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The Challenges Facing Consumer Finance Startups

The typical challenges faced by consumer finance startups are largely similar to those that all fresh companies encounter – although they often manifest in slightly different ways. These factors can make or break any consumer finance startup, and here we look at how each problem arises and what can be done to overcome them.

Trust In Me

Although attitudes are beginning to shift and more people are now entrusting smaller, newer firms with their finances, consumers have traditionally been wary of moving money to such organisations. A survey by Accenture showed that trust in UK banks is still relatively low, although from 2014 to 2015 it rose from 24% to 29%. During this time period, there were no major events that would lead one to believe banks to be more trustworthy, and one explanation could be a continuing return to the status quo in the wake of the Financial Crisis of 2007.

Trust in consumer finance technologies is increasing, but PwC recently identified trust as the main issue for blockchain and taking on the established brand names that front the world’s major banks is also an issue that smaller consumer finance companies need to consider.

From a behavioural perspective, changing the deep-set injunctive norm that demands people follow the ritualistic practice of entrusting banks with finances is far from easy. Operant conditioning plays a role in forming this behaviour, and when it comes to decision-making, people typically favour keeping to the status quo heavily. As economists William Samuelson and Richard Zeckhauser note on the topic of maintaining the status quo from a behavioural perspective and avoiding change:

“At the societal level, many nonproductive conventions endure mainly because any change would be costly…Any economic transaction that requires an irreversible (or partially irreversible) investment falls into this category.”

This theory is why attempting to change the way that finances are managed is a considerable risk for any startup. Despite widespread societal displeasure with the current banking system, many are still very reluctant to change. Deviating from individual and cultural behaviour may not be a huge risk to society, but it is for the individual, meaning that if newer means of making transactions and banking (such as Bitcoin) are to catch on, they require vast levels of co-opting from consumers.

Crossing A River To Get Water

Another commonly accepted behaviour is the means of making payments and transferring money, which again makes it difficult for consumer finance startups such as Zapper – an app that allows you to instantly pay restaurant bills. However, unlike the previous issue, this isn’t entirely down to trust in the app or the organisation’s capabilities. The problem that startups like Zapper face are encouraging consumers to add an extra step to their transaction and download its app. According to Deloitte’s Mobile Consumer report, only 19% of people have more than 20 apps on their phones, leaving little space for additional applications. Furthermore, introducing a new phase in the transaction process risks kludging the interaction.

Consumer finance innovation has prospered in areas where it has made existing transactions and processes easier. For example, the addition of contactless technology made the process of paying by credit or debit card faster, but crucially it did so without requiring consumers to co-opt new technology beyond swapping their existing cards. Apple Pay and other similar technologies are similar to such startups but have the key advantage of being able to market on a much larger scale.

The underlying problem is that by trying to make something easier, a lot of consumer finance companies risk confusing consumers and muddying the waters. Claiming to make transactions or investments easier by introducing applications that previously didn’t exist will inevitably put off a lot of consumers, and therefore a big challenge for any consumer finance startup is to convince the customer that its service adds just enough value to make it worthwhile.

Grow Your Own Way

Disruptive innovation is a term bandied about frequently with regards to growing a company fast and gaining a lot of customers along the way, but it requires a particular level of subtlety to achieve. New technology is not indicative or predictive of growth, irrespective of how much cheaper or more convenient it may be. Management consultant firm McKinsey & Company released a report a few years ago that outlined how fast growth is crucial for any online company and that sustaining growth is even harder. Its report also stated that even if a software company is predicted to grow by 20% annually, it still has a 92% chance of going bankrupt within a few years.

Consumer finance startups thrive on large consumer bases – online bank Monzo purports to offer consumers the ability to easily transfer money to others; however, this only works if other people in an individual’s network also have the app. For this reason, growing a consumer base large enough to make such a service worthwhile is a very important part of ensuring that a consumer finance startup continues to grow.


There are many challenges that consumer finance startups face, notably combining the need for rapid growth with the slow build of brand recognition and trust. The co-opting of its technology also remains an issue and, as with any industry, there are likely to be many casualties along the way. However, none of these problems need be terminal if managed properly and the end goal of a simpler means of conducting transactions and managing finances is a reward worth striving towards.

What do you think the biggest challenge facing consumer finance startups is? Do you think these challenges are markedly different from those experienced in other industries? Start the conversation online @mporiumgroup and subscribe to our newsletter for more fascinating articles and insight.

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