2008 was huge.
And it was awful.
That was the year that the global economy retched.
For the financial services industry, everything changed.
In the wake of the 2008 global financial crisis, governments and policymakers saw a need for the financial services sector to be safer and held more accountable to customers.
The financial services industry may have endured a rocky decade, but the fallout persists, and public trust in financial institutions continues to be at an all time low as banks and executives continue to be hounded by backlash.
Okay, so why am I bringing this up? I lead a custom software development agency, not a finserv business.
The upheaval in the finserv industry produced massive change in other industries.
In fact, an entire industry arose from the rubble of the financial meltdown: Fintech.
Fintech is the current darling in the startup world.
This hot buzzword has paved the way for the rise of a new breed of company—one that combines the cutting-edge technology of Silicon Valley with the data-driven financial focus of Wall Street.
You guessed it. Fintech software development is at an all-time high.
My goal in this article is to answer nine critical questions about fintech. As a software development agency, my concern is with the overarching question — why fintech matters in software development. However, to answer to this question, I want to ask these questions as well:
- What is fintech?
- Why does fintech matter for business?
- What is the business and commercial impact of Fintech?
- How is fintech disrupting industries?
- Why is fintech on the rise?
- What are some of fintech’s services?
- How are investors responding to fintech?
- What is the impact of fintech beyond the financial services industry?
- What is fintech’s connection with custom software development?
1. What is Fintech?
Fintech is a catch-all term that refers to a growing movement in the financial services industry fueled by new technologies.
I love the way that FintechWeekly defines it:
“Financial technology, also known as FinTech, is a line of business based on using software to provide financial services. Financial technology companies are generally startups founded with the purpose of disrupting incumbent financial systems and corporations that rely less on software.”
Fintech is a combination of financial services and innovative applications of new and existing technology, born from an attempt to provide better and more efficient alternatives to traditional banking and payment systems.
Basically, fintech uses technology to enhance the way money works.
Think of fintech as a much-needed overhaul in banking and commerce, one with a strong focus on technology and consumer-centric software.
2. Why does fintech matter for business?
Fintech’s main advantage is choice.
What kind of choice?
With fintech, companies of all sizes and industries have access to a wide range of solutions that circumvent the traditional way of managing their finances—i.e. going to a local bank or investor.
From mobile payments, crowdfunding, to algorithm-driven apps that generate investment advice, entrepreneurs have never had this many choices when it comes to setting up their own companies.
And it’s not just about the startup process; fintech also makes scaling easier and cheaper than ever.
For example, crowdfunding allows aspiring entrepreneurs to obtain funding without having to look for investors and venture capitalists. By developing a product prototype and sharing it online, your idea can get funding from as many people from all over the world as possible.
Fintech lets you make your sales pitch to the entire world, and not just a boardroom of potential investors. Those with truly unique and special ideas have managed to launch their ideas into profitable products through sites like Kickstarter.
The Pebble Smartwatch, for example, got its start from a massively successful crowdfunding campaign on the site. An action sports drone manufacturer, Airdog, started up in Latvia. Through a wildly successful Kickstarter campaign, they ended up pitching to VCs and presenting in boardrooms in Silicon Valley.
Remitting money across borders, a process that has long had several problematic barriers, is being retooled by innovative fintech companies.
But more importantly, fintech solutions have brought down the cost of transferring money abroad. TransferWise, a peer-to-peer money transfer service, allows businesses and individuals to wire funds at a cost far lower than the service offered by banks.
Business involves money. And fintech is reshaping how this money is handled.
There is no questioning that fintech is changing money and business.
3. What is the business and commercial impact of fintech?
Fintech’s rise has been so meteoric, Venture Scanner notes the industry (if it can now be called one) has created more than 16 new business categories and more than 1000 new companies, all combining for more than $33 billion in funding in just a few years.
That’s a lot of funding.
Already the market value of the industry, as measured by Accenture, is up, and up, and up.
Venture Scanner lists down the following 16 major categories in fintech:
- Consumer Lending – Companies offering tech and data driven methods for consumers to borrow money and receive credit score checks
- Business Lending – Companies offering solutions for organizations to increase debt financing and receive credit risk assessment
- Personal Lending – Companies offering faster and easier methods for people to manage their personal finances
- Consumer Payments – Payment companies offering mobile wallets, prepaid card tech, and p2p payment solutions to consumers and issuers
- Payments Backend and Infrastructure – Companies that provide infrastructure and backend support for “smarter payments, ideally for online merchants, mobile apps, and online payment portals.
