hosted entirely on Microsoft Azure and a slack bot that helped them triple their business size while only slightly increasing its underwriter team. The ERP solution eliminated the need for manual processes, reducing errors and saving time |
Open financial data offers the opportunity to create more personalized services and tap into new revenue streams. However, many financial institutions struggle to take advantage of this due to a lack of hands-on knowledge and expertise.
More than using the right technology, managing open data implies a shift in mindset towards making data-driven decisions. But the main issues behind this fintech challenge involve a series of interconnected factors, like:
Adherence and compliance: two notions every fintech must be quite familiar with by now. As we all know, the vast world of regulations poses one of the most significant fintech challenges.
As financial services companies expand globally, they face complex compliance requirements that differ across regions. Key areas like:
…are just the tip of the iceberg. These regulations require constant updates and adherence, which, although costly and time-consuming, are non-negotiable.
In an industry where trust is paramount, especially when handling customers' financial data, adhering to all regulations is key. Failure to do so can lead to hefty fines, legal consequences, and serious damage to reputation.
As such, one significant fintech challenge is the need for continuous investment in regulatory technology (RegTech). This involves:
For fintechs operating across multiple jurisdictions, the compliance burden intensifies. Each jurisdiction has its own set of rules, making compliance a continuous and evolving effort.
To stay competitive, fintechs must integrate compliance into their business models, and that’s a given. Fortunately, it’s not all bad news. Using advanced technologies like AI and machine learning to automate and improve processes is a major step forward, aiding this process greatly.
Adherence to evolving regulations doesn't have to be a burden — it can be a strategic advantage. Take the example of Token Financial Technologies. By partnering with Zitec, Token was able to launch a PCI DSS-compliant payment platform in less than nine months. Moreover, this project opened their doors for rapid expansion across Europe.
With the rapid adoption of digital financial services and the increasing role of AI, blockchain, and machine learning, there is constant pressure to develop new products that meet evolving consumer needs.
For example, the surge in demand for personalized financial services has led companies like Apple and Klarna to launch innovative products, such as:
Keep in mind that not all innovations lead to success. The fintech sector has seen many instances where large investments in new products did not yield the expected returns.
So, how can one determine which product developments will deliver the best ROI? Tough to say. One approach is to “fail fast”.
Companies can no longer afford to invest in every promising idea, especially without a clear path to profitability. Hence, fintechs are switching focus to areas with a competitive advantage or a clear market demand.
Our fintech experts are here to help you define your strategic vision and get started with a PoC. Reach out today.
As we’ve explored, the fintech landscape is filled with both opportunities and challenges. From navigating regulatory complexities to balancing innovation with cost management, fintech companies must be agile and strategic. Embracing a fail-fast mentality, validating ideas through small-scale successes, and leveraging partnerships for rapid development are key strategies for staying ahead.
However, it's crucial to remain cautious and selective. Invest time and resources in areas that truly matter and align with long-term goals.
Face these fintech challenges head-on, starting today. Partner with Zitec — the go-to European digital transformation leader.
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