The fintech industry is booming—by 2030, this field is expected to bring in an unbelievable $1.5 trillion in revenues. But despite the industry’s widespread success, fintech businesses continue to face their fair share of dangers. Even the most prominent players in this field are vulnerable to threats such as cyberattacks, breaches of contract, employee theft, and regulatory difficulties.

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In order to mitigate these risks, both new and well-established fintech companies need to prioritize insurance coverage. Keep reading for a closer look at the threats fintech businesses face and the insurance policies that can keep them safe.

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^{What is fintech?}

The name “fintech” is short for “financial technology,” and that serves as a concise summary of what companies in this field offer. Fintech businesses use technology to help people and businesses access financial services, making it more convenient than ever for them to save money, make investments, and pay for products and services.

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Fintech is a wide-ranging industry—traditional banks offering cutting-edge services, ambitious start-ups, and everything in between fall under this umbrella. Though there’s no such thing as a “standard” fintech business, most companies in this industry launched after 2000, have actively raised funds from 2010 on, and have not yet become mature.

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Throughout the 2010s and early 2020s, fintech was a highly disruptive industry marked by explosive growth. However, a 2022 market correction caused the field’s momentum to slow somewhat. As a result, “traditional” fintech businesses have shifted their focus towards more sustainable growth and a growing number of banks have started to enter the field with fintech products of their own.

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^{What risks do fintech companies have?}

Any business faces a certain level of risk, and companies in the fintech industry are no exception. Some of the most noteworthy threats faced by companies in this field include:

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^Cybercrime

By their very nature, fintech businesses deal with a great deal of sensitive customer data. As a result, these companies are easy targets for cyberattacks—and, potentially, data breaches.

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^{Employee theft}

Cybercriminals aren’t the only bad actors fintech companies must be ready to deal with. Unscrupulous employees of fintech businesses can easily take advantage of their privileged position by committing theft.

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^{Regulatory issues}

Fintech businesses focus on providing financial products and services—offerings which are still subject to strict regulation. Thus, the people leading these companies must tread carefully while developing and providing solutions to avoid violating regulations.

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^{Breaches of contract and professional liability}

Since fintech customers tend to rely heavily on their services, outages and downtime can result in severe financial losses. If this temporary inability to provide services violates a written agreement, the result could be a breach of contract (and possible litigation). This risk still exists for fintechs that use third-party services to maintain their systems, as these businesses still have responsibilities to their customers.

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^{What insurance do they need?}

To protect your business from these risks and others, you’ll need insurance coverage you can count on. Here are just a few of the many insurance policies fintech companies can benefit from:

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^{Technology errors and omissions insurance}

Though the average fintech business will need many forms of insurance coverage, few policies are more critical than technology errors and omissions (E&O) insurance for companies in this field. With a technology E&O policy, you’ll be protected from claims and lawsuits related to clients being dissatisfied with the services your company offers.

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Technology E&O insurance stands apart from “normal” E&O policies due to its inclusion of third-party cyber liability insurance. This insurance coverage applies to businesses responsible for users’ online security, and it can help cover legal expenses related to cyberattacks and data breaches.

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^{Directors and officers insurance}

Does your fintech company have a board of directors? If so, you should strongly consider directors and officers (D&O) insurance. This type of management liability insurance can help reimburse legal costs for board members and officers if you are sued over their actions.

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A D&O policy can protect your business from lawsuits tied to:

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• Failure to comply with regulations
• Claims of copyright infringement, slander, and libel
• Failure to follow your organization’s bylaws
• Fund mismanagement
• Grievances from employees

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^{Cyber liability insurance}

Though your technology E&O insurance policy will include third-party cyber liability insurance, you’ll also want to have first-party cyber liability coverage in place. The difference between these forms of insurance lies in what they cover: while third-party cyber liability insurance can assist you with costs such as legal fees and regulatory fines, first-party cyber liability insurance can help pay for your own expenses in the wake of a cyberattack.

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More specifically, this form of insurance can cover costs related to:

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• Losing revenue due to interrupted business
• Making ransom payments
• Performing a forensic investigation
• Notifying affected stakeholders, such as customers and vendors
• Paying for protection services like credit monitoring for these stakeholders
• Recovering assets and data
• Hiring a PR team to manage damage to your company’s reputation

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^{Intellectual property insurance}

Since fintech businesses often thrive because of their cutting-edge solutions, they need a way to protect their copyrights, trademarks, and patents. That’s where intellectual property (IP) insurance comes in: this form of insurance covers expenses associated with enforcing and defending these intangible assets. 

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On the other hand, companies operating in innovation-driven industries like fintech are especially likely to find themselves dealing with patent trolls and competitors accusing them of infringement. Fortunately, IP insurance can also protect your business when it faces patent infringement claims from these parties.

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^{Key person life insurance}

In smaller fintech companies, specific people (such as a founder, lead developer, or high-ranking executive) may be necessary for operations to continue as normal. If a person like this suddenly dies or becomes ill, chaos—and a significant financial downturn—could easily result.

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A key person life insurance policy will cover losses associated with the death of the insured party in question, along with lost revenue and other damages if this person cannot work due to a covered claim such as illness. These specialized policies are most often used by small businesses that employ one or more genuinely irreplaceable people.

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^{Commercial crime insurance}

Policies like technology E&O insurance and IP insurance can protect your fintech company from outside threats, but you’ll also need to watch out for internal dangers. While many businesses deal with the possibility of employee theft from customers and clients, fintech employees have a particularly high level of access to customers’ personal data—and that can make this form of misconduct uniquely tempting.

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Commercial crime insurance is meant to help businesses deal with theft and fraud committed by their own workers. Just like cyber liability insurance, companies can benefit from both first-party and third-party commercial crime insurance. As you might expect, first-party coverage protects your business from employee theft-related losses, while third-party coverage protects your clients from the same risk.

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^{How much does it cost?}

Though the insurance policies listed above are indispensable for fintech companies, they also come with a price tag. On average, here’s what businesses like these can expect to pay for these forms of coverage:

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• Technology errors and omissions insurance: $67/month
• Directors and officers insurance: Over $500/month (for technology companies specifically)
• Cyber liability insurance: $148/month
• Intellectual property insurance: Up to $50,000/year
• Key person life insurance: Variable (premiums depend on the level of coverage needed, the insured party’s age/gender/health, and other factors)
• Commercial crime insurance: $500-$5,000/year

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^Conclusion

Though the fintech industry’s current growth may not be as rapid as it was a decade ago, there’s no denying that this field is here to stay. However, that’s not necessarily the case for individual businesses in this industry.

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To succeed in the world of fintech, companies must contend with everything from cyberattacks to theft from untrustworthy employees. By investing in policies such as technology E&O insurance, cyber liability insurance, and commercial crime insurance, your fintech business will be able to keep these risks under control and focus on providing its services and products.

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Get in touch with a Fullsteam insurance advisor today and learn more about costs, coverage, and more.