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5 Reasons Launching A Fintech Startup Has Become So Challenging

Illustration of a wad of cash with a lock.

By Pavel Shynkarenko

The fintech industry recorded its highest year ever in terms of investment value in 2021, but the market has been a lot more challenging for the past two years.

Fintech startups have needed to adapt to this new reality, where explosive growth is no longer the priority, and companies that cannot demonstrate a clear path to profitability are struggling to raise follow-up funding.

This doesn’t mean launching a new fintech venture is impossible. It means that the rules have changed. Here are five reasons why the landscape has become more challenging.

Decreasing investment volume as a result of shifting trends

According to S&P Global, venture capital investment into fintech companies plummeted by 36% year on year in Q3 2023. The fintech sector no longer has the FOMO factor, which now is mainly in the hands of AI and machine learning.

This particularly impacted early-stage firms, which now need to compete for funds with trendier startups. The exception is late-stage fintech startups, which could still grow at 15% in the coming years, proving that the field is open for those focused on long-term value.

Governments are strengthening regulations

Regulators are introducing stringent measures that make it difficult for companies to grow sustainably. Crypto is also now being targeted by regulators.

Pavel Shynkarenko, founder and CEO of Solar Staff

In the United States, Europe and Asia, know your client and know your business compliance requirements are tightening.

For example, Singapore, Malaysia, Thailand and the Philippines have all introduced bills to regulate e-money transactions. In Europe, because of the PSD3 directive issued by the EU, e-money institutions have completely disappeared, as companies now need to be licensed as payment institutions.

The fintech sector has matured, and in this phase, margins decrease and standardization grows. Every new player must adhere to established standards and will often not be able to attain operational profitability in the short term. This makes the barrier to entry higher and prolongs the “valley of death” for companies that survived their initial years.


In addition to global policies, there are also national restrictions that fintech companies need to comply with.

This makes it particularly difficult for businesses that are working in the cross-border realm since they need to consider various rules at the same time, and these rules can occasionally conflict, eliminating the viability of seamless and affordable cross-border transactions.

Price competition

For a new startup, it is challenging to compete in the market due to the pricing of existing players. For example, it is currently impossible to offer lower costs than Wise, Skrill or Stripe, especially when Wise charges less than a dollar for cross-border transfers.

You should also note that many deposit and withdrawal methods are expensive to incorporate, and it takes time to achieve the necessary scale to make them more affordable. One might have to explore specific subcategories or specializations, but other listed challenges there will likely hinder progress.

Geopolitical instability

Military conflicts create uncertainty, which generates volatility in the currency markets. The fragmented geopolitical landscape makes opening offices in new countries even more difficult, especially as the list of entities and individuals that U.S. companies cannot engage with — due to sanctions — keeps growing.

Still, the situation is not all hopeless.

On the one hand, startups that focus on a specific niche where regulation and bureaucracy are not rampant — for example, personal finance — can have healthy growth and generate impact.

On the other hand, fintech startups that have a considerable amount of capital and a network to navigate the complexity of the regulatory landscape can still have a chance to emerge triumphant on the other side.

Pavel Shynkarenko is the founder and CEO of Solar Staff, a fintech/HR tech company for freelancers that generated $9 million in revenue in 2023 and works with freelancers from 143 countries. He has more than 20 years of experience in financial and legal technologies, business development and client-contractor relationship automation.

Illustration: Dom Guzman

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