Along with scraping enough money together simply to exist, start-ups sometimes have an extra hurdle to overcome – reputational hazards.
In 2013, the fintech movement began to display some serious signs of momentum in Australia.
It was a train my business partners and I badly wanted to jump on board, and the decision to disrupt the micro loans market seemed like a no brainer.
We had seen past the bricks and mortar legacy practices that were generating bucketloads of ill will in this segment to the societal benefits that could potentially arise from the availability of a small-sized, short-term loan – if it was delivered in a transparent and more affordable manner.
The difference between where the market was and where it could be made this loan segment the most obvious space for technology to be used to make a huge difference.
But where all start-ups carry the operational and strategic challenge of monetising an idea, fintechs in particular carry an additional challenge in the form of reputational risk.
The Australian Financial Review’s Shaun Drummond previously explored the issue of fintechs being scared of a “trust bust” as a result of whole industries being exposed when one or two incumbents commit a breach.
So what can emerging fintechs do to protect themselves from this additional reputational hazard?
Research why your industry could be at risk of gaining a miserable reputation.
Is the product itself inherently unethical? Or is it being administered in an unethical fashion? Find out your industry’s true pain points and work at removing them from your equation.
Small amount loans, as an example, are not inherently unethical. The factor causing enormous reputational friction is the way these products are being delivered by many lenders.
Low transparency, multiple fees and charges, and blanket high pricing are three causes for concern in this segment.
A criticism-free model would require addressing this specifically – going above and beyond on transparency, using tech to create a model that isn’t reliant on revenue from fees and charges, and developing a risk-based system of pricing that aligns with a customer’s risk profile.
Because if you’re not actually any different, you may in fact deserve any reputational fallout coming your way.
Overachieve on guidance
Your industry’s regulator is a great starting point, and should absolutely be complied with. However, mere compliance may not be enough when it comes to preventing reputational damage.
In many instances, the sophisticated technology that separates fintechs from those they’re disrupting allows for a far more efficient and user-focused offering. This means you may be able to pass on these efficiencies by going above and beyond what is required by law.
In the small loans industry, as an example, improved credit decisioning technology can result in lower application costs and fewer defaults.
The resulting cost savings can be passed on to the borrower by capping fees and charges far below what is allowed by regulation, creating both a point of difference and goodwill in the process.
And while issues can arise, being close to the ground when it comes to your industry’s needs, how your product is really being used and the true spirit of what the regulator is really trying to achieve, will allow you to identify where you may be able to go above and beyond expectations.
The result will be a huge step in the right direction towards helping you to differentiate yourself from your peers.
According to John D Rockefeller, “Next to doing the right thing, the most important thing is to let people know you are doing the right thing.”
For fintechs, however, an ongoing campaign of transparency and communications means more than just complying with regulatory disclosure requirements and being upfront about fees and charges.
Truly superior communication must have implications for your marketing activities also. It involves marketing that is relevant and clear, and that respects your audience’s intelligence.
It’s non-gimmicky and non-gaming. By that, I mean it doesn’t try too hard to peddle unrealistic scenarios or attempt to be what your audience wants you to be, instead of simply showing them who you really are.
It’s void of smoke and mirrors marketing puppetry. Rather, it involves an artful blend of strict regulatory compliance, and clear and frank customer engagement.
Listen to your enemies
It can be hard to avoid becoming defensive in the face of criticism. However, some of your industry’s most outspoken critics may actually provide a surprisingly valuable source of guidance.
By listening to your critics – and even potentially opening up a dialogue with them – you will position yourself well to understand your industry’s most crucial pain points.
These are usually the largest drivers of negative sentiment, and it can pay dividends to ensure your practices are firmly removed from them where possible.
Clayton Howes is the chief executive and co-founder of MoneyMe.