The Ultimate Guide to Fintech Development Outsourcing: How to Make It Work

The Ultimate Guide to Fintech Development Outsourcing: How to Make It Work
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Fintech ceases to be a simple buzzword and a short-term trend. These days it is one of the most promising and ambitious branches, and the numbers speak for themselves. As of February 2019, there were over 12,000 fintech startups globally, and the sector exceeded $55 billion in investments. Meanwhile, the worldwide financial industry is expected to cost over $26 trillion in 2022.

From individuals to communities and organizations, more and more people tap into fintech applications and unleash all the benefits and goodies that they have to offer. Even incumbent banks and financial institutions, which have seen them as the closest competitors, are starting to collaborate and include fintech solutions to their portfolio.

To meet the high demand, increase efficiency, and quickly adopt emerging technologies like the Internet of Things, Artificial Intelligence, and Data Science, business owners are more often approaching outsourcing solutions companies for their software product development needs. This type of collaborative relationship has already turned into common practice, while most of these financial organizations also maintain agile in-house development teams.

Let’s Get It Straightened Out: What Does Outsourcing Mean?

Outsourcing meaning/definition: It’s a procedure of farming out specific tasks, operations, or duties to an external company or individual, where they’re identified as third-parties or service providers. Talking about information technology, this initiative can comprise a host of services, from the whole scope of IT function to independent components, such as UI/UX design, agile software programming, quality assurance and testing, or cloud computing services.

Answering one of the most typical questions, ‘why do companies choose to outsource work?’ we can hardly define one universal reason since business cases vary. However, in most scenarios, stakeholders decide to hire an outsourcing company to mitigate a talent shortage, access expert knowledge, cut down expenses, bring innovation, concentrate on core business, or gain speed. Firms may choose to contract out their operations offshore, nearshore, and onshore.

  • What is offshore outsourcing? — It’s one of the models that you may come across during the vendor selection in outsourcing. It means exporting IT function to a different country and usually continent.
  • What is nearshore outsourcing? — It’s a business practice where the work is done by a team or individual in an adjacent country or the one in the same time zone.
  • What is onshore outsourcing? — This approach is also known as domestic outsourcing, and it means delegating tasks to someone outside your firm but within the same country.

Nearshore and offshore outsourcing definitions traditionally imply better cost-saving but require tougher management and planning due to time difference and possible cultural barriers.

Over the years, sourcing has fundamentally changed the way businesses operate and strategize growth. It has been seizing the momentum in every industry from financial services to healthcare, telecom, retail, and many others. Meanwhile, despite a common stereotype that contracting out is mainly done by large corporations, the statistics reveal that over 37 percent of small businesses — companies with limited revenue and from one to 500 employees — currently outsource one or more business processes.

In 2018, the size of the global outsourced services industry exceeded $85 billion, while the worldwide spending on services and technologies that stimulate the digital transformation is expected to reach $2.3 trillion in 2023. IDC — the American market intelligence and advising company — states that by 2025 over 60 percent of enterprises will turn into powerful app producers who will deploy code every day, and about 80 percent of code will be externally sourced. On top of that, more than 500 million digital services and software solutions will be created and launched utilizing cloud-native methods, so the need for innovation will continue keeping businesses and tech outsourcing companies on their toes for a long way down the road.

Three Possible Verticals of Fintech Outsourcing: Their Pros and Cons

In fact, sourcing can be utilized across all the industries and sectors of the value chain, except for the top management function. Since Dashdevs provides all types of cooperation for businesses, including fintech consulting services, we’ve analyzed our experience and distinguished three actionable variants of sourcing:

#1 IT outsourcing (ITO)

ITO services are well-known and used across all the industries to bring down costs, quicken time-to-market, and free up internal resources for more mission-critical or revenue-generating activities. The diversity of duties varies from comprehensive infrastructure solutions to isolated application services delivered for the business outcome.

This type of work can be provided by both small IT outsourcing companies with niche expertise and large corporations like IBM, Accenture, Cognizant, Capgemini, and others. Moreover, today contracting out fintech development services is increasingly becoming a driver for ubiquitous cloud adoption and thus more agile business processes.

IT outsourcing pros and cons:

+ Allows financial firms to save costs and capitalize on outside expertise and assets;

+ Efficient solution for implementing a cutting-edge IT within a fintech startup or bank;

— Smaller firms with limited expertise can provide only a dedicated solution focused on one particular function.

