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 quickly, and a new norm for financial instrument experience has been developed. Working in a sector where accountability and security are critical, on the other hand, comes with some or many hazards! In this article, you would know about the five most significant risks that Fintech operational teams face today. But first, let us take a look at Fintech’s operational risk.
Operational Risk Involved in Fintech
The operations teams of Fintech organizations bear the brunt of this risk. It is a difficult assignment since, in many cases, the firm’s established procedures and operational norms are outpaced by work acceleration, altering market conditions, and the rate of unplanned changes.
Fintech calls for everything to happen at breakneck speed, but traditional financial institutions profit from having time on their side. In addition, real-time operations management, where 99 percent of the most severe errors take place, is where fintech teams are most susceptible.
Top Five Risks in the Operations of Fintech
Have a look at the top five risks in the Fintech operations right below.
- Unexpected Market Events
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 shake up the world of finance and regulation so suddenly. As how unpredictable as they are, market events pose a significant operational risk.
Overreacting to a rapid market occurrence can cause fintech companies and financial institutions to experience severe liquidity and solvency issues. Fintech services might be disrupted by pro-cyclicality, contagion, excessive volatility, and many other risk factors that could appear in the market.
- Data Breaches and Cyber Attacks
A significant disadvantage of Fintech is its potential to actively increase risk in already established financial markets and systems. The more systems that are connected through Fintech, the more possible entry points are there for cyberattacks. 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 high-potential vectors for cybersecurity breaches are discovered and managed, it is essential to hire knowledgeable cyber risk management and IT security teams. Any cyber danger will necessitate a swift, strategic response from operations personnel, just like market events do.
- Personal and Professional Liability
Most Fintech either enable or offer financial services. That exposes the business to service mistakes, negligence, fraud allegations, and certain other typical hazards connected with financial services.
Fintechs are particularly vulnerable to professional liability claims as they provide brand-new financial products through cutting-edge and new service models. Customers often use fintech applications carelessly and neglect to take security precautions to protect their personal information, financial information, and so on.
- Noncompliance with Regulatory Requirements
Risk is clearly at the forefront of the Fintech industry’s regulatory and compliance considerations. Regulators must ensure that fintech companies appropriately assess risk and implement the recommended risk mitigation strategies.
However, many jurisdictions’ regulatory frameworks are unable to keep up with the rate of technological advancement. Hence, many fintech teams find it incredibly challenging to standardize compliance procedures as regulatory regulations are changing so quickly. Companies run the risk of being detected in noncompliance, receiving hefty fines, and losing their positive market reputation if the regulations are not strictly adhered to.
- Rising Global Competition
The national conditions of their particular markets have always served 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 that are specific to the demands of the region.
But in recent years, these borders have rapidly blurred due to the explosive growth of Fintech firms that provide international financial solutions. Institutional finance is now compelled to either learn to work with agile fintech businesses and form alliances with them, or to engage in direct competition with them.
The traditional vs. agile dynamic has sparked a globally 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 strain of competition and the requirement to use third-party services and partnerships to stay competitive.
Fintech operational risk is just unavoidable. However, the most effective and reliable method to lower operational risk is to automate your operational activities so that your operations teams would act appropriately every time.