What are the Reasons Behind the Failure of FinTech Startups?

FinTech startups across the globe today are paying their attention to transform traditional financial institutions, as an efficient credit model and smart use of technology are on its swing. According to the report, today, about 12,000 plus fintech startups running in the world, of which America led the market with the number of 5,779 fintech startups were registered earlier this year. Conversely, with 3,583 fintech startups in the same timeframe, the EMEA (Europe, the Middle East, and Africa,) region surpassed the Asia Pacific region where just 2,849 finch startups.

Today, most new and emerging entrepreneurs creating new ideas and think they are making the next big thing. But with the passing days, 90% of startups failed and few of them productize their ideas and are adopted by the potential users.

Fintech startups are multiplying now and making more money as venture capitalists are being invested in this space. According to a McKinsey report, over the last five years, $23 billion of venture and growth equity has been deployed to fintech startups. And now it’s anticipated that more than $150 billion could be invested in this vertical over the next 3-5 years.

But recent shutdowns in this space raise the question of what are the causes of fintech startups failing. So, here are the reasons behind the failure of fintech startups.


One of the most and prominent reasons behind the failure is underfunding. Most fintech startups fail because they don’t realize psychological behaviors around money – when their company will actually initiate to receive the funding from the investor. As many as investors recommend fintech startups should start raising venture capital at least 3-6 months before they need it. Understanding the rules around raising funds can provide much more benefits to fintech startups founders.

Legal Aspects

Fintech startups needed to remain at all-time compliant with the rules and regulations in the market they want to operate. But, several fintech startups founders don’t perform deep research regarding rules and develop intricate compliance rule book that they abide and lead the risk of mislaying the product as well as not even having an opportunity to release it. Hence, fintech startups must ensure their obedience to the security laws, as the financial services industry is heavily regulated, and certain sectors are even ultra-specialized when it comes to the legal world.

Customer Adoption Challenges

Technology is not only the biggest challenge in fintech environment, people who are targeted to become users and their inclination to utilize a fintech product is also challenging to the fintech startups. However, many founders of fintech startups fail to think that individuals are keen to use fintech products as they are doing communication or chatting on social platforms. But this is not the case, adoption of fintech products still do not have prevalent among different segments of customers. So, they must find a real differentiator, one other than just cost enabled by better technology, sooner. Today big techies like Google, Facebook and Apple also are entering the fintech space.