Risk Management for Fintech

Fintech companies face considerable challenges, from the initial seed funding (if pitching to investors) to the operational challenges that may arise when staying in compliance. A significant challenge for all Fintech companies will always be risk management and how these companies stay within an acceptable degree of operational risk as they grow their company. From internal oversight to the bottom line of customer experience, the connection of these components in a Fintech all contribute to a company's position on how well it handles risk management. Partnering with iLEX, we've accumulated some great insights that will help Fintechs mitigate risk and alleviate some uncertainty regarding overall risk. This cornerstone article encompasses short descriptions of our latest risk series with iLEX and our additional takes on developing a solid risk management and mitigation framework.

The Foundation of Risk Management

Risk management is more than staying compliant with regulators; it's also about building customer trust, sound-proofing operations, and building a trustworthy reputation within our clients' and prospects' minds. Fintechs develop their product within their vision of innovation - while implementing the best practices to stay compliant. Crossing our i's and dotting our t's should prove to be fruitful as we ask ourselves if we're appropriately mitigating risk.

Internal Oversight

Risk management starts with internal oversight, where risk derives from something as simple as a lack of policies, poor governance, or inconsistent enforcement of internal controls. Building a culture of accountability while implementing effective monitoring should mitigate risk internally.

External Oversight

Aside from the internal inconsistencies that are easier to tidy up, external oversight from regulators and the environment will always create consistent pressure on fintech companies. Many of these risks derive from regulatory compliance, third-party software dependencies, and market volatility. It's essential to stay updated on emerging technology and stay up to date in the community from policy-makers for the fintech's given market.

Operational Oversight

Adjacent to compliance, risk can also come from operational oversight. Rather than mismanagement of policies, risk can come from cybersecurity threats, vendor management, and system failures. These infrastructure issues can cause business continuity problems, leading to the next section of our customer experience.

Customer Experience and Data

The pulse of any company - our customer experience generally defines how and if our clients will do business with us. Especially for Fintechs - as they handle private information, mishandling data and leaving our infrastructure susceptible to data breaches can diminish trust within our community. The bottom line - of customer experience, should be one of the highest priorities for Fintechs who want to mitigate risk.

Implementing Risk Management

As denoted, risk management is essential for all companies. Affecting business continuity by leaving data susceptible to breaches, not handling customer data effectively, not keeping up with protocols from third-party dependencies, and operational inconsistencies all lead to issues by simple complacency. Some main points when impelementing risk management is to create a framework with the following:

1. Determine risks within the organization
   1. The first part of mitiaging risks is to define them. Risks can derive from a multitude of places, whereas it's essential to document everything from operations to third-party dependencies.
2. Keep Leveraging Technologysome text
   1. The irony of utilizing technology as a contingency to current technology sounds absurd. However, this may not be the case. As it affects the bottom line - contingency plans are essential to defer any adverse effects to business continuity. A separate database for handling customer data - in case one of the tables drop, may be the right course of action. Streamlining implementations within the organization's infrastructure may prove to be fruitful. Regardless, seeing these in an easy-to-read format - typically through dashboards, gives a better understanding for stakeholders.
3. Utilize Collaborationsome text
   1. We choose team members who are excellent in their craft for a reason, because they excel in their responsibilities. Enabling them to do their best and creating an inclusive environment is essential to the overall success of the company. Not only do we give our team members a platform that is hard to disrupt, but it gives the company more insights on how they can mitigate risk simply by giving team members a place to show the inconsistencies that need to be ironed out.
4. Continuous Improvementsome text
   1. It's essential to promote the idea that risk management isn't simply a one-time thing, but it needs to be continuously improved on. It's essential to perform internal audits, update policies as needed, and meet with policy makers to see how the markets are changing.

Conclusion

By creating a framework defining all risks, we can take actionable steps to prevent risk from getting out of hand. Developing a resilient risk management framework is essential to all companies - not only fintech, where the goal isn't to add more cumbersome work to operations, but to create an environment that alleviates the stress of inconsistencies that may lead to potential issues in the future. Our fintech checklist may be a good general place for Fintechs who are interested in mitigating risk today. Starting with our risk overview series, you can find more ideas as you grow your fintech company with confidence.

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