Business

How Big of a Threat is FinTech to Traditional Banking?

The entire concept of banking as we’ve known it is changing. The difference between banking in years to come and years prior will soon seem worlds apart. Commonly discussed are the impacts that modern financial technology has had on the banking sector and the generations of consumers growing up with access to it. This has made the debate between contemporary and traditional banking very much back and forth. What we’re seeing are FinTech companies who are taking over the banking sector but also looking for partnership opportunities with banks. The question then becomes, what is in the best interest of consumers

It’s been repeated time and time that convenience is the primary driver of usage in addition to how easy a product or service is to understand and incorporate into day-to-day living. What we haven’t dived too far into is whether this will be enough in the long term, which is what both sides are still trying to pay attention to and plan for today. The issue in a lot of cases with financial technology is that something will make a lot of noise, people will trust it, and then it fails because it hasn’t been time-tested. In this section, we’re going to diagnose whether the FinTech industry and banks can secure a long-term triumph.

What is the goal of FinTech?

FinTech companies want to be the banks of the future and make banking easier, less intimidating, engaging, and transparent. There have been many different attempts at this and adjustments made by brands to be unique in a cluttered market. Notice this difference first; traditional banking is what consumers associate with standing in line for a teller, going out to withdraw cash, or having meetings with advisors that are long and confusing. 

People associate FinTech with E-transfer, cryptocurrency, or Artificial Intelligence, which are what consumers believe in as the future. The young demographic specifically is a big promoter of this technology and is more likely to be influential in all directions. What’s next is to ask where the happy medium is and how both parties can meet there.

Let’s start by saying that technology in the past was meant to introduce everyday routines like communication and entertainment to the internet. Since that has been established, technology today is being built to automate, innovate, and produce products that keep people engaged and wanting more. This is the goal of not just financial technology but almost every innovation we’re seeing and have seen, to create a future that promotes sustainability and flexibility. 

What has it done for the job market?

Nowadays, working in IT is all hype due to the variety of roles someone can take on as well as the demand for talented individuals. Let’s also not forget the interest people have in office-home balance which is likely to be found when working in a technology company. Worldwide, the FinTech industry employs over 300,000 people; North America alone accounts for around 160,000 of them. The trend is rising which makes this a scary stat for commercial banks who still have the majority of workers for the time being. Soon, those categories of workers could merge under one umbrella.  

In the mind of a consumer in 2022, the line between banks and FinTech has become blurry and this is now why commercial banks are making an effort to build relationships with FinTech companies. Consider that this year alone the United States has seen north of 30,000 FinTech startups and the country's industry is worth almost $200 billion. It doesn’t take an expert to see that this is a growing consumer and job market, primed for the future. 

FinTech vs Commercial Banking

In the coming years, some experts are predicting that we can expect to see almost every financial services provider categorized under FinTech (and most already are). Now, this doesn’t mean the extinction of banks altogether, it just means banks are gradually taking on a form that’s viable for the future. Oh, and it’s worth mentioning that the ones who don’t embrace this change will be left in the dark down the road. 

Look at Visa, being around for over 60 years, the third biggest provider in the world, with almost half a trillion dollar valuation, and embracing the transition into FinTech. But what did Visa see in this industry to want to invest in it? Visa promotes partnerships between banks and FinTechs and wants to set an example. This move benefits them in numerous ways, most notably the fast-tracked ability for companies to integrate FinTech. No surprise then that this program has earned the name Visa Fast Track which is aimed to promote the global adoption of FinTech services, particularly for banking startups.

Banks approach

Many institutions have seen the rise of FinTech as a chance to compete and give some to get some. Unwilling to give up the power that easily, some banks want to be the parent of FinTech startups. In their efforts to reap these rewards, legacy banks have begun opening accounts for startups which leads us to the highly remunerative business model; Banking-as-a-Service (BaaS). Since legally registered startups need a bank account, BaaS wants to be their lender and effectively their ladder to establish credibility.

The way this works is that the FinTech (third party) will use APIs to connect to the bank's system which will then allow them to offer the same services as a bank to the end-user. For consumers, this makes the experience of using third-party services flawless and safe while also establishing rapport for the startup or entity.

What’s next?

So, what will the future look like for banks and FinTechs? The answer is simple: unpredictable. Nobody knows what circumstances will come within the next year, 5 years, or 10 years. One thing is for certain; banks and FinTechs need each other right now. Of course, there will be disruptions that force pivots, but for both sides, that is a bridge to cross when they get there.

Written By Ben Brown

ISU Corp is an award-winning software development company, with over 17 years of experience in multiple industries, providing cost-effective custom software development, technology management, and IT outsourcing.

Our unique owners’ mindset reduces development costs and fast-tracks timelines. We help craft the specifications of your project based on your company's needs, to produce the best ROI. Find out why startups, all the way to fortune 500 companies like General Electric, Heinz, and many others have trusted us with their projects. Contact us here.

