Fintechs That Went Wrong

In this article, we will be talking about fintech companies that have gone wrong and why they went wrong. We will also discuss how other tech start-ups can avoid their fate.

Fintechs are a relatively new industry in the world of finance so it’s not surprising that some companies would go under before finding success or making it to IPO. But there are some patterns you’ll want to look out for if your company is considering venturing into this field. Here are three reasons why these startups failed and what you might do differently:

1) The team was too small;

2) They didn’t take on enough investment;

3) They tried to do too much at once without having a clear focus. It’s important to remember that when it comes to fintech, failure is not always a bad thing. It can actually be a great learning experience and help you to hone in on what works and what doesn’t. But it’s still important to avoid these common mistakes if you want your company to have the best chance at success.

1) The team was too small

A common mistake that many fintech startups make is not having enough people on their teams. This can be a major issue, especially if the company is trying to take on a lot of new projects at once. In order to be successful in this industry, you need a team that’s both knowledgeable and experienced in the world of finance.

2) They didn’t take on enough investment

Another common mistake that fintech startups make is not taking on enough investment. This can be a major issue, especially if the company is trying to scale up quickly. In order to be successful in this industry, you need the resources to grow and expand.

3) They tried to do too much at once without a clear focus

Many fintech startups try to do too many things at once without having a clear focus. This can be a recipe for disaster, as it can lead to confusion and chaos within the company. In order to be successful in this industry, you need to focus on one thing and one thing only. That’s the best way to make progress and achieve success.

There are a number of fintech companies that have gone wrong in recent years. Here, we’ll take a look at three such companies and why they went wrong.

1- Xinja

Xinja was a neobank that was founded in 2017 by Eric Wilson in Australia. Xinja provided all the financial services that are in the domain of a neobank. After surviving in the market for 2 years, Xinja began to run out of cash flow. When the pandemic hit, the startup began to have serious cash flow and funding problems.

The bank tried to survive but due to lack of funding, had to shut down its operations. The bank was successful. It raised almost $100 million in funding and was gaining a lot of traction. In-depth analysis after its closure revealed that the real reason why the bank ran into cash flow problems was that it had a flawed business model.

The bank began to take deposits before it could lend the money out. This means that the bank had to pay interest on its deposits, which began to eat through the cash reserves quickly.

Xinja tackled an existing problem but it failed to create a sustainable business model, which caused it to fail.

2-Gobear

Gobear was a fintech startup that was founded in 2014. Gobear aimed to become a search engine for financial and insurance products in Asia. The startup managed to raise almost $100 million in funding before it started running into funding and cash flow problems.

The disclosed reason for the closure was a lack of access to funding due to the Covid-19 pandemic.

The case of Gobear shows that unforeseen circumstances can also impact your business. For this reason, startups need to have contingency plans in place, to deal with any unforeseen situation.

3- Wonga

Wonga was a fintech lending startup that was founded in 2006 in the UK. This was the time when P2P lending startups were springing up in the UK and USA. P2P lending regulations were not tight, lenders had a lot of room at that time and this allowed the lending industry to grow.

However, a lack of regulations also meant that startups were not as strict with their control mechanisms as they should have. This is exactly where Wonga made an error. Wonga used algorithms to vet their clients and lend out money. Their algorithm had a flaw where it lent money out to people who could not afford to pay back. It also waived off interest and other penalties for many clients.

Consecutively, when Wonga was caught in a fraud scandal where it tried to send fake letters for the recovery of lost funds. As a result, the company got slapped with heavy fines, which led to the eventual of the company in 2018.

The reasons for the decline for Wonga, therefore, are multiple. Firstly, the management did not seem to have a proper understanding of their own technology. Their algorithm had clear problems that the tech team was not able to solve. Secondly, the management team seemed to have lacked the expertise and integrity to deal with the situation, which eventually lead them towards fraud, which is a serious breach of compliance with laws.

So, there you have it. These are three of the most common reasons why fintech startups go wrong. But don’t let that discourage you! Failure is a part of the process and it can actually be a great learning experience.