No man is an island when it comes to fintech, and in the pursuit of a better world driven by better financial services, it’s clear that standing together means progressing together. This September at The Fintech Times, we’ll be delving into every corner of what it means to be a fintech ecosystem. We’ve dedicated the entire month to investigating what makes a successful fintech ecosystem, how fintechs can work together more effectively, as well as providing a regional view of some of the industry’s best examples of community collaboration.
Our highly-anticipated coverage of fintech ecosystems has begun! And what a month we’ve got in store for you our beloved audience.
Kicking off our coverage, today we’re analysing one of the forefront trends of the industry: outsourcing.
The act of industry outsourcing is something we’ve discussed at length here at The Fintech Times, including fintechs outsourcing to third parties and vice versa. This report from last year for example, which was distributed by the payments solution provider Moorwand, strongly indicated that fintechs that outsource to specialist partners could potentially generate nearly £1million in additional revenue.
Indeed, aside from the monetary potential, there are a whole host of reasons why a company would look to outsource, but who better to hear it from than the experts themselves?
Here we’ve welcomed a range of different experts to provide their valuable insight into the benefits of outsourcing in the fintech sector:
“Analogous to large financial institutions, outsourcing firms can assist fintech firms in enhancing cost-effectiveness, efficiency, scalability, flexibility and reliability,” confirms Prabaldeep Paul, director of corporate and consulting at Acuity Knowledge Partners; a London-based company that provides the financial services sector with the insights and intelligence needed to reach the masses.
Here, Paul addresses the trend of outsourcing within a variety of corporate missions, and the benefits that are to be garnered by doing so.
In regards to marketing and sales, Paul says “Fintech companies tap into expert advice on the latest trends in the field of digital/social media marketing to break the clutter for their messages, wider reach of sales campaigns by reducing overhead costs, and faster scalability of resources for lead generation. Fintechs are also partnering with other entities, including banks, as they have better relationship experiences that can bring a bigger customer base to them.”
Considering product development, Paul explains “Partnerships and outsourcing in the field of application and web development, cybersecurity testing and deployment will enable the smoother and quicker roll-out of products and reduce after-sales complaints. It also assists in mitigating risks relating to bad fitment and functionality of products through professional expertise across core verticals.”
Detailing outsourcing in the sense of company operations, Paul shares “Fintechs outsource customer support including query handling, payment collection; back-office services including identity verification, fraud investigation, human resources, and data entry. This enables the capacity to calibrate and scale up or down service delivery based on priority and requirements. Fintech firms are also outsourcing their IT services including, system maintenance, data storage management, and security recovery, for faster turnarounds and lower administrative costs.”
Looking towards corporate development, and specifically the development of fintech startups, Paul confirms that “a special effort has been deployed towards setting up corporate development teams.”
“As an alternative, third-party firms with experienced and knowledgeable professionals can assist the top management in identifying opportunities relating to expansion, development, and restructuring of business based on prevailing industry dimensions and customer demand,” Paul adds.
Turning to fintech
“Outsourcing fintech allows one to expand beyond their initial means, and thus accomplish far more,” comments Riggs Eckelberry, founder and CEO of the water supply company OriginClear. As a clear-cut example of outsourcing to fintech companies, Eckelberry points toward his company’s collaboration with a water fintech called Water On Demand.
“Not only does this allow investors to invest in productive water projects for the very first time, but it’s also going to help speed up the slow-moving, trillion-dollar water industry – something very much needed!” he explains.
Speaking on the necessity of outsourcing to fintech in this way, Eckelberry comments “OriginClear has some really incredible manufacturing facilities, we can only accomplish so much before our teams simply can’t take on more work. But by becoming a fintech, we can instead create a competitive moat by hiring local water companies to do all the manufacturing and service.
“This will enable us to scale up by focusing on finance and contract management, standards enforcement, risk management, etc. And through partnerships, we plan to create more finance hubs all over the world (Dubai, Singapore, etc.) that would, in turn, finance water installations by water companies that they retain for their respective regions.
“Where we could have attempted to take all the work for ourselves – and been entirely overwhelmed – we’ve chosen to essentially bless other water companies by going, “Hey! Here’s the money, here’s the design, sign these contracts and get going!” This allows us to benefit the entire water industry, which in turn benefits all of us.
“Choosing to outsource, to delegate, enables us to actually change the state of water in this world for the better – all while helping local water companies get work, helping end-users simply pay for the water they use with no upfront capital, and helping benefit our wonderful investors. By becoming a water fintech, we are able to accomplish more – and greater – things than we ever could have otherwise.”
Following Eckelberry’s specific example of how outsourcing to fintech brought various benefits to his company, here Seth McGuire, CRO of the payment processing platform Galileo Financial Technologies, delves deeper into the power of fintech, and into how industry cross-collaboration is fuelling the rise of more innovative services.
“The global fintech ecosystem is driving incredible innovation and expanding the financial frontier for businesses, banks, and most importantly, for people,” McGuire starts. “It’s full of innovative technology organisations that – through outsourcing and collaboration – are helping traditional financial service providers deliver new solutions to more people in more ways than ever before.”
McGuire continues: “Being competitive in this ecosystem requires innovating at speed, and building adaptable products and services that can scale. Traditional banks and credit unions know they must accelerate their digital transformation but rebuilding from the inside out is cost prohibitive and can take years.
“Forward-thinking organisations are solving these time and resource constraints with outsourcing: partnering with third-party providers that have proven next-gen digital and core banking platforms to quickly deploy new solutions.
