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Despite ongoing efforts to promote financial inclusion, there are still over two billion people worldwide who lack access to traditional banking services. To tackle this issue, the World Bank has suggested that digital payment systems could serve as a means of closing the gap between those who have bank accounts and those who don’t. A 2023 published working paper delves deeper into how the use of fintech is increasingly becoming the go-to approach for offering financial services to the unbanked populace.
Fintech, or financial technology, has been around since the 1950s. It started with the introduction of automated teller machines (ATMs) and credit cards, which made financial management more convenient for customers. Today, the fintech industry has expanded to include mobile apps, online lending, and digital currencies. With the touch of a button, smartphone users can access a range of financial management and sharing apps.
This change has broadened the scope of saving and investing to a significantly larger audience, particularly in developing nations, who were previously unable to access such services. In essence, what were traditionally considered pursuits reserved for the privileged few have now become attainable for the general public.
The growing demand for financial technology has not only arisen from areas with limited financial access. While M-Pesa was an early innovator, other significant players in the industry, such as TransferWise, Stripe, and SoFi, originated in established financial centers such as Silicon Valley and London.
The global spread of fintech has been a remarkable phenomenon, transforming from a relatively unknown concept to a significant aspect of the global financial services sector. Its success can be attributed to various factors, including the increased availability of data and technology, the emergence of fresh business models, and the growing demand for digital financial services. Additionally, foreign fintechs have sought the services of offshore development companies to access specialized skills, such as software development, which may not be available in their local market and benefit from cost advantages of operating in a different country. Ultimately, the growth of fintech demonstrates how technology can be utilized to develop creative solutions to the challenges posed by a dynamic financial landscape.
To comprehend the worldwide triumph of the fintech enterprise, it is beneficial to examine its roots in the United States and elsewhere.
The progress of fintech from the 1950s until now can be traced.
In the past five decades, technology has assumed a progressively vital role in finance. According to Forbes, the introduction of credit cards, ATMs, computers, and the internet has transformed the financial sector, resulting in a significant increase in the number of individuals using these services and thousands of new market entrants. This has facilitated swift cross-border money transfers, which was previously inconceivable before these technological breakthroughs.
The current economic boom has highlighted a peculiar trend: fintech firms are now providing superior customer service compared to the conventional banking sector. Although the banking industry is starting to adopt innovative approaches, it is often slower to adapt to the latest advancements. This mobile-driven fintech uprising is bypassing the traditional banking system and offering a more effective and direct service to end-users.
The Global Financial Crisis of 2008 was a catalyst for the rise of fintech firms that specialize in business-to-consumer services. As a result of the credit crisis and the subsequent tightening of regulations, banks were unable to be innovative. This caused customer-facing professionals to shift from banking to the technology and innovation sector. In no time, newly established businesses were able to deliver more comprehensive and prompt solutions to customers’ needs than banks.
As the financial technology (fintech) industry has matured and expanded in the financial hubs of the world, its potential to benefit developing countries has become increasingly apparent. It is estimated that more than 266 million individuals in Southeast Asia lack access to traditional banking services, while almost 40% of the population in Brazil, the largest economy in Latin America, have no access to standard banking services. While the surge in fintech activity has been spearheaded by the United States and Europe, its impact can be witnessed across the globe.
Fledgling fintech enterprises making a global impact.
From 2023 to 2024, investment in FinTech firms has continued to increase, albeit at a slower pace compared to previous years. At present, there are more than 25 FinTech unicorns in operation around the world, with a combined market capitalisation of $74.9 billion. A majority of these enterprises are headquartered in the United States, Europe, and China.
The progression of financial services has been shown to have a beneficial impact on economic growth and lead to greater social equality, especially in countries with underdeveloped economies. FinTech start-ups have recognized the potential of both enhancing financial inclusion and developing lucrative business models, resulting in the industry’s rapid expansion.
Factors behind international fintech firms outsourcing software development
As the digital and innovation sectors continue to expand globally, start-ups are increasingly relying on offshore development firms as a source of expertise. This is particularly the case for fintech companies, which require highly specialized mobile technology and would otherwise find it challenging to afford hiring required engineers, product managers, and finance professionals in major financial centres. This has created a gap in the market, which is being met by the rising demand for offshore and nearshore development services.
In order to maintain their competitiveness against novel and innovative fintech firms, conventional financial institutions are increasingly realizing the advantages of outsourcing their services to acquire the necessary technological expertise. There are various benefits to outsourcing for financial firms which can assist them in expanding and improving their offerings. These benefits include cost reductions, enhanced service quality, increased efficiency, access to specialized expertise, and the ability to respond promptly to shifting market requirements. By outsourcing specific services, financial firms can concentrate on their core activities while delegating the development of their technology-related tasks to dedicated experts. This can enhance their overall performance and offer them a competitive edge in the marketplace.
Enterprises in the fintech sector have access to substantial capital.
It is projected that by 2023, 1,128 financial companies worldwide will collectively invest over $16.6 billion. Out of this amount, a substantial $7.76 billion was collected through 35 funding rounds of $100 million or more. Start-ups from the United States and Asia, particularly China and India, are leading the way in the market for large financing rounds. These regions are strategically located in proximity to popular nearshoring hubs in Latin America and Southeast Asia, allowing businesses to benefit from additional growth opportunities. Consequently, many enterprises are able to invest in professional software development services to advance their progress.