 
 

How the Waterfall Methodology Promotes Productivity in Software Development Teams

For years the Waterfall methodology has supported software development projects. Some may consider it outdated with the sheer complexity of most projects and the flexibility required in the modern day. Of course, now agile approaches are very popular, and it could be argued that they were developed to get away from Waterfall altogether. If you’re unfamiliar with the key differences between the two, all you need to know is that agile releases software in increments whereas Waterfall has a strict process leading to a final output followed by verification and maintenance.

Agile was created to put an end to the common notion among project managers who believed Waterfall to be the only approach for software development. In reality, all methods are simply guidelines for problem-solving. Waterfall was super popular in the 1990s since it added structure to huge software development projects. The structure looks something like this:

  1. Planning: Identify the goals of the project. This is also where the project manager needs to figure out the requirements for the project. These requirements will depend on the project sponsor's needs and involve identifying risks, dependencies, assumptions, costs, quality metrics, and the timeline. 

  2. Design: This is where all decisions are put in writing. The decisions are, in this case, based on legitimizing the requirements for the project. In this phase, you’ll outline the project's goals, budget, and schedule.

  3. Implement: This is where you execute the planning and design phase to materialize the product. This is a critical part of the Waterfall; everything done during this phase must be tracked.

  4. Verify and Test: During this phase, testing is done to ensure that the product you’ve created serves the requirements of the project. If anything goes wrong, the team must go back as far as the first phase to identify what happened. Quality metrics are used during the testing phase to ensure the client's satisfaction. 

  5. Maintenance: The maintenance phase goes past project management and now focuses on the product's longevity. Changes are made as needed to improve what was delivered in the implementation phase.

Bird-eye view of a macbook pro displaying code.

Let's make it clear that the Waterfall— like any other methodology— is not perfect, but it’s often enough to get the job done and still is. A 2017 study shows over 50% of organizations still use it in their software implementation model. The key to a great software development team is knowing what calls to make in the best interest of your team. Sometimes these calls are going to fall outside the scope of convenience to reach an optimal outcome. 

So, why were other methods created?

One of the primary concerns with the Waterfall method is that a mistake made in an early phase could be costly and detrimental later on. All methodologies are meant to add structure to software development. In 2022, it’s all about speed; whether it's deployment, access to data, or SSL performance, the list is endless. The point is, this is the purpose that agile methods were created to serve. It provides results quickly and continuously innovates to adapt to the needs of the user. 

When would you use Waterfall?

You have to first consider how different every software development project is. There is seldom a product output that doesn’t require changes. In addition, development teams need to make their budget and timelines clear to the client or co-workers from elsewhere. These are the kind of issues Waterfall takes care of since it has a very clear structure. Now, this may frustrate developers who want to interact with the client as much as possible, but it can be a necessary sacrifice to ensure quality over quick deliverables.

Another example is when persuading outside your project, whether attracting investors, seeking department approval or if you think there will be collateral effects. Waterfall can be easier for those outside to understand. Think about it: your intentions for the project are clearly outlined from the planning and design phases which, in effect, kind of drill the end goal into the teams' vision and mitigate the risk of deviating. 

For teams and projects on a small scale, there are a lot of benefits to be found in operating under this kind of focus. Teams can complete the project faster without worrying about allocating time and resources to non-priorities. So, in this instance, working on a small project or in a small team means you’ll need a framework that promotes communication among members and a clear-cut process. 

Waterfall and communication

Waterfall is very systematic and procedural; there should be no shock that communication would be an essential part of every step. Information sharing is far more efficient when documentation is consistent throughout the process. Anyone new brought into the project throughout the phases will be able to refer back to the documentation which makes Waterfall a great communication tool to keep the team in sync. 

In some cases, especially with new teams, communication and getting to know each other can be difficult and negatively impact performance. Of course, this should be mitigated in the case of any team but software development projects are usually operating in a condensed time frame with little to no room for speed bumps. 

So with that being said, take inventory before your team begins a new project. You can do this by considering these questions:

  • Who are the stakeholders? How can my efforts serve them?

  • Is my team reliable? Do I plan on bringing in extra help?

  • What is the primary end goal?

  • How much time and budget do we have to work with?

  • How will we manage mistakes to not interrupt our end goals?

It’s very difficult to predict the road ahead when beginning a new project, but it will help to first Identify your requirements so you can meet that of the client’s. What hurts a lot of teams is communication barriers and a lack of transparency. 

The Takeaway

Finding the best route to take when beginning a new project is difficult, but choosing a framework that’s right for the team (not just developers) will make the process smoother. The planning stages are usually the most difficult, but when that is the case, execution is often far more efficient. If you’re new to the concept of software development, it likely sounds chaotic, which is why it is so important to work with an experienced team of professionals that can see through the chaos and bring a polished product to the table. 

Written By Ben Brown

ISU Corp is an award-winning software development company, with over 17 years of experience in multiple industries, providing cost-effective custom software development, technology management, and IT outsourcing.