“Outsourcing that relies on collaborative industry partnerships provides organisations access to data, technology and expertise from across the ecosystem that isn’t possible when building solutions through an internal siloed approach.
“By integrating with a one-stop-shop fintech platform and digital banking core, banks and credit unions get access to highly configurable, cloud-native technology, and can bring a multitude of new financial solutions to market quickly, maximising business performance and profitability, and building better customer relationships.
“The same goes for non-financial brands venturing into the embedded finance world. Delivering financial services is complex and costly, and non-financial companies do not have the in-house expertise to manage risk, regulatory compliance and myriad other factors.
“They also do not want to shoulder the capital requirements or determine how to best access the payments ‘rails’ needed to move money about. It’s far easier to bring fintech experts into the strategy so businesses can focus on the benefits of building deeper and more enriched relationships with customers.”
Having previously discussed the benefits of outsourcing to fintech, here Maciej Dziergwa, founder and CEO of STX Next, gives us a fresh perspective on the benefits that could be enjoyed by fintechs that decide to outsource areas of their own operations.
STX Next is the largest software house in Europe specialising in designing and creating digital solutions in the Python programming language. The company has been operating since 2005 and cooperates with over 600 people through eight offices in Poland. STX’s clients include leading international corporations, small and medium enterprises and the most innovative start-ups from around the world.
“In these uncertain times of an economic downturn, looking into outsourcing can prove more vital to fintech business than ever before,” explains Dziergwa.
“Outsourcing offers limitless, previously unavailable possibilities to C-level executives. But finding an expert company in a limited time to meet fast-approaching deadlines is only one side of keeping your fintech project moving forward. Amid the coronavirus shutdown, maintaining an in-house team has become much more difficult—and far less cost-effective.”
As a firm that offers software services to a large number of fintech clients, Dziergwa confirms that his company has significant experience in overcoming the difficulties faced by loan service providers.
“A remote, outsourced team will improve your cash flow and increase your efficiency, allowing you to scale up or down whenever you need without firing or hiring your team members,” he continues. “While your competition may struggle to survive the current financial crisis, your development will continue uninterrupted.
“But before fintech companies can take full advantage of outsourcing, first they need to realise how. The practice isn’t as straightforward or intuitive as it may seem.”
Developing his point, Dziergwa goes on to discuss the different benefits that outsourcing could pose to fintechs that choose to engage in it:
- Scaling up or down—at will and fast
“Working with an external outsourcing partner in the fintech industry gives the flexibility to scale the staff up or down, which is perhaps the biggest benefit. Without the necessity for hiring or dismissing, fintech companies can complete the task whenever they need to and far more quickly than with internal staff. Scaling in this fashion doesn’t harm a company’s reputation or reflect adversely on them as an employer.”
- Improved cash flow
“When hiring people in-house, you need to pay them at the end of the month, every month. This may seem like the most obvious thing in the world, but should fintech companies ever find themselves in a tough spot financially, it will quickly rise to the top of their concerns. With an external company, they can negotiate payment dates if they need to, dramatically improving their cash flow.”
- Cutting costs
“With outsourcing, there is no worry about providing the contractors with workspace or equipment. Also, only pay for them when needed—if fintech companies need to scale their project up or down depending on the budget and needs, it can be done very easily. Furthermore, nothing prevents them from switching out developers for less expensive ones if their current outsourcing partner turns out to be too pricey.”
- Enhanced effectiveness
“No more wasting time on training because you’ll be seeking a specialist in a particular field right away. Instead, the process will go considerably more quickly because the chosen professionals will be able to get to work on your project right immediately.”
- Wide talent pool
“Fintech companies gain unrestricted access to specialists in practically any field via the internet, regardless of their educational background. Without regard to location, they can select from among the greatest specialists worldwide, whether you require a developer, graphic designer, or any other type of specialist.”
Fintech to fintech
Consolidating many of the aforementioned statements made in this discussion so far, here Roy Ng, CEO and co-founder of the banking-as-a-service (BaaS) platform Bond, analyses the various difficulties in the industry that might produce an instance of outsourcing.
“Fintech products are generally very complicated and nuanced,” starts Ng. “So for many fintech companies just getting started, figuring out the pieces and how they fit together is challenging. Sponsor banks, vendors, processors, know your customer (KYC) vendors, card processors, etc. all need to be taken into consideration. Additionally, the gamut of things a fintech needs to do in order to successfully launch is very broad.
“One of the reasons why BaaS platforms like Bond are important is because we provide the critical infrastructure that’s needed without the steep monetary and intensive time investment.
“By outsourcing or partnering with a platform like Bond, brands can save valuable product development time and contract time – these things are not trivial and can really add up. For example, a particular bank might require certain approved KYC vendors.
“If a fintech signs up independently with an unapproved vendor, they have to start over. It’s a big puzzle to piece together. More fintechs are choosing to leverage fintechs like Bond because they’ve realized they don’t have to deal with the puzzle because someone else has already solved it for them.
“Think back to the early days of AWS. Many tech companies questioned why they should outsource their data centres, thinking owning their data centres was their core competency, when it really wasn’t – building software and offering an exceptional customer experience was their core competency.
“While AWS can’t address every single use case, it can certainly address the majority of them. Bond aims to address the most in-demand, relevant, commercially viable use cases fintechs need from an infrastructure perspective. Companies can build it themselves, but it would take a lot of time and a lot of money. Bond is a platform providing the lego blocks for them to build the solutions they need quickly and cost-effectively.”