In recent times, there has been a significant upsurge in the trend of outsourcing software development, particularly among the world’s largest organizations and most innovative new enterprises. Companies like Slack, Basecamp, and Alibaba are leveraging remote teams and programmers from other nations to create cutting-edge software. Outsourcing software development can be beneficial for any team, regardless of their technical capabilities, as it allows for expansion without additional overhead costs.
A tech firm based in Silicon Valley can serve as an excellent model for structuring a business to create a marketable, high-quality product. The product managers and developers are committed to guaranteeing customer satisfaction and building a robust backend, while adhering to applicable laws and regulations. In addition, corporate leaders seek out untapped markets and form strategic partnerships. However, it can often be challenging to find the necessary time and resources to expand the business. To free up these resources, the company may choose to outsource to a software firm that specializes in software, which can provide mobile developers, software support specialists and user interface and experience designers. This can be an effective approach to ensuring the digital product is created, tested, and honed to the highest standards.
Professionals with advanced technological expertise are crucial for the triumph of fintech firms.
Innovative technologies, such as blockchain, cryptocurrencies, AI, VR, and big data, have transformed the financial technology sector, such that some of today’s most sophisticated fintech firms require intricate systems that can only be created and managed by highly skilled programmers. Unfortunately, there are certain disadvantages associated with this cutting-edge technology, the most prominent of which is the challenge of finding enough qualified engineers who possess adequate knowledge of the complexities of contemporary technology stacks, especially in large cities such as London or New York.
Currently, it appears that nearly four out of ten Information Technology companies are facing challenges in recruiting and retaining highly skilled software engineers. This is not surprising, as software development is one of the most sought-after and competitive careers in the global job market. In major urban areas, the most profitable businesses and start-ups are naturally the ones that can attract the most talented engineers. As a result, start-ups may need to consider expanding globally to remain competitive.
As a founder of a start-up, one may determine that their fintech enterprise should be engaged in data processing and analysis to make informed decisions. Since the team has no experience with big data, they have decided to hire an external company to provide them with a data scientist. Although outsourcing is an excellent method for reducing expenditures, the best offshoring development firm can also enhance a team’s capabilities. In order to provide start-ups and fintechs with exceptional development services, Works only hires the most skillful and experienced professionals, effectively eliminating any potential concerns about locating and retaining a developer.
Financial institutions are prepared and equipped to compete in the fintech industry.
Banks are increasingly moving away from collaborating with fintech firms and favouring the development of their own fintech capabilities in-house. This shift brings the advantage of granting banks access to a pool of highly skilled technology specialists, particularly millennials, within their own organization. According to CB Insights, this is becoming a more prevalent strategy for banks seeking to innovate and remain competitive in the financial sector.
Although startups may encounter difficulty in locating qualified workers, financial institutions face similar challenges. In certain cases, this issue is more keenly felt by financial institutions due to the traditional working environment of a bank not being particularly appealing to skillful programmers and innovators. This can lead to situations where talented young individuals prefer to work for startups, not solely because of the compensation but also because of the flexibility and other advantages they provide. Consequently, it may be challenging for a bank to locate a suitable digital product manager or software engineer to manage their fintech initiatives.
In recent years, traditional banks have started looking abroad to find potential employees to fill vacancies in their workforce. This is not limited to the world’s most economically prosperous cities, as highly skilled developers can be found in various locations. By outsourcing their IT development requirements, financial institutions can gain access to skilled engineers who are proficient in modern technologies. Notable organizations such as Santander, Morgan Stanley, and JP Morgan have all capitalized on this by partnering with offshoring development firms that specialize in quality assurance, app development, and big data management, as a means to stay competitive in the industry.
Fintech companies will reap the rewards of global expertise as they compete on an international level.
The emergence of fintech companies in major financial centres has been an encouraging trend in recent years. Nevertheless, the necessity for financial inclusion is much greater in underserved regions, particularly in developing countries in Asia, Latin America, and Africa. Technical solutions are necessary to enable unbanked individuals in these countries to participate in the global economy. Unfortunately, there is a significant disparity between the markets that require fintech the most and the entrepreneurs producing it. However, outsourcing software development to other countries could be a feasible solution. This could be a beneficial approach to bridging the gap and ensuring that everyone has access to financial services.
Since the headquarters of numerous offshoring firms are located in developing countries, the programmers hired by these companies possess extensive knowledge and understanding of the challenges that these regions confront. They not only possess the technical expertise to assist a business, but they may also bring their own innovations to the table, which can enhance customer service. Outsourced developers can offer more than just financial assistance with fintech; they can become an essential part of your team.
Diverse perspectives on the advancement of financial technology worldwide
The financial technology industry has experienced a tremendous growth rate in recent years, with Asian and Latin American markets achieving unprecedented levels of success despite a reduction in venture capital funding in the United States and Europe. The United States remains the global leader in fintech, with some of the most influential and successful companies such as Stripe, PayPal, and Square originating from the country. The innovative concepts developed by these businesses have been widely replicated and implemented in other nations, illustrating the US’ dominant position in the worldwide financial sector. It is probable that the US will continue to establish the standard in fintech for the foreseeable future.
With the continuous evolution of technology, fintech companies worldwide are adjusting to better fulfill the requirements of their clients. Banks may choose to either compete or collaborate with these firms in order to remain pertinent and foster innovation. Nonetheless, skilled programmers will always be in demand. It is anticipated that as fintechs become more technologically advanced, they will progressively engage in software development outsourcing to locate the appropriate personnel to address the most pressing issues in the financial industry.
