The fintech revolution is underway: while in 2014 fintech investments worldwide amounted to approximately $10 billion, in 2018 global investments in financial technology increased by more than 100%, reaching an astounding figure of $111.8 billion, according to KMPG.
In 2018, fintech companies in Europe received $34.2 billion in investments with 536 deals, while in the US, fintech companies raised $52.5 billion in funds driven primarily by M&A activity. Asia is slightly lagging behind with 372 deals and $22.7 billion of investments, according to the recently published KMGP Pulse of Fintech report.
“The growing deal sizes, higher levels of M&A activity and the geographic spread of deals all highlight the increasing maturation of the fintech sector on a global scale,” Ian Pollari, Global Co-Lead, KPMG Fintech.
Technology aside, what’s so hot about fintech? One of the most exciting things about the emerging domain is its potential to positively disrupt just about every aspect of our lives. In 2018, about 61% of Americans used digital banking, which is predicted to rise to 65.3 % by 2022. The worldwide mobile payment revenue is expected to surpass 1 trillion U.S. dollars in 2019. Clearly, customers across the world increasingly acknowledge fintech and its daily benefits: the acceleration and automation of routine financial tasks that would otherwise involve going to a physical bank.
“Money is important to us, but we have no time to manage it. The day is long and overbearing and managing finances is a complex thing, – says in a Quora response, – There are so many rules, fine print and details that someone that works full time with a family is guaranteed to miss. FinTech companies are trying to simplify things and automate them.” Maurice Berdugo, CEO of BP Analytics.
However, just like any technology-driven field, fintech is currently facing a number of challenges that hinder its massive adoption. Admittedly, financial inclusion would be moving at a much faster pace, if it were not for the following issues:
Lack of fintech talent
Powered by technologies like blockchain and data mining, fintech is highly dependent on the availability of qualified tech talent, which is scarce and highly sought for across the world. In 2017, a poll by Hays Financial Markets questioning 900 employers and employees in the UK showed as much as 61% skills shortage rated as “moderate to extreme”. Other nations like Israel, UK, Germany, South Korea and the USA are also experiencing tangible lack of talent.
“The technologies we’ll see much more of in 2019 are artificial intelligence and machine learning. We’ll see AI dominate in the coming year not as a product itself, but as a crucial ingredient in back-end technology. So while it won’t be recognizable by consumers, it will be pervasive. ” Said Bob Legers, Chief Product Officer of banking and payments for FIS.
Indeed.com reports that the demand growth rate for these fintech developers, designers, and system analysts has recently exceeded 4,000%. Clearly, the demand for relevant talent surpasses the supply and, despite the government level initiatives the situation is unlikely to change in the near future.
High cost of tech resources onshore
The talent shortage and high demand allowed existing designers, developers, and system architects to command overblown salaries and compensation packages. According to Indeed.com, the average salary of a software engineer in the USA is $108,145 per year, but, in reality, fintech companies are ready to pay much more as well as to spend months to find, headhunt, and recruit the fintech experts. A study conducted by a UK employment website Joblift found the average developer salary was £45,13 per hour with 41% of fintech jobs advertising a wage of over £50,000. However, software engineering jobs in fintech require far more qualified candidates compared to traditional banking: 30% of all fintech vacancies demand that candidates hold a university degree versus 17% of traditional finance companies with the same requirements.
Naturally, most of local fintech experts are already employed and have to be convinced to leave their current jobs, so employees have to apply extra effort to attract them.
Fintech regulatory restrictions
One of the aspects hindering the wide scale adoption of fintech is modern regulatory environment and the necessity to comply with government-imposed regulations. In 2018, the introduction of the EU’s General Data Protection Regulation (GDPR) forced financial institutions to invest time and effort to ensure law-compliance of their operations. While established companies on financial scene have full-fledged departments dealing with regulatory issues, fintech startups are often completely or nearly unprotected and unable to face regulatory challenges. Furthermore, the regulations differ depending on the country or region, and fintech companies need to take that into account.
Fintech security issues and concerns
Unfortunately, increased number of online interactions also increases the number of potential loopholes for security breaches and data theft. Along with adopting new technologies fintech companies have to find ways to ensure the security of their transactions and protect the customers data. Needless to say, fintech security experts are also highly sought for and are among the most wanted and highest-paid experts worldwide.
