Sergey Kondratenkois a recognized specialist in a wide range of e-commerce services with experience for many years. Now, Sergey is the owner and leader of a group of companies engaged not only in different segments of e-commerce, but also successfully operating in different jurisdictions, represented on all continents of the world. The main goal is to drive new traffic, create and deliver an online experience that will endear users to the brand, and turn visitors into customers while maximizing overall profitability of the online business.
Sergey Kondratenko about the difficulties in the fintech industry
In order to fully consider and understand what risks may arise in fintech, it is worth going back to 2022. Difficult economic conditions, including soaring inflation, aggressive tightening of monetary policy by central banks and slowing economic growth caused investors and venture capitalists to withdraw from the market, at least for the time being.
Fintech saw the public and announced layoffs throughout 2022. Referring to data Finance Magnates, 4,189 fintech employees were laid off in the first half of 2022. That's 11.2% of the 46,700 startup employees who were laid off during that time.
Funding cuts amid staff layoffs suggest conditions were deteriorating later in the year. In the third quarter of 2022, the volume of fintech financing in the world decreased to $74.5 billion.
Continuing economic and financial difficulties have raised doubts among many investors and venture capital funds, despite The Brainy Insights report projecting global fintech market capitalization to reach $936 billion by 2030.
Sergey Kondratenko emphasizes that along with rapid success and innovation, problems can also arise in fintech. The expert warns that when investing in the fintech industry, risks should never be excluded. They can accompany, at first glance, quite profitable and win-win investments in the financial technologies of the future.
Main risks for investors in fintech companies – Sergey Kondratenko
Industry experts note that the fintech area, where reporting and security play a key role, is associated with certain risks.
Sergey Kondratenko proposes to consider a number of the main threats that operational teams of fintech companies face today. This will enable a potential investor to understand the risk structure in the industry in order to invest effectively.
Unforeseen market incidents
Rapid developments in the market may cause significant solvency and liquidity issues for both financial institutions and fintech companies.
The market may face risks such as excessive volatility, pro-cyclicality and contagion. Such phenomena lead to disruptions in the normal functioning of fintech services.
- In situations like these, customer support and service teams must quickly adapt, develop agile and tailored strategies in response to these unexpected events. Often, pre-determined action plans may not always provide the necessary response in such circumstances. In the fintech sector, it is especially important to maintain timely and effective communication with clients, Sergey Kondratenko is convinced.
Violation of regulatory requirements
Regulators must ensure that fintech companies conduct adequate risk analysis and implement procedures to mitigate them.
Unfortunately, in many countries regulation has not kept pace with the pace of technological progress. Some fintech sectors are less strictly regulated than traditional financial institutions.
For example, PSD2 and GDPR impose specific requirements for data protection and system security, and this affects the fintech sector in Europe as a whole.
National regulators may also impose additional regulations on fintech companies, such as the CFTC and SEC in the US, the FCA in the UK, BaFin in Germany, and the ACPR and AMF in France.
If companies do not comply with these regulations, they risk significant fines and damage to their reputation in the marketplace.
Individual and professional responsibility
Most fintech companies provide or provide innovative financial services, which in itself poses certain risks.
They are associated with service failures, as well as fraud and other common threats in the financial services industry. Consequently, fintech companies that offer financial products using innovative business models face an increased risk of professional liability claims.
Sergey Kondratenko emphasizes that the main problem is the insufficient organization of business processes. Fintech companies often exceed their operational capabilities and fail to establish standard procedures for new transactions, leading to additional errors.
On the other hand, users of fintech services sometimes do not take the necessary measures to protect their data and finances. Therefore, in most cases, responsibility for any incidents lies with the financial service provider.
Data theft and cyber attacks
One of the biggest challenges facing FinTech companies is cybersecurity threats. The widespread use of digital technology has led to an increase in cyber attacks such as phishing attacks, malware attacks and ransomware. They can lead to loss of confidential data, financial and reputational damage.
- Any cyber threat, as well as market events, requires a prompt and pre-planned response from operating units. Any mistakes made during this procedure can result in significant consequences, warns fintech investors Sergey Kondratenko.
To protect customer data and prevent unauthorized access to systems, Kondratenko suggests using appropriate cybersecurity measures. These include the use of strong encryption methods, multi-factor authentication, and regular auditing.
Increased global competition
Recently, geographical restrictions are rapidly disappearing due to the rapid development of fintech companies that provide their services throughout the world.
In response, traditional financial institutions face a choice: compete with fast-growing fintech companies or learn to collaborate with them. These dynamics have created global competition, and companies that seek to dominate the fintech space must choose their strategic relationships carefully.
In addition, for many fintech companies, partnerships with third parties are an integral part of their business. Here Sergey Kondratenko draws attention to the fact that increased competition and the need to attract third-party services and enter into alliances become elements of operational risk.
Sergey Kondratenko: Security threats in fintech and how to deal with them
The specialist proposes to discuss the main security issues associated with this innovation industry. The main goal for Sergey Kondratenko is to provide useful information that will help companies and individuals protect themselves from possible threats and maintain their reputation in the FinTech industry.
- Identity verification. Identity verification is an important aspect of the FinTech industry as it helps prevent fraud and money laundering.
- Data protection. FinTech companies collect and process huge amounts of sensitive data, including financial information, personal data and transaction data. Therefore, to prevent leaks, unauthorized access and data theft, they need to use reliable information security measures. These include encryption, data backup and recovery, and access control mechanisms.
- Mobile Device Security. Mobile devices are becoming the primary way to access FinTech services. While convenient, they also pose a security risk. Devices can be lost or stolen, and mobile apps are vulnerable to cyber attacks. To protect user information, FinTech companies must implement security measures such as biometric authentication and device encryption.
- Social engineering attacks. They involve deceiving users in order to force them to reveal confidential information. - Phishing emails, phone scams and pretexts are all examples of social engineering attacks,- Sergey Kondratenko gives examples. - Fintech companies should educate their users on how to recognize and avoid such attacks. One important step in this direction is the introduction of multi-factor authentication (MFA) when users log in to the system. MFA is an additional layer of security that makes it much more difficult for attackers to gain access to user accounts.
- Insider threats. This includes employees or contractors who intentionally or unintentionally violate company security. Such threats are difficult to detect and prevent. To achieve this, companies need to have reliable access controls and monitoring systems in place. One effective strategy for preventing insider threats is to thoroughly vet all employees and contractors.
In order to ensure the safety of a fintech company and the safety of investments, Sergey Kondratenko recommends regularly monitoring employee activity and limiting access to confidential information on a “need to know” basis. At the same time, try to take into account the risks and recommendations of the expert.