Financial technology (fintech) is a fast-growing industry. Independent investment comparison service Bankrate states, “The fintech industry is projected to grow to $698.48 billion by 2030, an increase of $587.91 billion from 2020.” With this acceleration, the fintech industry requires an increasing number of workers for both software development and administrative and support services.
Yet, the shortage of tech talent, the effort required by the hiring process, and the low unemployment rate make filling open positions a real challenge. To get the resources they need, fintech companies are turning to outsourcing, which is the process of using agencies that specialize in recruiting and providing talent. Outsourcing is employed by businesses across industries but is especially useful in fintech because these companies require specialized expertise that might otherwise be hard to find.
In the sections below we explore more about why fintech is turning to outsourcing, explain what types of services fintech providers can outsource, and describe the pros and cons of outsourcing software development specifically.
Fintech Trends
As of late 2022, the following trends are getting the most attention within the fintech industry.
- Artificial intelligence (AI). All the other technologies mentioned here depend on AI to make sense of data, identify trends and challenges, and propose possible solutions.
- Big data. Use of fintech generates massive amounts of data that support service delivery and customer retention efforts.
- Biometrics. Financial transactions require a high level of security. Biometrics (such as fingerprint scanners) help by ensuring the person using the application is who they say they are.
- Blockchain. This technology can be used for a variety of purposes that require a high degree of security and trust between parties.
- Credit scoring. Consumers who don’t have bank accounts are known as the “unbanked.” These individuals still have a need for financial support such as small loans. Credit scoring enables institutions to evaluate their creditworthiness.
- Data aggregation. Every industry needs to manage data in some way. For financial institutions, data aggregators simplify the exchange of data between them and their customers.
- Digital banking. Many bank accounts are now online only, giving consumers and businesses convenience and lower costs.
- Robotic process automation (RPA). RPA is the use of software to perform tasks previously only performed by humans, freeing up resources to tackle higher-level challenges.
- Voice payments. Customers want to be able to use the voice assistants they are already familiar with (such as Siri or Alexa) to perform additional functions, including banking transactions.
- White-label fintech solutions. These products provide the ability for companies to easily create global payment gateways.
The following video highlights additional trends.
Why Is Fintech Turning to Outsourcing?
Many businesses, such as banks, online retailers, and smaller fintech providers, need fintech components to support their services but don’t have the required talent in house to develop them. That’s where outsourced fintech software development services come in. Fintech software development providers can create components that facilitate such processes as online banking, payment exchanges, data aggregation, big data analysis, process automation, voice payments, and microcredit loans.
Like many other companies in today’s market, these businesses may be struggling to find competent engineers to create the fintech applications needed in their offerings. Common outsourced services in the fintech industry address this issue by delivering experts without companies having to go through the hiring process and, when remote teams are involved, without having to find additional office space to accommodate more workers.
Additionally, for many companies, a high level of specialization is needed to create custom fintech offerings. Retail businesses might want to include embedded finance options and include features they know their customers want. For example, a home improvement chain such as Home Depot may offer customers the ability to purchase insurance along with new appliances without having to go to an outside source. In-house professionals may not have the skills to develop highly customized features.
Outsourced fintech software development firms often have access to the latest technologies, which can help them develop innovative solutions for companies that want to include fintech components in their offerings. For instance, a recent BairesDev blog post stated, “Blockchain technology enables numerous actions related to financial activity, including verification, traceability, data protection, and contract execution.” Blockchain includes many benefits, but not all fintech software developers are trained to develop applications that take advantage of it.
Other technologies that can be created by outsourced fintech software developers include the following.
- E-commerce payment methods – platforms like credit and debit cards, digital wallets, payment systems such as PayPal, Apple Pay, or Google Pay, online transfer, and wire transfer
- Mobile e-wallets – applications that enable users to make in-store payments directly from their phone
- Payment Card Industry Data Security Standard (PCI DSS) – a set of security standards created to help retailers maintain secure credit card payments
- Payment gateways – applications that interpret and transfer payment information from a customer’s account to a merchant’s account
- Point of sale (POS) software – operating systems that help retailers accept payments, create reports, manage inventory, and run loyalty programs in physical stores
What Can a Fintech Provider Outsource?
Common outsourced services in the fintech industry include software development, business process outsourcing (BPO), and customer care. Customer care is typically included under BPO, but we describe it separately here because it is an important and specialized function.
- Software development. To keep up with the growing demand for fintech applications, companies that produce them must sometimes supplement their in-house development staff. In addition to increasing head count, such outsourcing enables fintech businesses to gain skills in-house staff might not have, easily ramp production up or down based on need, reduce the time spent on talent searches, and save money.
- BPO. By definition, the main output of fintech companies is financial software. But, like all businesses, these companies must also have other functions, such as technical support, to supplement that development. For many of the same reasons they outsource software development, fintech companies may choose to have outsourcing providers take some of these areas off their plate.
- Customer care. BPO providers can also help fintech companies manage their customer care, including customer-facing interactions via phone, messaging, and email. The services may also include identity verification and fraud mitigation and investigation. These services can be helpful to outsource within fintech companies, where many, if not all, of the founders have a technical background and need help with supportive services.
Pros and Cons of Outsourcing Development for Fintech Companies and Banks
For small businesses, fintech outsourcing can contribute to the efficient use of resources. For mid-sized firms, it can free up employees for more valuable tasks. Large companies can use it to expand capacity and production.
Startups are in an especially good position to outsource fintech software development as they create and launch their services. According to a recent Forbes Technology Council post, some of the advantages of outsourcing in general for startups include accelerating the pace of development, increasing cost efficiency, and saving time. These benefits apply to outsourcing software development as well.
