There are a wide range of current technologies and open-source options out there for start-ups to help them get off the ground. In doing so, it’s vital that business leaders make technology choices, writes Eltjo Hofstee.
Fintech in the UK is an undoubted success story, heralded by the government in its 2019 ‘UK FinTech State of the Nation Report’, in which it said: “The positive impact of technology on the financial services sector in the United Kingdom is unprecedented globally.”
That’s certainly a big claim, but industry analysis backs it up. According to a report published by Innovate Finance, 2019 was a record year for investment in UK fintech. With $4.9 billion of investment (up 38% vs 2018), the UK ranked second globally and was number one in Europe, claiming seven of the largest 10 funding deals.
Indeed, mega deals – defined by the report writers as those exceeding $100m in value – were also on the rise, with UK companies such as Greensill Capital ($800m), OakNorth ($440m) and Checkout.com ($230m) among the largest recipients of funding in Europe last year.
Yet, success is far from certain, and across the entire ecosystem of fintech businesses, a significant number fail. Technology strategy plays an important role in determining the viability of fintech business models, and there are a wide range of current technologies and open-source options out there for start-ups to help them get off the ground. In doing so, it’s vital that business leaders make technology choices that enable what we might call ‘The three C’s’: compatibility, capacity and creativity.
1. Focus on compatibility
In making choices about IT strategy, many start-ups still favour custom platform development, and while this can offer a range of benefits and put them fully in control of their direction of travel, it can also cause long-term issues. Chief among them is the risk of building a bespoke platform that over time becomes outdated technology, causing operational and compatibility disruption down the road.
Moreover, compatibility with technology used by partners, customers, or even the future business itself is critical to long-term viability. Building a platform in-house can jeopardise this critical integration. Moreover, this route also often requires companies to develop code for multiple APIs, creating more work for valuable employees and distracting decision-makers from focusing on driving and growing the business.
2. Anticipate capacity
Building infrastructure with flexible scope and capacity that can flex according to need is important for any fintech company – neglecting to do so not only risks fundamental tech capabilities, such as dashboard performance, but can also make troubleshooting issues next to impossible.
For instance, some fintech start-ups are lucky enough to enjoy quick growth in their customer base from the outset. However, this rapid success can often bring with it considerable pressure on their ability to effectively and strategically implement network metrics. Instead, they opt to instrument all their developing tech in the spirit of getting revenue-generating services turned on quickly.
Although this desire to get up and running is understandable, it’s an approach that can often lead to an unsustainable volume of new metrics flooding the system once everything is turned on. It slashes the dashboard performance for everyone, and the sheer volume of inputs makes troubleshooting nearly impossible. Thoughtful capacity planning can mitigate these issues to ensure appropriate scope and capacity are accounted for.
3. Channel creativity
Across most contemporary digital industries, coming up with the ‘next big thing’ defines how innovative and disruptive businesses become, and fintech is no different. Engineers put huge effort and skill into implementing the newest technologies to be the next industry front-runners. This is an understandable goal, but in doing so it’s also essential to keep day-to-day operations simple and effective.
Development pressure and deadlines can drive engineers to try to create code that can operate without existing publishing systems. However, more often than not, this leads to a code that is missing critical features and turns something simple into a very complicated task. This kind of code ends up causing costly operational migrations down the road, so channelling creativity to balance innovation with operational excellence requires real discipline.
As one of the hottest growth industries powering the digital economy, fintech sits at the forefront of innovative business philosophy in a wider finance sector not usually famed for thinking outside the box. By definition, technology strategy plays a huge role in deciding which nascent fintech brands will stay the distance – those that can balance ‘The Three Cs’ will be in a good position to succeed.
Eltjo Hofstee is Managing Director at Leaseweb UK.
The views and opinions expressed in this Viewpoint article are solely those of the author(s) and does not reflect the views and opinions of Fintech Bulletin.