In a market dominated by established institutions and systems, Fintechs deliver convenience, lightning-fast service and adaptability. Due to faster services and improved goods, market expectations have evolved rapidly and a new norm for experience with financial instruments has been developed. Working in a sector where accountability and safety are critical, however, comes with some or many dangers! In this article, you will know about the five most important risks that Fintech operational teams face today. But first, let’s take a look at Fintech’s operational risk.
Operational risk involved in Fintech
The operations teams to Fintech organizations bear the burden of this risk. It is a difficult task since the company’s established procedures and operational norms are in many cases surpassed by work acceleration, changing market conditions and the frequency of unplanned changes.
Fintech requires everything to happen at breakneck speed, but traditional financial institutions benefit from having time on their side. In addition, real-time operational management, where 99 percent of the most serious failures occur, is where fintech teams are most vulnerable.
Top five risks in Fintech operations
Take a look at the top five risks in the Fintech business right below.
According to the Financial Stability Board, “the financial system can overreact to news.” The Gamestop incident was not the first, and it would not be the last, to so suddenly shake up the world of finance and regulation. As unpredictable as they are, market events pose a significant operational risk.
Overreacting to a rapid market event can cause fintech companies and financial institutions to experience severe liquidity and solvency problems. Fintech services may be disrupted by pro-cyclicality, contagion, excessive volatility and many other risk factors that may emerge in the market.
- Data breaches and cyber attacks
A significant disadvantage of Fintech is the potential to actively increase the risk in already established companies financial markets and systems. The more systems connected via Fintech, the more possible entry points there are for cyber attacks. There is no “one size fits all” cybersecurity infrastructure due to the diversity of business and operational structures in the fintech industry.
To guarantee that vectors with high potential for cyber security breaches are detected and managed, it is important to employ knowledgeable cyber risk management and IT security teams. Any cyber hazard will require a quick, strategic response from operations personnel, just as market events do.
- Personal and professional responsibility
Most Fintech enable or offer financial services. It exposes the business to service errors, negligence, fraudulent claims and certain other typical dangers associated with financial services.
Fintech companies are particularly vulnerable to professional liability claims as they deliver entirely new financial products through cutting-edge and new service models. Customers often use fintech applications carelessly and fail to take security measures to protect personal information, financial information and so on.
- Failure to comply with regulatory requirements‍
Risk is clearly at the forefront of the Fintech industry’s regulatory and compliance concerns. Regulators must ensure that fintech companies properly assess risk and implement the recommended risk mitigation strategies.
However, many jurisdictions’ regulatory frameworks are unable to keep pace with the speed of technological advancement. Therefore, many fintech teams find it incredibly challenging to standardize compliance procedures as regulatory regulations change so rapidly. Companies risk being discovered in non-compliance, receiving large fines and losing their positive market reputation if the regulations are not strictly adhered to.
- Increasing global competition
The national conditions in their particular markets have always acted as a barrier for traditional financial institutions. A complex set of financial conditions and laws exist within each national jurisdiction, resulting in financial institutions that are compliant and provide services specific to the region’s requirements.
But in recent years, these boundaries have rapidly blurred due to the explosive growth of Fintech firms offering international financial solutions. Institutional finance is now forced to either learn to work with nimble fintech companies and form alliances with them, or engage in direct competition with them.
The traditional vs. agile dynamics have sparked a global competitive environment, and participants who want to win this fintech race must make good strategic partnership decisions. Operational risk for operations teams can arise from the increased competitive pressure and the requirement to use third-party services and partnerships to stay competitive.
Bottom lines
Fintech operational risk is only inevitable. However, the most effective and reliable method of reducing operational risk is to automate your operational activities so that your operations teams will act correctly every time.
