Internationalisation of FinTech: What Barriers do FinTechs Face Compared to Incumbents and How Can They Be Effectively Overcome?

By Gareth Jefferies, NorthZone

FinTech companies that are seeing success in their local market are often tempted to expand internationally, partly to access attractive emerging markets, partly to access overseas talent and increasingly, in the UK at least, because of diminishing attractiveness of their domestic market.  In fact, 42% of UK businesses are more inclined to expand overseas in the wake of the Brexit vote. Internationalising for scale is particularly attractive for those ‘volume-led’ areas of FinTech such as payments, robo-advisory and remittances.

On the face of it, as an agile startup unburdened by huge headcounts and legacy infrastructure, it may seem that FinTech companies should have an easier time expanding overseas than their larger incumbent counterparts. However, FinTech can be a very domestically-orientated industry, and operating cross-border is not without its challenges:

  • Regulation: Financial services is one of the most complexly regulated industries in the world, particularly as different jurisdictions often implement different measures related to tax, labour and employment. A research survey by Silicon Valley Bank found that 37% of UK FinTech companies regard regulatory issues as their biggest impediment. However, focusing on a narrower core product range can help to simplify the regulatory burden relative to larger incumbents with broader product sets. Furthermore, regulation is not necessarily designed to impede: in the UK for example, the FCA is very supportive of financial innovation, promotes an open dialogue with new companies and actively implements regulation to support their growth – for example, PSD2 will enable FinTech companies to leverage the existing banking infrastructure through open APIs to build new and competitive products. When internationalising, compliance in the new geography is absolutely critical – it’s important that your business is viewed the same by regulators in each jurisdiction in which you operate; if not, it is essentially impossible to internationalise. This, incidentally, is one reason that a lot of FinTech companies are becoming banks: the business of banking is regarded very similarly more or less worldwide.


  • Lack of resources and time: FinTech startups also face a general lack of capital and labour, which means that the decision to expand overseas takes time, effort and money away from other opportunities. FinTech companies need to ensure that going international does not distract management from the core business: it’s better to serve one country successfully than several countries poorly.


  • Data: Making good use of data and machine learning can enable more efficient and faster scaling and create a real competitive advantage, particularly in areas like lending where credit models are such a fundamental part of the core product. FinTech companies are often better at using data; however, incumbents generally have a lot more of it, and volume of data is a key differentiator particularly when training AI algorithms. Creating the right kinds of partnerships with incumbents to gain access to large databases can help to overcome this.


  • Language and culture barriers: Companies attempting to enter a new territory face difficulty competing with local players who better understand and can better serve the local market. As well as language barriers, different markets have varying expectations from their banking services (i.e. UK customers complain about bank charges while these are accepted elsewhere without question). It is therefore important for businesses to be familiar with cultural norms and customer preferences and to tailor their product, go-to-market strategy and communications according to the target geography.


  • Access to talent: Another common pain point for any company internationalising – it is therefore sensible to hire a local office base and team who are familiar with the local market knowledge, landscape and language so that they can work effectively with local stakeholders. Offering localised websites and initiating cross-cultural training that enables global teams to better work together is also recommended.


  • Scale and trust: New market entrants face the issue of competing against established incumbents who have deeper pockets and the advantage of huge scale. This is intensified by the fact that financial services is so centred around security and stability – trust and reputation is therefore a major sticking point and new players simply cannot afford security breaches or concerns around their credibility. For challenger banks in particular, customer acquisition is a major issue particularly compared to large scale incumbents, as customers may be uncomfortable with an unknown quantity managing their money. Forming partnerships with established financial institutions in new markets is important to establish trust and scale, while increased brand awareness can be capitalised on in the recruitment process.

FinTech companies have adopted several different internationalisation strategies. Klarna for example recently acquired BillPay, a payment solutions provider to online retailers in DACH and the Netherlands. Partnerships is another well-trodden route: Funding Circle has done so in Europe and in the US, and iZettle’s distribution partnerships with banks helped it expand across Europe and Latin America. Partnerships are increasingly common particularly as cross-border incumbents are now more open to this themselves: some are now running accelerator programs (i.e. Barclays Accelerator) and launching VC funds or investing from the balance sheet (i.e. Santander Innoventures, Commerzventures and more).

In order for FinTech companies to successfully expand internationally, they need to be able to ‘think locally’. Focus should be on geographies where it is first and foremost compliant, and where there is an advantage in terms of value proposition, service, competitive differentiation or price point. Internationalisation can bring great advantages in terms of scale, but it comes at a price: spreading resources too thinly or failing to comply with local regulation can do more harm than good, but if done correctly it can take your FinTech company to new heights.