Why do fintech startups in Europe resort to traditional finance?

Today more and more investors are relying on the Fintech industry considering the tendency nowadays in every single sector of the world to digitalize. As technologies emerge, the number of fintech startups rises all over the world and many startups play an important role in the rise of the national economies. However, the success of any type of startup depends on the strategies investors use to help these companies grow. While leading startups of the world are almost completely switched to behavioral finance, most European firms are still sticking to traditional finance. 

Although resorting to traditional finance may have some advantages, generally, it’s considered that it’s time to open doors to some innovation and this may be one of the main reasons why many European startups are struggling to achieve success. Years ago it was believed that Europe could be the best place for crypto mining but now the overall crypto landscape is far more different. Despite the fact that the number of people who use cryptocurrencies as a way of payment and many people even regard cryptos as a good choice of investment, the general image is that the crypto startup landscape in the EU is often considered as a failure today.

Are cryptos losing popularity in the EU?

The answer is negative. It’s hard to imagine that today people won’t find digital currencies beneficial in this kind of developed country where technologies are emerging. Therefore, in most of the European countries, people use Bitcoin and other cryptos in order to make online transactions. Everybody releases how convenient cryptos are in today’s digitalized world but there are some factors that hinder crypto startups in the EU to grow. 

Needless to say that the popularity of crypto-related startups strongly depends on the strategies companies use to attract investors and not only on the general popularity of cryptocurrencies. But it seems like they are making some major mistakes and this is why their businesses usually face lots of challenges to succeed. The most common mistake in the strategy of planning their business is that these companies are focused on the demand. 

The demand is mostly the driver for these startups rather than the perspective of crypto popularity in the future. Most startupers look for funding based on already existing metrics, and traditional finance is still in the lead. Even the relatively less practiced financial operations, like FX trading, for example, are still miles ahead of crypto, so it's in the interest of startupers to focus on these markets. Just by taking a look at the XM minimum deposit, which is usually less used by Europeans, we can still see a massive market for it despite the fact that XM isn't the #1 broker in the region. It simply shows the investors that they can at least get their money back over time. Considering that even forex traders find it hard to achieve success using cryptos, it’s no surprise that other crypto startups in the European market are facing great challenges. 

Alternatives to traditional finance

Now it’s believed that if new startups want to succeed, the first thing they should care about is to implement effective strategies. Considering the fact that most of the European startups still rely on traditional finance, certainly this principle is not something that they usually follow. Companies that use traditional finance believe that the investor and the market are rational. As a result, they try to make decisions according to the given data and gather all the important information. This means nothing more than the belief that investors never make their financial decisions according to their emotions. However, as behavioral finance suggests, people are generally irrational. How they feel at the moment is a key factor for making decisions even about investments. Therefore, the fear and overconfidence of investors should be taken into account before planning your startup. 

But instead, most of the EU crypto companies are focused on short-term gains. They try to get revenue as quickly as possible, without realizing that this may harm their long-term profit. Crypto startups in many European countries tend to focus on revenue rather than the growth of the company. Unlike Silicon Valley where the crypto landscape is thriving the EU ecosystem has a much more conservative approach.  The reason for the success of Silicon Valley blockchain startups may be attributed to the fact that they always try hard to progress and for this they constantly bring innovation to the market. But what Europeans are trying to do is just to prevent a failure instead of failing and learning. This is why opportunities to raise a large capital in Europe is quite low. 

As a result, most of the European entrepreneurs try to generate profits at the beginning in order to survive. They tend not to focus on expanding the business, while successful startups usually try hard to grow and expand without instant revenue expectations. This is why European startups need to change their strategies and adopt new mechanisms. At this moment it may be important to neglect instant revenue generation for a while and start to think of long-term profits. Leaving traditional finance and finding an alternative, effective method is the only way for European startups to avoid failure.