INTRODUCTION

The rapid rise of financial technology (Fintech) companies has disrupted the traditional
financial industry in recent years. However, these companies still face several challenges in
the modern economy. This project aims to identify and analyze these challenges to provide a
comprehensive understanding of the Fintech landscape. The project will use a qualitative
research approach, including case studies and questionnaires, to gather data on the challenges
faced by Fintech companies. The data will be analyzed using thematic analysis to identify
common themes and patterns. The study will focus on challenges such as regulatory barriers,
cybersecurity risks, funding constraints, and competition from traditional financial
institutions. The project aims to provide insights that will help Fintech companies,
policymakers, and investors better understand the challenges facing the industry and develop
strategies to address them.

A Simple Definition of FinTech

The term “fintech company” describes any business that uses technology to modify, enhance,
or automate financial services for businesses or consumers. Some examples include mobile
banking, peer-to-peer payment services (e.g., Venmo, CashApp), automated portfolio
managers (e.g., Wealthfront, Betterment), or trading platforms such as Robinhood. It can also
apply to the development and trading of cryptocurrencies (e.g., Bitcoin, Dogecoin, Ether).

A Brief History of FinTech

While fintech seems like a recent series of technological breakthroughs, the basic concept has
existed for some time. Early credit cards in the 1950s generally represent the first fintech
products available to the public, in that they eliminated the need for consumers to carry
physical currency in their day-to-day lives. From there, fintech evolved to include bank
mainframes and online stock trading services. In 1998, PayPal was founded, representing one
of the first fintech companies to operate primarily on the internet — a breakthrough that has
been further revolutionized by mobile technology, social media, and data encryption. This
fintech revolution has led to the mobile payment apps, blockchain networks, and social
media-housed payment options we regularly use today.

How Does FinTech Work?

While fintech is a multifaceted concept, it’s possible to gain a strong understanding. FinTech
simplifies financial transactions for consumers or businesses, making them more accessible
and generally more affordable. It can also apply to companies and services utilizing AI, big
data, and encrypted blockchain technology to facilitate highly secure transactions amongst an
internal network.

Broadly speaking, fintech strives to streamline the transaction process, eliminating potentially
unnecessary steps for all involved parties. For example, a mobile service like Venmo or
CashApp allows you to pay other people at any time of day, sending funds directly to their
desired bank account. However, if you paid instead with cash or a check, the recipient would
have to make a trip to the bank to deposit the money.

FinTech Trends

Over the years, fintech has grown and changed in response to developments within the wider
technology sector. In 2022, this growth was defined by several prevailing trends:

 Digital banking continues to grow: Digital banking is easier to access than ever

before. Many consumers already manage their money, request and pay loans, and
purchase insurance through digital-first banks. This simplicity and convenience will
likely drive additional growth in this sector, with the global digital banking platform
market expected to grow at a compound annual growth rate (CAGR) of 11.5
percent by 2026.

 Blockchain: Blockchain technology allows for decentralized transactions without a

government entity or other third-party organization being involved. Blockchain
technology and applications have been growing quickly for years, and this trend is
likely to continue as more industries turn to advanced data encryption. Check out
our guide to blockchain technology if you’re interested in learning more.

 Artificial Intelligence (AI) and Machine Learning (ML): AI and ML technologies

have changed how fintech companies scale, redefining the services they offer to
clients. AI and ML can reduce operational costs, increase the value provided to
clients, and detect fraud. As these technologies become more affordable and
accessible, expect them to play an increasingly large role in fintech’s continued
evolution — especially as more brick-and-mortar banks go digital.

The Technologies That Power FinTech

Modern fintech is primarily driven by AI, big data, and blockchain technology — all of
which have completely redefined how companies transfer, store, and protect digital currency.
Specifically, AI can provide valuable insights on consumer behavior and spending habits for
businesses, allowing them to better understand their customers. Big data analytics can help
companies predict changes in the market and create new, data-driven business strategies.
Blockchain, a newer technology within finance, allows for decentralized transactions without
inputs from a third party; tapping a network of blockchain participants to oversee potential
changes or additions to encrypted data.

How Safe is FinTech?

FinTech companies are generally trusted by consumers — according to Forbes, 68% of

people are willing to use financial tools developed by non-traditional (e.g., non-financial, 
non-banking) institutions. However, many fintech applications are relatively new, and they’re
currently not subject to the same safety regulations as banks. This doesn’t mean that
consumers shouldn’t trust fintech companies with their money — it just means that being
careful can be beneficial. For most consumers, the benefits of working with a fintech
company outweigh the perceived risks.

Research questions:
The aim of this project is to identify and analyze the challenges faced by fintech companies in
the modern economy. The project will explore the following research questions:

1. What are the regulatory challenges faced by fintech companies in the modern
economy, and how do they impact their operations?

2. How do cybersecurity threats affect fintech companies, and what measures can they
take to mitigate these threats?

3. What are the funding challenges faced by fintech companies, and how can they
overcome these challenges?

4. What are the market competition challenges faced by fintech companies, and how can
they differentiate themselves from traditional financial institutions and other fintech
companies?

Objectives
 Identify and analyze the challenges faced by fintech companies in the modern
economy.
 Assess the impact of these challenges on the growth and sustainability of fintech
companies.
 Evaluate the strategies and solutions that fintech companies can adopt to overcome
these challenges and succeed in the market.

Problem statement
The modern economy has brought about significant changes in the financial sector, with the
emergence of financial technology (fintech) companies. Fintech companies provide
innovative solutions to financial problems and have disrupted traditional banking services.
However, these companies face various challenges in the modern economy, such as
regulatory compliance, cybersecurity threats, funding constraints, and market competition.