Fintech provides a notable example of a thriving marriage between an old industry and young technology. Millions of people can hardly imagine their daily life without online banking or electronic payments. And this is just the tip of the iceberg, as fintech is penetrating into any domain where the money is involved and the Internet is present.
What is fintech?
Fintech is short for ‘financial technology’ and usually refers to businesses that provide financial services to end consumers via software solutions. It is an umbrella term for any innovation that automates financial operations, competing with bricks and mortar firms.
The fintech landscape includes (but is not limited to):
- payments processing
- billing and invoicing software
- digital insurance and companies providing data analytics for insurers
- tools to manage and track personal finance
- stock-trading apps
- audit, risk and regulatory compliance software (regtech)
- bitcoin / cryptocurrency exchangers
- marketplace lenders, or non-bank firms that leverage technologies to match up borrowers with lenders
- investment and wealth management platforms
- money transfer software
- digital mortgage applications
- online banking services
According to CB Insights, in 2018, the fintech industry hit a new record having raised over $39 billion of investments. 16 new unicorns, or startups valued at over $1 billion, were launched last year in the finance sector.
At the same time, there is a tendency towards a slowdown in deal activity when it comes to early-stage fintech startups. Investors are exercising caution as it is becoming harder to reach product-market fit and gain a good market share. So how can you persuasive and stay competitive when entering the crowded fintech market? After thorough research of 2019’s trends and challenges, our experts have specified 10 must-follow rules of fintech software development.
#1 Be GDPR compliant
This is the number one rule for all firms delivering financial services to the European market. Last year the General Data Protection Regulation, or GDPR, was the hottest topic among software developers and online business owners. The strict requirements for personal data security within EU member states affected many businesses outside Europe as well. Non-compliance with the new law became a costly mistake for organizations, no matter the domain and size.
The users’ privacy should be taken into account from the very moment you start building your project. According to the Privacy by Design principle, fintech apps are permitted to work with only the absolutely necessary personal data. You need to ask users’ consent to process their details, secure information with encryption and destroy sensitive data after a customer logs out.
#2 Learn the financial laws of the target region
GDPR is only one of the multiple complex regulations you need to take into account. You should study the financial rules in your target countries to avoid large penalties and a ban for breaking the law. Some operations can’t be done without licenses, and regulations may differ from region to region. We recommend consulting a specialist with financial law knowledge or starting to use the services of a law firm at an early stage of startup building.
#3 Invite someone from the finance world to join your team
Besides legal issues, you’ll face the challenge of understanding financial jargon. It is advisable to find an expert with sector-specific knowledge to help you analyze the market you are going to enter and learn the nuances of the industry. Hiring a finance professional will lower the chances of errors and boost the development speed as your engineers will spend less time on delving into the peculiarities of banking activity, interest rates or investment climate factors.
#4 Select the technology keeping in mind the future of your app
The main benefit of fintech over traditional banks is its ability to quickly adapt to customer needs, integrate new services and provide more efficient solutions. This means that your system should be built with flexibility and scalability in mind. To sustain rapid growth and ensure fast delivery of new services to users, many fintech companies prefer the microservices architecture to a traditional monolith approach. On top of everything else, microservices make it easier to implement blockchain and AI, which are quickly evolving and will be the major fintech drivers in the near future.
Together AI and blockchain guarantee quick adaptation to changes along with keeping data safe. In the financial world trust, speed and security give powerful competitive advantages, so more and more banks, insurance companies and consultant firms are adopting these technologies.
#5 Ensure fault tolerance
For smooth user experience, you should design fintech applications in such a way that they will continue working even if one of the services fails or doesn’t respond because of heavy load. In other words, your system should be fault-tolerant. One of the most popular tools for building a resilient system on top of microservices is Hystrix, an open-source library developed by Netflix to ensure latency and fault tolerance in distributed environments.
#6 Consider multiple integrations
When developing a fintech app, you need to integrate it with multiple third-party solutions such as payment processing systems, online and mobile banking providers, trading platforms, bitcoin wallets, currency converters, marketplaces, etc. Often one fintech transaction contains several operations and involves different external applications connected by APIs. You should identify which APIs best fit the goals of your app and organize them properly to streamline the customer journey.
Image credit: Jon Scheele
#7 Focus on security
When building your fintech app, follow the best security practices we have written about previously. Besides that, check your app against the 10 OWASP most critical risks, which include:
- broken authentication
- sensitive data exposure
- XML external entities (XXE)
- broken access control
- security misconfigurations
- cross site scripting (XSS)
- insecure deserialization
- using components with known vulnerabilities
- insufficient logging and monitoring
To identify and fix potential risks, integrate security testing of the source code throughout the development process. Combine manual and automated methods to leverage the pros and cons of both approaches. There is a wide range of open source and commercial vulnerability scanners for different programming languages to choose from.
#8 Apply biometrics-based authentication
The era of passwords, codes, security questions, PINs, and other traditional authentication methods is evidently coming to an end. Modern gadgets equipped with sensors and scanners allow for biometric authentication options such as fingerprint reading, iris scanning, facial or voice recognition. Biometrics adds an extra layer of security to identity checks and KYC (Know Your Customer) procedures and, besides, it saves time and effort as users no longer have to remember passwords or go through time-consuming multi-step verification.
Combined with blockchain technologies, biometrics-based identity verification is seen as one of the most efficient ways to minimize or even eliminate fraud risks and prevent money laundering.
#9 Meet the needs of different parties
In traditional financial institutions, there are always two sides — someone who accepts money and someone who makes deposits, someone who gives loans and someone who gets them. Your fintech innovation should meet the requirements of both sides, both customers and service providers. Therefore, fintech applications are usually offered as platforms with different interfaces and functionality for each party depending on its need.
#10 Get ready for 5G
In 2020, 5G Internet will enter the market, which means that data transfer speed will rise sharply. The fifth generation of wireless technologies is expected to be 10x faster than 4G. Additionally, 5G networks will ensure a more stable connection, wider coverage, zero latency and, thus, instant online transactions with no waiting time.
Fintech mobile apps will certainly benefit from 5G, as it will bring more people online, improve quality of services, provide lightning-fast user experiences, and connect millions of devices at a lower price. Banking operations will penetrate other markets and extend to new channels including wearables, 5G smartphones, and IoT gadgets.
Along with that, innovative technology will pose new challenges for software developers, as the application code needs to be even more robust and fail-safe to sustain high traffic loads. Another thing to consider is that 5G will unlock the full power of virtual and augmented reality, forcing app designers to integrate VR and AR features everywhere — and fintech won’t be an exception.
Welcome to a cashless world
Fintech is storming the traditional financial sector, making it more convenient for customers and changing the way people interact with money and do business. The 2018 Worldpay Global Payment Report shows that by 2022, mobile payments will increase to 28% and become the second most popular payment method after debit cards. Offline banks will continue to invest in digital transformation, and digital only banks will continue growing.