However, outsourcing does come with disadvantages too. According to the Forbes Technology Council post, they include ineffective communication and collaboration and losing control of projects. Let’s take a look at these factors, and some others, more closely.
Pro: Cost Efficiency
The cost of hiring new employees is high. For companies looking to add fintech components to their offerings, or for those looking to expand these components, the cost in both money and time to search for candidates and interview and onboard them can be prohibitive. Once employees are hired, salaries, benefits, bonuses, and other perks bring added costs. Turning to a fintech software development outsourcing provider enables business owners and managers to take this process off their plate and turn to more pressing matters.
Pro: Pace of Development
When you outsource entire projects or parts of them, especially if you trust a remote team, you can focus on other areas of the development process or the business that will bring in more revenue. For companies that want to launch multiple services at one time, in-house teams can be working on some projects while the outsourced teams work on others. A faster pace means quicker time to market and the potential for outpacing the competition.
Pro: Quality of Work
Outsourced fintech software development can provide highly trained professionals for your projects at a time when that talent may be hard to find in other ways. Such providers typically have access to a pool of fintech software development experts from many regions of the world, including those — such as eastern Europe and South America — that are known for high skill levels and reasonable fees. These professionals bring knowledge of the latest techniques and tools to help you build fintech software or fintech components of the highest quality.
While this item is listed as a pro, it can also become a con if the outsourced development services don’t turn out as expected. Companies can avoid this outcome by starting with just a few outsourced team members to help with ongoing projects or with a simple project to demonstrate the outsourcer’s methods, processes, and outcomes.
Pro: Flexibility
Even the most successful companies don’t always know what the demand will be for their offerings. Fintech companies may sometimes need to ramp production up or down and adjust development based on slower times with fewer customers, brisker times with more customers, or times when businesses are creating more products or services. Hiring outsourced fintech software developers helps companies manage these varying needs because they can swiftly add or subtract team members as needed.
Con: Ineffective Collaboration
Unfortunately, outsourced software development doesn’t always go well for the hiring organization. Obstacles like poor communication or language skills, inefficient project management processes, and time zone differences can lead to ineffective collaboration. Hiring companies can avoid these issues by ensuring that the providers they consider focus on mitigating these matters.
Con: Losing Control of Projects
Outsourcing fintech software development entails a high degree of trust, especially if you are using a remote team or having the outsourced developers take over entire projects. Each degree of distance between yourself and the process increases the chance that the work will be done according to the outsourced team’s rules and guidelines rather than your own. Again, the key to avoiding this issue is clear communication and knowledge that the outsourcing provider is working to ensure your projects are completed according to your specifications and processes.
Con: Security Issues
Anytime a third party is introduced into a corporate ecosystem, the potential for a security breach increases. It can happen intentionally, as in the case of a third-party employee purposely stealing data from the hiring company, or inadvertently, as in the case of a technology malfunction.
Companies that hire outsourced software development teams must take precautions to ensure their data is protected. Agreements regarding security should also be included in contracts. Additionally, companies can look for cybersecurity certifications such as AWS Select Consulting Partner, Microsoft Gold Partner, and Google Cloud Partner.
How to Outsource Fintech Software Development
If you have found that the pros outweigh the cons for outsourcing, you’re ready to take the next steps in outsourcing fintech development.
- Determine your needs. Discuss with stakeholders what goals the company has for working with an outsourcing firm. For example, it might be simply to bring on a few more developers to complete a large project. It might be to hire a team to take complete charge of a particular project. Or it might be to attain developer skills that are needed but not present on your in-house team. You might also consider soft skills like good communication and a record of strong teamwork.
- Consider location. You can immediately narrow down your search by choosing a general region from which you will select an outsourcing vendor. Providers in the U.S. are a good choice because firms will have similar time zones and language. But they are also typically more expensive. Eastern Europe features talented professionals at a good price, but the difference in time zones can be an issue. South America offers a beneficial combination of time zone and language compatibility as well as advantageous pricing.
- Gather initial options. Get recommendations from colleagues or use sites like GoodFirms, Clutch, Glassdoor, or LinkedIn to find potential outsourcing vendors. Make sure each one has the capability to perform the work you need as well as the kind of customer care you prefer.
- Evaluate each firm. There are many ways to determine whether an outsourcing provider will be a good fit for your needs. First, examine the company’s website to determine if its experience is a good match. Be sure to check customer reviews on the site and elsewhere, such as Google. Ask for feedback from colleagues if you know anyone who has used the service. Finally, ensure the company complies with fintech rules and regulations and offers security testing as part of its services.
- Narrow the options. After you have gathered external information, choose 3 to 5 vendors you like best and speak with them directly, either in person or via video call. Have questions prepared in advance, such as how they might handle specific situations or what programming languages their developers use. Consider not just their ability to perform the tasks you need completed, but also their willingness to act as a partner who will help you meet your goals.
- Choose a partner. Once you have selected a vendor, determine what kind of arrangement you will have, such as a dedicated team, fixed price, or time and materials. Be sure the contract includes things like scope of work, milestones and deadlines, and budget. Also agree on the means and frequency of communication, as well as how the vendor will report on its progress.
Outsourcing Helps Fintech Expand
More digital options for financial transactions are being developed all the time. The fintech development companies that make it happen must find ways to keep up with the demand, and one of the best resources they have available is outsourced services, including software development, BPO, and customer care. Common outsourced services in the fintech industry enable team expansion but also help these companies bring in needed talent, reduce or eliminate the cumbersome search for talent, and save money.
While some of these relationships can and do go sour, many more of them succeed and enable fintech operations to provide convenience to banks, retailers, and other businesses, as well as users of those services. Ultimately, outsourced services in the fintech industry help to make the financial world go around.
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