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While things have undoubtedly changed considerably for the financial services industry over the past 18 months, the ascendency of FinTech remains quite unabated, with global FinTech investment reaching $98bn. In the UK, FinTech investment hit a new record of £18bn in the first half of 2021, placing it second only to the United States, impressive during a time of considerable uncertainty brought on by the pandemic and short term Brexit fallout.
The FS industry has proved extraordinarily resilient and indeed many segments have even thrived during this period, such as FinTechs operating around digital payments and processes.
The overarching trends for the industry are the accelerated digitalisation of banking, adoption of embedded finance (including buy now, pay later) and decentralised finance to further democratise access and opportunity to financial services. In this post, we take a look at these along with some general high-level trends in software engineering in the sector.
Disruption and innovation in payments technology are constant; we have been at the cutting edge of real-time payments through our work with Vocalink (a Mastercard company) to build their Immediate Payment System used globally by the likes of The Clearing House in the US and the P27 group in Scandinavia. A recent Mastercard report found the first quarter of 2020 had a larger shift towards digital payments in 10 weeks than in the preceding five years and that consumers spent nearly $900bn worldwide with online retailers in 2020. Less than a year since contactless limits increased across Europe, Visa has hit one billion additional touch-free transactions, 400 million of which took place in the UK.
In light of this surge in digital payments volume and to better align with customer preferences and capitalise on advances in payments technology, stakeholders such as issuers, networks, payments processors, and merchant acquirers are investing heavily to retool their payments systems. Meanwhile, embedded finance, point-of-sale lending and buy-now-pay-later financing products are reshaping the lending and payments experience to create faster digital options with less friction.
Millennials and Generation Z were already used to managing their financial affairs through digital channels, and they are now joined by many other demographics and late adopters. This means there will not be a significant rollback to the old ways of interacting with financial products, presenting a clear opportunity for innovators within B2C FinTech.
Over recent times, leading banks were already modernising as part of a strategy to exit or manage legacy core systems that inhibit faster and more transformative technological innovation; more resources will now be diverted to the strategy. Those slower to embrace genuine digital transformation have been pushed towards modernising with short term fixes that will require permanent solutions.
From our position as specialists in soft real-time distributed backend systems, what has become abundantly clear is that resilience and scalability are not a given for all FinTechs, neither is it good enough as an afterthought. The risk to reputation and trust when problems occur due to system stress can inflict damage that is hard to recover from. Using technologies that have scalability baked in and are highly reliable such as Erlang and those that run on its BEAM virtual machine, may not only help avoid technical debt for startups but may actually save your entire business during unexpected challenges like those of the current moment. Interestingly, a lot can be taken from Erlang’s success in the telecoms industry (having originally been developed at Ericsson) which can be applied to many FinTech use cases – check out this post by our Nordics MD, Erik Schon: How Telcos can help FinTechs succeed.
In successful FinTech stacks, services that are loosely coupled and readily upgradeable are the norm. It’s advisable to not rely on just one software vendor to avoid damaging lock-in. Instead, FinTechs build their own ecosystem of high-performance technology providers that can be added to, upgraded and replaced as required.
On the product side, constant iterations are necessary to stay ahead of the competition. The providers that meet or surpass customer expectations by offering value-added services designed for specific segments are building loyalty and taking market share. Although the clients facing frontend must deliver from a CX and UX perspective, this has to be backed with reliable infrastructure with minimal downtime and other disruptions. Read our summary of Memo Bank’s adoption of Elixir for full-stack development; they have just successfully secured a new funding round of €13 million.
As I previously stated, these trends are not new, they are in fact much followed principles in the software engineering world and in FinTech, but they are proving even more important as guiding principles in the new environment we are working in.
In terms of media spotlight, cryptocurrency has been the most talked-about part of how monetary models are changing. We have worked with Distributed Ledger Technology (blockchain), the underlying technology of crypto, for quite some time and recognise the potential to offer exciting enterprise solutions in FS. Blockchain network and protocol layers are now widely accepted as robust and stable, ready for innovation to move to the application layer where the real opportunity for differentiation lies. We recently co-hosted this interesting panel debate on blockchain use cases in FS as part of Fintech Week London – Get the recording here.
As the higher stack application layer is more nascent, this is where using developers who are experienced becomes especially valuable to avoid wasting time and resources. The Erlang Solutions team consists of domain experts who have been involved in a wide variety of innovative blockchain projects. We have observed PoCs are increasingly being replaced with deployments to real production systems in FinTech and beyond. While most use cases remain private and permissioned, this is still an encouraging indicator for anyone interested in leveraging the technology.
The FS industry will need to make permanent some of the learnings of the lockdown periods to create more agile workforces which boost productivity, creativity, and collaboration. FIs will look to increase investment in FinTech to stay competitive, not only in customer facing digital tools but also in the back office space as a means to improve processes and reduce costs. Software engineering has become the core of value creation, and the methods used can significantly influence business results, especially in fast-moving sectors such as FinTech.
Erlang Solutions have over 20 years of experience building critical digital infrastructure that scales to billions of users without downtime. Talk to us about how we can help you develop a future proof system that is faster, easier to maintain, more reliable, and cheaper to run. You can read our Founder and Technical Director, Francesco Cesarini’s account of how Erlang Solutions have applied lessons from the 2008 crisis to our operational model today.
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