- POS Payments – Companies providing new and improved point-of-sales solutions ranging from physical payment systems for brick-and-mortar establishments, to terminals that accept QR codes and biometric data
- Equity Financing – Companies providing new platforms for raising capital in return for equity
- Retail Investing – Companies offering new ways for consumers to make securities investments powered by crowdsourced data, algorithm-driven advice, and social networks for investors
- Tools for SMBs – Companies offering specific finance tools (e.g. accounting, payroll) for the needs of small to medium businesses
- Institutional Investing – Companies providing management solutions for wealth managers, day traders, and hedge fund managers
- Banking Infrastructure – Companies providing advanced infrastructure that streamlines the operations of banks and other financial institutions
- Financial Transaction Security – Companies offering solutions to secure financial transactions and prevent fraud
- Crowdfunding – Companies offering ways for organizations to raise non-debt and non-equity financing
- Remittances – Companies that speed up the process of sending money between individuals and businesses abroad
- Consumer and Commercial Banking – Companies offering software solutions for consumers and businesses to interact with each other
- Financial Research and Data – Companies offering case studies and research to help investors make sound investment decisions
This level of impact can’t be easily overlooked.
4. How is fintech disrupting industries?
Fintech is changing the financial services industry right now.
As artificial intelligence and smart automation become more of a reality and less science fiction, certain jobs and specialties in banking institutions are being displaced as a result.
This proves yet again that technology is the most consistent factor behind critical paradigm shifts in any industry, and the financial services sector is just one of the most recent casualties.
As with many things related to finance and technology, outsiders don’t really know what fintech means, besides it being a portmanteau of the words financial and technology.
It took a while, but fintech is finally hitting the prime time spotlight.
60 Minutes featured fintech in a May episode that followed the founders of Stripe, a fintech startup. You’ve probably heard of them, if not actually transacted using Stripe technology. Over the past couple of years, Stripe has been Worthwhile’s recommended payment integration used on sites including Kincierge and Build Your Closet.
Stripe provides “buy” buttons —essentially lines of code— which companies can copy and paste into their websites in order to set up faster and more intuitive ways of accepting payments.
In exchange, Stripe charges a small percentage of every customer transaction.
One of the show’s key takeaways provides a critical insight on the fintech phenomenon. Many of the innovations made in the financial sector over the last 10 years came from tech companies, not the banks themselves.
Have you heard of the unicorns? These are startups that have valuations of more than $1 billion dollars. These unicorns are clustered in fintech industries, but have far-reaching implications for other industries including accounting, real estate, insurance, and investing.
It bears repeating that fintech impacts the use of money at a foundational level. The use of money, in turn, affects everything else.
Remember those Italian Medicis who basically invented banking?
Their impact is still being felt today.
But now, a revolution of similar proportions is taking place. It’s called fintech.
It’s not an overstatement to say that fintech is changing the world.
5. Why is Fintech on the rise?
At its heart, fintech solutions like those offered by Stripe are all about helping people manage their finances.
The average person handles his finances with a degree of uncertainty and fear. There are so many barriers to knowledgeable investing.
Changing these problems also takes a proactive attitude towards financial management. A huge part of the problem is the difficulty of accessing services that help people make better financial decisions.
Such solutions are often exclusive to the more financially literate. More often than not, the financially savvy occupy the upper rungs of the economic ladder. And the lower you are positioned on that ladder, the harder it is to access these resources.
In the absence of policymakers providing access to easy-to-understand and affordable financial services, fintech has filled the gap.
Fintech provides a host of tech-driven solutions leaders claim help people manage their spending, save money, and make sound investment decisions—all at their fingertips.
Today, you don’t need to be a Wall Street guru to invest in the stock market. A financial neophyte can download an app, purchase stock (no trading fees), and start to earn dividends. It takes two minutes and a modicum of financial awareness.
Oh, and she can do it on her iPhone while standing in line at the grocery store.
You could even say that fintech is a protest response to the traditional oligopoly of the financial services industry.
6. What are some of fintech’s services?
Fintech companies offer a host of enhanced financial services that were once almost exclusive to banks and other financial institutions.
For example, the personal money management app Mint helps users keep track of their spending and create a budget without having to hire a financial advisor or shell out hundreds of dollars.
It’s easy to see why such a software solution would be popular. Mint’s real value lies in how easy it is to use and understand.
