Faced with intense competition and a need to grow market share and raise margins, FinTechs and neobanks are looking to launch new products and services.
As Adrian Marinică, Technical Manager at Maxcode explains, however, quality is paramount when it comes to developing and integrating new solutions.
The past decade has seen payments and banking change more than at any time in the last fifty years.
Old branch banking distribution models have faded to be replaced by a new generation of online and mobile banking services; meanwhile, competition – encouraged by regulatory changes such as Europe’s second payment services directive, or PSD2 – has introduced fresh opportunities for both traditional players and digital-first challengers.
Neobanks – financial institutions founded on a digital model – and financial technology companies (FinTechs) have been the chief beneficiaries of this changing landscape.
It’s estimated that neobanking will grow by almost 50% per year to reach around $280 billion in total value by 2028. For their part, FinTechs are now turning the billions invested in their promise over the last 10 years into reality: one estimate predicts the global FinTech market will be worth $125 billion by 2025, representing year-on-year growth of around 25%.
“FinTechs and neobanks alike need to acquire new customers – and generate revenue and profitability.”
If these figures sound impressive, then they mask some significant challenges in the development of digital finance.
For one thing – certainly when it comes to FinTech – growth rates have been slowing in recent years, with growth at major FinTechs like Adyen and checkout.com dipping as they become more mature.
Secondly, FinTechs and neobanks alike face similar challenges – how to acquire new customers, on the one hand; and secondly, how to generate revenue and profitability from these customer relationships.
Neobanks: plentiful, but not always profitable
A recent global survey of 400 neobanks reported that only 5% had achieved profitability, despite billions of dollars of funding from investors.
While users appear to like the concept of neobanking, to date many neobanks have struggled to persuade customers to shift their funds from trusted “bricks and mortar” banks.
For FinTechs, the challenge can be a little more nuanced, since they also need to attract customer usage, but will often do this by integrating their services into an established financial institution’s platform.
In either case, both neobanks and FinTechs need to develop compelling new products and services to attract customer usage and/or persuade established financial institutions to integrate their services.
There are three main ways to do this: develop new products in-house, acquire or customise an “off-the-shelf” solution, or find a development partner to work with.
Whatever option is chosen, cost and time are key factors, since investors are looking for results in this dynamic and fast-changing market.
Beyond such fundamental considerations, though, there are a number of differences between in-house development, off-the-shelf solutions and partnering with a development company.
While there’s an argument that in-house development delivers exactly the product a neobank wants, too often growth companies find developing new products in-house to be slow and expensive.
What’s more, in-house development can be mired in internal politics and risks losing objectivity, while the need to continuously upgrade software and systems to enable effective development gets expensive.
Off-the-shelf solutions hold the attraction of being fast and cheap – on the surface at least.
However, such solutions usually require patching and editing to be successfully integrated to a neobank or FinTech’s product stack.
Furthermore, tailoring these solutions to meet your end customer’s needs is definitely challenging, and can find you stuck in a “development queue” with a vendor, reducing both the speed and cost advantages of this approach.
Partnership: quality counts
When it comes to working with an external development partner, success depends substantially on the vendor chosen.
While partnering may not seem as easy as buying an off-the-shelf solution, a quality external provider will work with you not just on execution, but on your product development strategy, going beyond what you think you need to deliver a solution that matches what the market wants.
A second consideration with external vendors is quality – and here, “quality” means a lot more than QA or quality assurance.
It means delivering high-quality thinking, processes and execution – from managing products under strict policies and procedures for securing data to keeping the systems operational through every release – so that time to market and the overall cost of your new product are optimised, and users benefit from a novel, creative approach.
“Quality means delivering high-quality thinking, processes and execution throughout the product development lifecycle”
For the best results, neobanks and FinTechs should be looking to develop long-term relationships with trusted partners who can provide objective points of view about product development and market entry strategies, as well as best-in-class coding talent and implementation.
Such an approach optimises your investment in new products and services and will differentiate your organisation from the pack of competitors seeking to grow their presence in neobanking and financial technologies.
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