The international fintech sector is booming. From innovative payment platforms to groundbreaking lending solutions, fintech SMEs are transforming financial services worldwide.
For many, the next logical step is international expansion—a move that unlocks new markets, opportunities, and revenue streams. Yet, scaling internationally, particularly across jurisdictions like the UK, Australia and New Zealand, comes with its own set of risks.
The dream of seamless expansion can quickly become a nightmare if fintech businesses fail to anticipate key challenges. From regulatory hurdles to cybersecurity threats, understanding and addressing these risks is critical to success.
This article highlights the top risks fintech SMEs face when operating internationally and offers practical strategies for navigating them.
Regulatory compliance across jurisdictions
Regulatory compliance across jurisdictions
Regulatory compliance is one of the most significant challenges fintech SMEs face when expanding internationally.
Each jurisdiction operates under a different legal framework, with specific regulations overseen by key regulatory bodies such as the Financial Conduct Authority (FCA) in the UK, the Australian Securities and Investments Commission (ASIC) in Australia, and the Financial Markets Authority (FMA) in New Zealand.
Failure to meet regulatory requirements can lead to heavy fines, suspension of business activities and irreparable reputational damage.
Meeting consumer protection standards
Fintechs need to consider how their services align with licensing requirements.
In some jurisdictions, offering certain products such as lending solutions or payment systems may require specialised financial services licenses.
For example, the FCA in the UK has strict criteria around fintech licenses that require ongoing regulatory reporting and audits.
Consumer protection laws can add further complexity, with mandatory requirements for product disclosures, fair conduct, and cooling-off periods designed to safeguard end users.
Navigating AML and KYC regulations
A particular area of concern is anti-money laundering (AML) and know-your-customer (KYC) compliance.
Standards differ across jurisdictions; for example, Australian AML laws impose particularly robust customer due diligence processes and stringent reporting requirements for suspicious transactions.
Fintech companies must also navigate conflicting rules for handling and sharing financial data across borders, which can complicate compliance efforts.
Strategies for compliance
To mitigate these challenges, executives should work closely with local legal experts who understand the regulatory landscape of each jurisdiction.
Leveraging RegTech solutions can help automate regulatory reporting and streamline compliance.
We also recommend conducting frequent regulatory gap analyses to identify areas of non-compliance and resolve them before scaling further.
Data privacy and cybersecurity challenges
The risks of data privacy laws
Data privacy and cybersecurity present major risks for fintechs operating internationally.
As fintech businesses handle sensitive financial data, they are subject to stringent privacy laws in multiple jurisdictions, including the GDPR in the UK, the Australian Privacy Act 1988, and New Zealand’s Privacy Act 2020.
Each of these frameworks requires businesses to ensure the lawful collection, storage and processing of personal data, often imposing penalties for breaches.
Addressing data sovereignty requirements
Certain jurisdictions mandate that financial data be stored within national borders, which can disrupt the operations of fintechs relying on cloud-based platforms.
Failing to comply with these laws may result in substantial fines or restrictions on operations.
Cybersecurity threats and their impact
Cybersecurity threats significantly amplify data privacy risks, as fintechs are prime targets for malicious actors due to their handling of sensitive financial data.
Common threats include phishing, ransomware and fraud, particularly social engineering frauds, all of which can severely harm a fintech’s reputation and operations.
For instance, data breaches under the GDPR can lead to fines as high as 4% of annual global turnover, in addition to loss of customer trust.
Mitigating privacy and security risks
To address these risks, fintechs should adopt globally recognized cybersecurity frameworks such as ISO 27001 or NIST standards.
Investing in advanced encryption technologies ensures customer data remains secure, even if compromised.
Fintechs must also implement real-time monitoring and incident response protocols to detect breaches early and comply with mandatory reporting requirements.
Developing comprehensive breach response plans tailored to local laws will further strengthen resilience against data-related challenges.
Payment systems and cross-border financial regulation
Diverse payment frameworks
Cross-border payments are a core service for many fintech SMEs, but managing payment systems across jurisdictions introduces a variety of risks.
