So you’re thinking of expanding your fintech company to another market? Congratulations, you’re in for an interesting ride.
While 2022 has seen a slight slowdown in fintech investments, Q1 investments were still up 27% from Q1 2021. Even so, fintech giants like Klarna have laid off part of their staff in expectation of a more difficult future financial environment.
This slowdown puts more pressure on fintechs to build resilience by expanding both in product and in markets, while keeping a close eye on costs.
As you know, fintech is somewhat of a different beast than other consumer-facing applications. Financial services are one of the world’s most highly regulated industries, and opening up shop in another country inevitably brings a slew of new barriers to entry that need to be understood and overcome.
It’s also an industry that requires extremely high levels of trust from users — and trust is built differently in each country, depending on the local norms and culture.
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Then again, cost of entry in new territories for fintechs often require little physical presence, and is down mostly to investing in license applications.
Essentially, expanding into a new territory — after determining the business potential — boils down to knowing enough about two things: local culture and local regulation. To help navigate what you really need to know about both regulation and culture, we made a nice little checklist of questions you need to ask yourself.
Know your customers
How much should you localize your app?
Every country has different expectations on the localization level, and it pays off to know these expectations before launching. Take Germany, a country where users place a lot of value on a German language interface. If offered the choice, many users will prefer to go with an app that’s fluent in their native language. This also goes for marketing materials, customer services, and content — so you better sei vorbereitet.
Where do you organize customer service?
Financial services are a delicate matter anywhere, and talking to a representative that speaks your language, knows the local challenges people face, and can empathize with specific problems can make all the difference. Also, it’s hard to gauge beforehand how many representatives a territory will need. Getting this wrong can result in long waits, frustrated customers and poor service, which will get in the way of rapid expansion.
A recent study by Zendesk of 4,400 startups found that those who invest earlier and more in their customer experience grow faster than their peers. In today’s ratings economy, getting customer service right from the beginning in a new market can help you gain trust and users.
How fast can you get to market?
Hiring a team on the ground, training them, and setting up operations is a challenge in any country, but for each country the challenges can be completely different. First, finding talent has always been an issue, but during the great resignation, it’s gotten even harder. Denis Kalyapin, business director of The Nest by Webhelp, a company that helps startups outsource customer experience services, agrees:
First, it’s extremely challenging to find experienced professionals these days. In the UK, there are now roughly 1.5 million vacancies open. The great resignation started in the US and has now moved across the western world. The second biggest challenge is to actually train, retain, and manage these international teams and make this process scalable in every country.
Make sure to familiarize yourself with the educational and experience levels of the local labor market. Don’t forget that wages can also vary greatly depending on cost of living, so you may have to offer more to attract the right candidates in some markets.
Second, local labor laws can be more or less friendly towards fast-moving startups — expected employee benefits differ quite a bit and can become a large cost if not understood beforehand. To mitigate these problems, it can often save time and headaches to outsource parts of the hiring process.
What do locals expect from fintechs?
Attitudes towards financial services differ from country to country. In most Western-European countries, banks are seen as trusted institutions, so it pays off to partner with well-established banks.
Yet, a recent study by Accenture found that most Europeans are skeptical of sharing too much data and these levels of trust differ across countries and age groups. Understanding these attitudes before going into a new market will help you prepare your team, your product, and your partnerships moving forward.
Deep knowledge of your target customer will also inform how much effort it will take to launch new products, as knowledge about e.g. crypto assets differs from country to country and demographic to demographic. Customers in some countries will need more hand-holding to get on board for products like these, and thus require more investment.
Know your regulation
What country-specific regulations do you need to comply with?
As fintech providers are a relatively new phenomenon, regulation is highly divergent per country. Regulators in some countries have already passed down stringent requirements for the use of decentralized finance and cryptocurrencies. Meanwhile others are only just beginning to deliberate on how these new finance trends fit into the national regulations. This means regulations are and will continue to evolve dramatically over the next few years.
Partnering with local experts is the best way to navigate evolving regulation and the intricacies involved in dealing with local politics and incumbents.
Lately, Latin America has seen a huge boom in fintech expansion, largely due to new fintech-friendly open banking regulations in countries like Brazil, Chile, and Mexico, with Argentina and Peru expected to follow suit soon. Knowing about upcoming changes in regulation can give your fintech an advantage over the competition — aside from knowing what you need to know to be compliant.
How will you perform KYC?
Every country has different requirements for and stringencies to combat money laundering, which all start with know-your-customer (KYC) identity processes. Failing to comply with these regulations doesn’t just make fintechs vulnerable to financial crimes (like money laundering), but can also lead to serious legal and financial repercussions — like when BitMex got a $30m fine for banking rules violations.
Adding to this complexity, in Europe, the list of sanctions against Russian companies and individuals is also being updated and expanded every week. It’s challenging for startups to keep up to speed with regulators and requires ongoing deeper investigations, not just when onboarding clients but also looking into existing accounts and ongoing transactions.
AML and KYC procedures — although extremely important to protect your business — must at the same time be customer friendly, timely and efficient, as getting the balance wrong can scare customers away. Nothing can be more frustrating than when it’s impossible to connect to a new app, your transactions are halted, or a company becomes non-responsive or hard to reach.
The key to building a robust KYC and compliance programme, is striking the right balance between technology and humans. Although there are many new solutions, the entire process can’t be automated due to the complexity and potential risks. As it requires considerable local teams that can work through sign ups in a timely fashion, many companies are now choosing to outsource (parts of) their AML processes to third parties. When it comes to KYC, The Nest by Webhelp says:
Up to 70% of KYC processing, particularly ID verification and fraud detection, can be automated. The remaining 30% of manual oversight can easily be provided by a third-party outsourcer.
What anti-fraud measures do you need to take?
Depending on where you expand to and what products you offer, anti-fraud regulations differ.
Companies offering financial services fall under different regulators in each country. E.g in Australia, cryptoassets are either financial products that fall under the Australian Securities and Investment Commission, or consumer products that are regulated by the Australian Competition and Consumer Commission. In Japan, different tokes fall under different regulations.
The complexity of compliance is such that it’s often better to outsource AML to local third parties, or international companies offering local services.
Consider how your fintech can remain agile in difficult times
The COVID-19 pandemic, rising inflation and the conflict in Ukraine are a few recent illustrations that have led startups to reduce spending.
The recent downturn of the VC market is going to severely limit the ability of startups to “burn” cash, while investors will be paying much more attention to the ability of their portfolio companies to scale with resilience.
Whether political, sanitary, or market risks, working with well-chosen external service providers can help to absorb demand shocks and be able to adjust your workforce and tasks.
International expansion takes time, effort, ups and downs, but with these key questions in mind, you’ll be ready to face what comes your way.
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