A new report from the Hare Strategy Group is shining a light on a sobering reality for financial technology startups, nearly three-quarters of them fail within their first three years, and the main culprit is not a lack of funding or a flawed product, but preventable regulatory compliance issues. The study, which analyzed five years of data from over 400 fintech ventures, points to regulatory navigation as the single most important factor determining whether a startup will thrive or disappear from the market.
This finding is consistent with broader industry statistics. Across the fintech sector, roughly 75% of startups backed by investors ultimately fail, a figure that has held steady in recent years despite a surge in capital and talent entering the industry. For context, this is in line with the general startup landscape, where about 90% of new businesses don’t survive, and about 70% close their doors within five years.
Why are regulatory issues so lethal for fintech startups? The answer lies in the nature of the industry itself. Financial technology companies operate in a space that is both highly regulated and constantly evolving. Unlike many other tech startups, fintechs must navigate a maze of local, national, and sometimes international rules from day one. These regulations are not just bureaucratic hurdles, they are essential guardrails designed to protect consumers and the broader financial system.
Yet, the Hare Strategy Group’s report suggests that many founders underestimate the complexity and importance of compliance. Some attempt to “move fast and break things,” borrowing from the Silicon Valley playbook, only to find that regulators are less forgiving than consumers when things go wrong. Others simply lack the resources or expertise to keep up with shifting requirements, leaving them exposed to fines, legal battles, or forced shutdowns.
One might assume that startups with strong investor backing would be better equipped to handle these challenges, but the data tells a different story. Even among venture-backed fintech companies, the failure rate hovers around 75%. Investors may provide capital and connections, but they can’t always supply the specialized regulatory knowledge or operational discipline required to stay compliant.
This reality is particularly striking when compared to other sectors. While e-commerce and blockchain startups also face high failure rates, 80% and 95% respectively, these are often attributed to market saturation or technological hurdles. In fintech, however, the regulatory environment is the primary stumbling block.
For entrepreneurs eyeing the fintech space, the message is clear, regulatory strategy cannot be an afterthought. It needs to be integrated into the business model from the very beginning. This means investing in legal counsel, compliance officers, and ongoing education about the laws governing their operations. It also means building relationships with regulators and being proactive about transparency.
Investors, too, should be more discerning. While a compelling product and a talented team are important, a startup’s approach to compliance should be a key part of any due diligence process. The Hare Strategy Group’s findings suggest that those who ignore this aspect are likely to see their investments disappear along with the startups themselves.
Despite these challenges, the fintech sector continues to attract new entrants and significant investment. The global industry is valued at over $310 billion, with more than 8,700 startups operating in the United States alone. This growth is a testament to the demand for innovation in financial services, but it also means that the regulatory bar will only get higher as authorities seek to keep pace with new products and business models.
For those able to navigate the regulatory landscape, the rewards can be substantial. But the Hare Strategy Group’s report is a reminder that in fintech, survival is less about moving fast and more about moving carefully. For investors and entrepreneurs following the fintech space, the message is straightforward, regulatory navigation is not just a box to check, but the foundation on which long-term success is built. Ignore it at your peril.