Fintech isn’t a Wall Street phenomenon. It’s a Main Street event.
You’re probably enjoying the benefits of it right now.
You buy peaches at the farmer’s market by swiping your credit card in a Square reader. That’s fintech.
You check your kid’s college fund by opening up Mint. That’s fintech.
You contribute five dollars towards a Indiegogo campaign you’re interested in. That’s fintech.
7. How are investors responding to fintech?
Investors love fintech.
Not surprisingly, some of the world’s most notable investors have jumped on the fintech bandwagon. Startups raised more than $12 billion dollars in 2015 from venture capitalists.
But this isn’t to say fintech companies will soon put banks out of business. Fintech and financial services institutions share a symbiotic relationship (at least for now).
Many fintech companies require consumers to have bank accounts. For example, you can’t start day trading on Robinhood, a popular free trading app, unless you have a bank account from which to draw funds to invest.
Besides, the most prominent fintech companies are small upstarts. Some, like the Lending Club, have even fallen by the wayside due to poor business practices.
Fintech is slowly making parts of the financial services industry irrelevant. The role of money managers may soon diminish as software solutions, like ByAllAccounts and SalesForce among others, make account and portfolio management simple and faster.
Fintech startups have relatively easy access to investor money, which means even greater growth in the fintech industry over the next few years.
8. What is the impact of fintech beyond the financial services industry?
By now, it’s clear that Fintech is a major disruptor among multiple facets of the financial services industry.
Fintech, however, also has implications for other industries. Remember the unicorn chart above?
The effect of digital technology on the banking sector is a clear microcosm of its effect on the entire economy. Try as they might, industry leaders for the most part are still trying to play catch-up to tech disruptors, which include…
- Uber (now the largest taxi company in the world despite not owning any vehicles)
- AirBnB (the largest hotelier in the world despite not owning any hotels)
- Tesla and Google (leaders in the push for self-driving cars and clean car tech)
It’s all part of a series of “tipping points” that envision technology permeating more aspects of our lives and daily activities —IoT, big data, wearables, and pretty much everything else.
9. What is fintech’s connection with custom software development?
Here’s where I’ve been headed this entire article — software development.
Everything I discussed above — the tsunami-like impact of the fintech revolution — requires software.
From the cloud to the mobile device, and from the payment integration to the security protocol, fintech demands a high level of custom software expertise and innovation.
Fintech’s reliance on technology is influencing the way custom software is developed, customized, integrated, and rolled out.
Here are the specifics.
Fintech is fueling the demand for development in Python.
For starters, fintech has contributed to the hot demand for Python programmers in the financial services industry.
Obviously, the growth of fintech is a catalyst for the computer language’s resurgence.
Python, and its high-level framework Django, is a natural fit for anyone looking to create analytics tools and quant models—solutions that form the foundation of trading strategies used by hedge funds and investment banks.
EFinancialCareers puts Python at the top of its list of the “six hottest programming languages to know in banking technology.” Python is the most-taught language in university computer science classes.
One reason why programmers and bankers love Python is a simple one: In terms of run time, it’s wicked fast.
The Python comeback can also be attributed to the ease and speed of programming several functions relevant to the financial services sector.
Another area where Python shines is how you can accomplish a certain function with just 10 lines of Python code. It could take twice as many lines with C++.
As tech professionals look to penetrate the growing fintech scene, Python is poised to become even more popular than it already is.
The only problem is that Python isn’t really an effective bargaining chip in the hiring process, mostly because of how easy it is to learn. It just doesn’t have the clout of SQL, Java, C#, or Java, which means programmers will need to have exceptional skill with Python in order to stand out.
Fintech is transforming software development trends in big data.
A Forbes report shows that the demand for Python programming expertise in big data roles increased by 96.9 percent in the last year.
This key insight comes from an analysis of big data hiring trends using WANTED Analytics, a provider of data analytics solutions.
The Forbes report highlights 3 of the most in-demand skill sets in Big Data:
- Python at 96.9 percent
- Linux at 76.70 percent
- SQL at 76 percent
And you can bet this growth isn’t just some random development. It has likely influenced the rising demand for Python programmers in the financial services industry.
We already know Fintech companies currently leverage big data across their services, such as credit scoring, customer acquisition, and marketing.
Professionals who specialize in Python could very well make themselves marketable to both the fintech and big data industries.
Fintech software development priorities will extend to other software solutions.
One of fintech’s primary tenets has always been about bridging the gap between traditional financial institution and the average person.
