Is It Possible to Scale Fintech Business?
Your innovative idea has been validated, the first release of your Fintech app is successful, and the number of its users is growing fast. Congratulations!
Now you need to further develop your app quickly. Your capability to scale your business relies heavily on your IT team’s ability to extend the app’s functionality quickly with new innovative services, which is a real nuisance!
Scaling IT teams is challenging
Numerous researches have shown that technology companies are experiencing a serious skills gap. Against all expectations, job automation has not reduced the need for a workforce, but has caused a shift to new roles and skills.
Considering that the Fintech industry is booming, the number of open engineering positions in financial companies is growing exponentially. As a result, the competition for tech experts among Fintechs has increased.
According to a CIO Survey, in 2019 the shortage of technology talent such as data scientists, enterprise architects, and cybersecurity experts reached an all-time high.
ManpowerGroup’s survey said that 43 percent of companies in the US can’t find the skills they need. The larger the company, the more difficulties it faces trying to fill open positions. Among organizations with more than 250 employees, 58 percent of them report that finding candidates with the required technical skills and expertise is challenging.
The Fintech Talent Shortage report expects that in 2020 there will be over 200,000 open software engineering positions in the Fintech industry, with at least three vacancies per software engineer.
The Global Talent Crunch report determined that the talent shortage in the US financial services sector will be more than 1.2 million workers by 2030.
As we can see, the tech talent shortage is exacerbating, which prevents many Fintechs from scaling their business and even forces start-ups to close down. Twenty-three percent of start-ups fail because of their inability to build the right team—it’s number three in the top 20 reasons start-ups fail.
No team—no growth
A lack of seasoned IT engineers dramatically impacts the ability of Fintech companies to scale their business. If the development team is understaffed, it can’t make as much progress as needed.
To survive, a Fintech company needs to be the first in the market to launch innovative products. Otherwise, a significant market share may be captured by the competition. The company that is experiencing a shortage of IT experts will not be able to generate innovative ideas and then quickly make them a reality.
The longer a company takes to launch its innovation, the less competitive it may appear to be. MCX’s CurrentC is a good example of how a long development time can lead to failure. The initiative, which was anxiously awaited by many retailers, started in 2011 and went into beta in late 2015. By that time, major retailers had supported other payment apps, particularly Apple Pay, which had launched a year earlier.
MCX came up with an innovative idea that would benefit retailers; however, the company lost the advantage of being first, and by the time the platform launched, the market had already been captured by its competitors. As a result, CurrentC was shut down in less than a year.
If MCX’s development team had been larger or if their software engineers had been more experienced and if the platform had been launched much earlier, MCX would have had a good chance of beating its competition for retailers.
Obsolete skills—grim future
In addition to building new features, companies have to deal with technical debt. There’s no technology company without tech debt. This debt includes architecture or performance issues; undocumented or legacy code, which is hard to maintain; and an obsolete interface or poor functionality. In the FinServ industry, banks suffer from legacy code the most. Having been dominant earlier, today, they lose ground.
According to a Retail Banking Trends report, the banking industry faces strong competition from Fintechs. It’s increasingly challenging for banks to attract skilled software engineers who could build demanding digital services and leverage AI to improve customer experience.
Traditional banks are now struggling to also deal with competition from tech giants such as Amazon, Apple, and Google that provide mobile wallet cards and payment apps and enable financial transactions in numerous other applications. Unable to hire IT experts with modern tech stack, banks fail to renew their ecosystems and build online platforms that meet customers’ expectations and offer a wide range of banking services.
Today, banks are closing down branches one by one, but in the near future, they may be replaced by Fintechs and more prudent financial institutions.
A solution exists
Although the cases I have provided are unpromising, not all Fintechs fail. A Fintech Talent Shortage report reveals a new mainstream—more and more Fintech companies that crave growth use contractors, freelancers, outsourced teams, and other types of alternative workforce for R&D and IT services.
Even though only 8 percent of companies know how to efficiently establish processes and manage distributed teams, using a remote workforce improves organizational performance in most cases.
When a Fintech company uses a global workforce to build a distributed IT team, it often gets more than just improved performance and accelerated speed to market. If done well, building a distributed team causes positive transformation within the company.
When the company analyzes its own structure, needs, methodologies, and communication models, it may better understand which criteria the remote team should match to be a good fit for the project it will work on.