Are you looking to outsource your fintech development project to a specialist provider? Check out our fintech and blockchain/crypto portfolio and get in touch to discuss how we can help!
Under these circumstances, many fintech companies in developed countries are turning to fintech R&D outsourcing as a solution to their issues. Apparently, not all of the world regions are experiencing such drastic talent shortages, with Eastern Europe and its abundant STEM talent pool being one of the world’s most popular outsourcing locations. With the average monthly salaries of Ukrainian fintech programmers range from $1,500 to $2,500, it’s only natural that global companies would be seeking to forge partnerships with offshore development firms in Eastern European countries like Ukraine.
But how do you know the outsourcing provider you are considering to engage for your fintech project development is a reliable one?
Factors to consider when choosing an outsourced fintech development partner
Access to talent pools rich in skills required for fintech
As of today, many IT Outsourcing (ITO) companies are re-educating their staff to meet the industry standards. Make sure the company you are negotiating with has access to AI, machine learning, predictive analytics and data mining talent, knows where to hire distributed application developers as well as experts in Java, .Net, JavaScript, and Python. Fintech architects and designers should also be in their talent database.
Client’s involvement in hiring and candidates interview
In a highly regulated and demanding world of fintech, the client should participate in the hiring interview and have the final word of approval. Your fintech development provider should completely agree with that and give you control over the critical aspects of the hiring process. If you don’t have a technical professional in your team/company, make sure your external consultant can help you specify your project and define skills and roles you need to build a powerful and efficient fintech development team.
Quality of CVs, candidates, and overall talent pool supplied for client interview and consideration
This one goes without saying – the quality of candidates and their skills should meet your highest requirements and comply with market standards. However, keep in mind that finding good and experienced fintech developers is tough everywhere, so you should give your outsourcing partner some time to look for quality candidates. If your provider fails to deliver candidates that match your required skills profile and other pre-defined criteria a month after you’ve placed your request or if you’ve been shown shitty or poor quality CVs for 2 consecutive weeks, make sure to engage backup providers and challenge them with the same task.
Maturity of recruitment processes/use of recruitment technologies/automation
Having control over the recruitment process doesn’t mean that, as a client, you will have to see the candidate through all the recruitment stages. However, it is imperative to make sure that your potential fintech development provider uses mature recruitment processes and efficient recruitment techniques that meet global standards.
For instance, at 8allocate, we assign a dedicated recruitment consultant to each client who acts as their account manager throughout the project, helping them scale, make hiring forecasts, optimizing hiring budgets, evaluating team and individual developer performance, etc. We have developed an unparalleled candidates screening and vetting methodology that allows us to quickly eliminate irrelevant or unqualified candidates and shorten time to hire talent for the client company. In general, it also helps us keep attrition rate on dedicated fintech teams below 10% and keep our clients’ team hiring success rate at 80%. (Check out our client reviews on Clutch to verify this information).
Your prospective vendor meets regulatory and cybersecurity requirements
Customers increasingly demand transparency and will no longer put up with brands breaking regulatory requirements, having tax issues, using shadow and money laundering schemes to propel their businesses, etc. Partnering with a fintech outsourcing provider that fails to comply with your country’s regulation or is notorious for unethical behavior could negatively impact your reputation.
Therefore it’s critical that your potential fintech development provider has a local footprint in your country or within the EU/USA (HQ, sales office, R&D) and/or works within the EU/US legal framework.
This is highly important since you and your partner should be on the same page as to legal aspects of products you are developing and, ultimately, cater to customers’ needs in the best possible way.
Your fintech development partner has a solid risk mitigation plan
Fintech development outsourcing involves high level of trust, since the developed products work with the highly sensitive client data. Any product malfunction or quality issue may result in regulatory breach, data loss, identity theft, etc. As a client, you have the right to demand that your partner develops a risk mitigation plan in case it fails to meet quality or regulatory requirements. As of today, at least 10% of outsourcing projects worldwide are backsourced. Look for a provider that agrees to outline backsourcing terms and conditions even before signing the main contract for fintech development.
Despite the challenges fintech industry is currently facing, outsourcing fintech R&D could not only save you time and budget, but also ensure high product quality and better time-to-market. Choosing the best provider for your outsourced fintech solutions may be a painstaking process in itself, but as long as you don’t compromise on the quality of talent, it’s totally worth the effort!