This principle is evident in the way industry leaders are trying to create software solutions that simply work, without the fuss and frills normally associated with the often clunky world of banking and finance.
In contrast, fintech’s goal is to create an online experience guaranteed to result in customer satisfaction 100% of the time.
A 2011 report by The Financial Brand shows that even now, customers treat user experience as being highly influential over their satisfaction and likelihood of recommending a financial institution.
Fintech companies are slowly cutting out the clutter from their software solutions. PayPal now offers Touch ID logins on their iOS app, allowing faster sign-ins but still staying secure thanks to Apple’s excellent security feature.
Mint.com takes clutter removal to the extreme, with a signup process taking only a few seconds.
Fintech’s emphasis on fast and simple UX design should also encourage other software makers to improve the speed and performance of mobile apps, websites, and other online properties. This is especially true if they expect to keep their target markets happy with their service.
Fintech raises standards and awareness in online security.
Fintech comes at a time when ordinary consumers are more conscious about online security.
Take, for example, the recent Apple vs. FBI debacle centered on unlocking an iPhone claimed to have crucial suspect information. Plus, we’re sitting in the chronological epicenter of the biggest data breaches in history.
It’s little wonder that consumers are a little skittish about sharing their personal data online.
This proactive attitude towards online security plays a crucial role in fintech, whose main challenge is to ensure both non-public personal information (NPI) and personally identifiable information (PII) remain confidential.
Security is also obviously critical to the integrity of financial transactions.
Not surprisingly, this focus on security has brought to light security concerns among organizations that require custom software solutions.
Compared to off-the-shelf software, custom software systems tend to come with more risks, highlighting the importance of identifying security holes and closing them down in a timely manner.
Fintech emphasizes a greater necessity for cloud-based solutions.
For the average consumer, fintech and cloud computing solve different problems in our daily lives.
With fintech, tasks such as banking and budgeting are becoming faster and easier. With cloud computing, data storage and content sharing is also faster and more convenient.
The two are closely related. Fintech companies store their information on data centers, allowing them to address regulatory standards, streamline operations, and scale as quickly as possible.
As fintech customers are conditioned to accept and use cloud solutions, software developers can expect to see a domino effect on the popularity of cloud computing across different industries.
Fintech’s increasing influence should help spur the adoption of cloud technology among more and more businesses, even businesses that aren’t quite sure what “cloud” means.
Fintech is producing feature-rich applications for mobile.
Fintech’s reliance on always-on internet connections, big data on the cloud, and mobile connectivity allows companies to push feature-rich fintech solutions on their mobile software solutions.
However, the best Fintech apps are lean, or at least appear that way, allowing the software to be fast and nimble.
These apps are able to perform with such agility due to a combination of smart displays of information and data-driven insights on what features users use most on mobile vs. desktop.
Custom software developers should take cues from this design philosophy. Although it’s important to offer complex features on mobile apps, these features shouldn’t come at the expense of performance.
Fintech embraces cashless and contactless financial ecosystems.
Although contactless and cashless ecosystems continue to grow in the United States, around 47 percent of transactions in the country are still made with cash.
Still, a Business Insider report shows that providers of self-service payment systems like USA Technologies are enjoying significant growth, driven by cashless digital payments using cards and mobile wallets.
Researchers from Business Insider have put together a comprehensive report on the current payments ecosystem in the United States.
As the report notes:
“2016 will be a watershed year for the payments industry. Payments companies are improving security, expanding their mobile offerings, and building commerce capabilities that will give consumers a more compelling reason to make purchases using digital devices.”
Developers of custom software solutions for online vendors and ecommerce sites should strongly consider the use of fintech solutions in the future in anticipation of the shift towards cashless transactions.
Perhaps what’s most amazing about fintech is how a very young industry has made sweeping changes to the way we spend, manage, and invest our money, as well as the way we interact with traditional financial institutions like banks, investment firms, and insurance companies among others.
Fintech is so young that its oldest companies were founded in 2005.
For the same reason, it’s hard to predict where fintech is headed, and how big its impact will eventually be.
As far as the custom software development industry is concerned, it remains to be seen how fintech will continue to make an impact on software development standards and practices.
We’re seeing the ripple effects and trends already, with speed and accessibility being the most easy to identify.
If anything, custom software developers are driving fintech’s emphasis on efficiency, and assisting its innovation into a constantly connected world of financial motion.
Ultimately, it’s only a matter of how, not if, fintech will change the way that money works in the world today.