As most industries veer towards an ever increasing incorporation of technology, competition no longer focuses solely on value proposition: organizations need to balance their need to charm their customers with their need to optimize operations, in order to preserve their margins. It is a delicate balance.
The Fintech industry is one where this balancing act is particularly crucial: their core business value revolves around technology as a means to streamline the delivery of financial services. Common sense leads us to think that the biggest cost of any Fintech company is in building and maintaining the underlying (technology) solution.
If we go back to 2008, a Deloitte study mentioned that 64% of organizations considered cost-savings as the most important factor driving them towards outsourcing. Fast forward to 2021, and things haven’t changed much. However, as Joris Lochy, Product Manager at Monizze and Co-founder at Capilever points out, “in the majority of companies, the biggest cost is in customer acquisition”.
So, in a fast-paced world where customers demand ever more value and economies of scale demand ever optimal use of resources, and there is a constant need to be ahead of the competition in terms of market presence and in solution differentiation, what path should one take?
As many businesses have done, transferring solution development to specialized external teams is the most efficient way to balance costs, risk and talent for Fintech startups. Let 's see why.
The most dangerous predator in the banking ecosystem is obsolescence: in the midst of the 2009 global financial crisis, Paul Volcker, former chairman of the Federal Reserve under Presidents Carter and Reagan and member of the Economic Recovery Advisory Board for President Obama, said: “The only thing useful banks have invented in 20 years is the ATM”.
Today, technological innovation is the main ingredient of success in the world of finance. In 2021, tech-based services, apps, processes and business models are front and center in the financial services industry. Traditional banks see new-age Fintech companies as a serious competitor (and for good reason), as the incorporation of high tech is a key differentiator that customers increasingly demand.
As for competition that takes place within the Fintech space, outsourcing becomes a key strategic decision: it can complement inhouse talent and allow others to focus on business development and customer acquisition, satisfaction and retention, the most expensive side of the Fintech operation. It is an efficient way to guarantee some degree of protection against the threat of obsolescence.
Talent and cost management
Technology providers are better suited for hiring top talent and training and retaining. They absorb the fixed costs of staffing (and the associated material equipment) and provide a variable costs scheme that can adjust to different stages of their client's business evolution, allowing them the staffing elasticity to grow and manage that growth in a practical way.
Additionally, tech providers who organize their work around projects have higher incentives to end projects, so they can start new ones. This naturally drives them to incorporate better risk and project management practices, which increases efficiency. Companies whose core business is technological development invest much more on staying up to date and relevant than companies in any other industry, and they should.
Business aim and specialization
In any business’ lifecycle, challenges arise constantly but are not always of the same nature: different problems often require different tools, approaches and talent. This is especially true for fast-paced environments like Fintech.
It is burdensome for Fintech management to tackle pressing business challenges in addition to recruitment, hiring, tech development and project management. Outsourcing work that requires specialized expertise can help founders stay focused on tasks that are an essential part of their business core and can’t be delegated.
Innovate or perish
Outsourcing, once perceived as risky, is nowadays acknowledged as a practical solution to big problems: technology evolves in increasingly shorter cycles, and as it becomes more and more pervasive, the cost of relying solely on an inhouse development team may not allow the cost control and flexibility to grow sustainably.
For startups of all kinds, and especially for Fintech, the fastest and safest road to innovation is through leveraging highly specialized talent, in a scalable way, but without having to bear with the weight of the fixed costs associated with it. Outsourcing tech development to specialized teams is a flexible, cost-effective and practical way towards sustainable growth. And will soon be the only sustainable way to keep up.