Our unique owners’ mindset reduces development costs and fast-tracks timelines. We help craft the specifications of your project based on your company's needs, to produce the best ROI. Find out why startups, all the way to fortune 500 companies like General Electric, Heinz, and many others have trusted us with their projects. Contact us here.

 
 

What is Peer-to-Peer Lending?

Peer-to-peer (P2P) lending is facing a transition in its adoption and growth conquest. It has passed the skeptic introduction phase and become a mainstream financial tool. P2P lending is typically used to offer government-supported loans, supporting small and mid-sized entrepreneurs, while dodging inflation on investment returns. 

To understand how these benefits are possible you’ll first need to understand how P2P lending works. Essentially it can be broken down to technology that lets people acquire loans while eliminating the need for financial institutions to act as the middleman. It is a direct transaction between individuals which has sparked the usage of alternate terms “crowd lending” or “social lending”. 

As you’ve likely guessed, this assumes a high level of risk, particularly for those investing in the lending site. This burden is typically taken on by the institutions but in peer-to-peer, it is now placed on the individual. So why would someone even consider putting themselves in that position? 

The major incentive for going the P2P route is to avoid the high-interest rates that traditional institutions or investors would instill. In this case, small businesses can access loans while minimizing how much interest is taxed. Lending platforms then take a fee from investors and borrowers and that is how they make their money. 

This begs the question, why would someone invest in a peer-to-peer lending site as opposed to a typical GIC? Well, most investors look to diversify their portfolio and avoid the marginal rate and withholding taxes found with banks. Additionally, some investors just like to know who their money is going to and what it’s being used for.

Security of investing in P2P sites

In the case of peer-to-peer lending, investors certainly bear more burden than the borrower. These loans aren’t insured nor do they have any government protection which makes them risky just like any other investment. However, here are some components that ensure some level of security for investors:

  • Secure Sockets Layer (SSL): This protocol is built to transmit communications between the user and the network securely. The SSL link will be encrypted between the server and the browser and only permit interaction once authentication is established. Instant messaging platform WhatsApp is an example of SSL encryption and authentication in action. 

  • Protecting identities: SSL authenticates the server and the client in peer-to-peer platforms. Typically, SSL doesn’t operate on the client end but for these platforms, it’s just easier to have authentication be transparent. The encryption aspect is what locks down the data and privacy.

  • Recent FCA regulation: In the United Kingdom, the Financial Conduct Authority (FCA) implemented new guidelines to tighten up the peer-to-peer lending sector. These guidelines are designed to protect investors. Among many features, outlining contingencies and policies for both parties as well as determining the competencies of users are included. They highlight the situation investors are getting into very clearly and this is likely the beginning of a global trend for FinTech platform security measures.

Why are people choosing P2P?

As we’ve examined and outlined, borrowers have less pressure with these funds which offers them flexibility. Lenders can have more in their pocket post-return than they would be going through a bank that uses marginal rates determined by your tax bracket. Whereas peer-to-peer lending platforms charge a 2-3% payment processing fee directly from your credit or debit. However, depending on your individual financial history, poor credit ratings could mean more fees and in some cases, disapproval of the loan. 

What’s in it for businesses?

Businesses need funding whether it’s to launch a campaign, bring on more staff, more resources, etc. The point is businesses take investments and re-invest them in themselves. Commonly this is done by bank loans to get off the ground but they often come with a lot of strings which is why a company would turn to a FinTech like P2P. Additionally, the loan can come quickly and you can pay them off early and even avoid penalties on an overpayment.

Is there a promising future for P2P?

Investments are at the forefront, a lot of people want flexibility and something that’s going to be beneficial in the long term rather than just make a quick return. In addition to this, there is an ever-growing number of startups that need funding to get over hurdles. Peer-to-peer is very with the times in its approach in that it offers what consumers are looking for. Flexibility, transparency, and saving costs, all of which will contribute to the sustainability of the service.

The performance of peer-to-peer lending has been phenomenal in terms of revenue, Canada alone has valued the market at $20 billion in 2021. Globally, it sits at almost $113 billion with projections to do well over $520 billion in the next 5 years. As a FinTech company, if you’re not looking into how you can deliver this service, there is a lot of cash you could be leaving on the table. 

 
 

The Takeaway

FinTech services branch far beyond online banking, every service provider is looking for new methodologies to make it easier and more efficient for consumers. At the end of the day, ideas like peer-to-peer lending or BNPL are going to be the major draws to the business. When taking this journey, make sure you’re developing your programs with the right software as that can make or break your products' sustainability. 

Written By Ben Brown

ISU Corp is an award-winning software development company, with over 17 years of experience in multiple industries, providing cost-effective custom software development, technology management, and IT outsourcing.

Our unique owners’ mindset reduces development costs and fast-tracks timelines. We help craft the specifications of your project based on your company's needs, to produce the best ROI. Find out why startups, all the way to fortune 500 companies like General Electric, Heinz, and many others have trusted us with their projects. Contact us here.