Different countries have distinct regulatory frameworks governing payments. For example, the UK operates under the PSD2 directive, which mandates open banking and strong customer authentication standards.
Australia, on the other hand, enforces open banking through its Consumer Data Right (CDR) framework, while New Zealand’s Payments NZ standards govern clearing and settlement systems.
Foreign exchange and reporting challenges
One of the major challenges fintechs face is navigating foreign exchange compliance and transaction reporting.
Currency fluctuations add financial risks when operating internationally, and regulatory requirements for reporting high-value transactions can impose significant administrative burdens.
Additionally, payment infrastructure can vary between jurisdictions, creating inefficiencies when integrating payment rails across markets.
Best practices for mitigation
To mitigate these risks, fintechs may choose to partner with local payment service providers (PSPs) who have an established understanding of regional payment systems.
Adopting multicurrency platforms and automated tools for FX management can reduce the impact of exchange volatility.
Fintechs may also choose to invest in transaction monitoring solutions that ensure compliance with local reporting standards and provide transparency across borders.
Taxation and financial reporting complexities
Understanding local tax requirements
Fintech SMEs expanding internationally must navigate complex tax systems, including various sales taxes, and different financial reporting standards. ach jurisdiction has unique tax laws that can create unexpected financial burdens.
In Australia, for example, fintechs offering digital services may be required to register for GST, while UK operations must comply with VAT regulations.
Double taxation treaties add another layer of complexity, as fintechs must ensure they are not taxed twice on the same revenue across international operations.
Managing transfer pricing and intercompany transactions
Intercompany transactions, especially in multinational fintech operations, must comply with global transfer pricing standards.
Failing to optimize tax structures can, of course, lead to penalties and erode profitability.
Effective tax management strategies
To manage these challenges, fintechs tend to work with international tax advisors who can design compliant and efficient tax strategies.
Implementing advanced accounting software will streamline compliance with financial reporting obligations, allowing fintechs to manage GST, VAT and corporate tax filings accurately across jurisdictions.
Proactive tax planning, especially for intercompany transactions, ensures alignment with transfer pricing rules and reduces exposure to audits and penalties.
Competition and market entry risks
The challenges of local competition
Entering new markets brings its own competitive risks for fintech SMEs. Established local players may already dominate the market, creating challenges for new entrants trying to build brand recognition and customer trust.
Cultural differences can further impact customer adoption, as preferences for fintech products often vary by region.
Market research consultancies can support new expansions by explaining local customs and expectations and then interpreting and applying them into products and services.
Leveraging partnerships for market entry
In the alternative, by collaborating with established businesses, fintech SMEs can leverage existing infrastructure and customer networks to enter markets more effectively.
Collaboration can be achieved under partnership agreements, joint ventures or even mergers and acquisitions.
Regulatory sandboxes, such as those offered by the FCA in the UK or ASIC in Australia, also provide fintechs with opportunities to test their products in a controlled environment before fully launching.
Standing out in competitive markets
To differentiate themselves in a competitive market, fintechs must emphasize their unique value propositions.
Whether through technological innovation, superior customer experience or more competitive pricing; all businesses need a clear strategy for capturing market share, of course.
Conclusion: Strategies to mitigate risk for fintech SMEs
Scaling internationally is a high-reward strategy, but it comes with undeniable risks. Fintech SMEs can navigate these challenges with the right preparation.
Engaging local legal advisors ensures compliance with regulatory frameworks, while robust cybersecurity measures protect sensitive data from breaches.
Thoughtful tax planning reduces exposure to financial penalties, and strategic partnerships or regulatory sandboxes can streamline market entry.
By addressing these risks proactively, fintech SMEs can successfully expand their operations and unlock global opportunities.
About Kathryn Beater
Kathryn is a senior in-house lawyer with extensive experience working with enterprise clients across continents in the financial services, fintech, and payments sectors.
She is qualified to practise in Australia and supports her clients globally as part of Clearlake’s international GC service.
About Clearlake Law
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Our sector-specialist in-house lawyers provide fractional general counsel to SMEs in the UK and across the world, supported by cutting-edge legal technologies.
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