#2 Business process outsourcing (BPO)

To make sure that we’re on the same page, let’s start with the business process outsourcing definition. BPO is a common business practice of farming out different business-related duties to third-parties. For instance, internal operations like accounting or human resources and external functions like customer support (call centers) or marketing can all be contracted out to business process outsourcing companies.

To leverage all the benefits of outsourced business process services, stakeholders should be open to establishing outsourcing relations and align them with the internal corporate culture. Moreover, it’s critical to define tangible outcomes that your company wants to achieve together with an external partner, such as service diversification or lowering of costs.

The pros and cons of business process outsourcing services:

+ Faster and easier launch of new products and services to meet or anticipate client needs;

+ Free up local resources and allow them to focus on the vitally important operations that contribute to your competitive advantage;

+ Ability to cover more geographical locations and offer 247 service and multi-language support;

— Technology connections that should be created between in-house and remote teams entail additional security risks;

— The consumer should regularly oversee the implementation of agreements to make sure that principal goals are met in time and budget to avoid overdependence.

#3 Outsourced product development (OPD)

This is one of the latest trends in fintech application development and one of the core service verticals at Dashdevs. Currently, companies need to retain a competitive advantage, quickly adopt technology advances, and adapt to fast-changing customer behavior, so lean operations across the whole value chain and quick product launch are vital. First, let’s start with an outsourced product development meaning and then discuss its pros and cons for business.

New product development outsourcing, as the name suggests, is a business practice in which all the processes related to software engineering and maintenance are delegated to a third-party provider. While this vertical may look similar to IT outsourcing services, there are significant differences.

Based on our experience, the OPD provider takes responsibility for the whole product and its compliance with the business objectives and user needs. It’s not enough to solely meet functional requirements, because it should also be scalable, easily maintainable, reliable, customizable, well architectured, robust, attractive, intuitive, and bug-free. Additionally, outsourced product development companies are in charge of project documentation, appropriate configuration management, adherence to coding and architecture standards, and compliance with industry-specific regulations.

The pros and cons of outsourced product development services:

+ Ability to tap into actual product-building expertise and skilled talent pool, which is especially beneficial for those companies that are not sure about how to develop a fintech app;

+ The aforecited also implies reduced development costs, accelerated time-to-market, and availability of necessary knowledge to implement new technologies rapidly and smoothly;

— With any variant of outsourcing, there appears a particular dependency on the contractor since even smaller faults are reflected on the fintech’s brand, so it’s crucial to choose a provider wisely.

The Benefits and Risks of Outsourcing IT Services for the Fintech Product Development

Is outsourcing good or bad for a company? — The answer is highly dependent on the selected outsourcing partner, engagement model, and willingness of both parties to strive together for the best results. When properly set up and managed, it can yield a distinct competitive advantage and a long list of other benefits:

  • Access to domain-specific knowledge and skills. Outsourcing software development companies help banks and financial service providers to discover and hire the right talent for their technical needs. This is particularly valid in the context of the global shortage of IT workers since these days there are around 918,000 unfilled jobs in the United States only, while the recruitment of tech staff is named one of the greatest business challenges for 2,800 American employers.

Such a candidate-driven employment market means that most businesses are contesting to hire a restricted number of skilled developers. Whereas, staffing teams for fintech projects comes with even more rigorous requirements.

  • Quicker project delivery. A lot of banks and fintech firms opt for IT outsourcing services to ensure smooth and fast project kick-off since they don’t need to waste time and energy on the recruiting, onboarding, training, and other time-consuming activities. Moreover, reputed engineering and consulting outsourcing companies with niche experience in fintech software development have multiple related projects in their portfolio and can utilize their expertise to shorten the implementation process and launch products in less time.

For instance, the Dashdevs team has a wealth of experience in the fintech consulting and app development fields, and we use our knowledge to help clients avoid common mistakes, mitigate risks associated with system security and fraud, become compliant with critical industry regulations, and streamline software development or upgrade processes.

  • Better data handling. The financial services sector is one of the leaders in data collection and analysis. Both giants and startups utilize data to mitigate risks when floating securities, underwriting loans, or trading in futures. Besides that, applying data science, stakeholders can offer exclusive services to each customer and thus build their loyalty and push up sales.

These days most businesses combine their in-house employees with an external fintech software outsourcing partner to enhance their analytics. The latter helps to integrate well-tried analytics tools and design comprehensive dashboards, but most importantly, they can provide conversant cybersecurity specialists to protect sensitive data and so keep up the company’s reputation.

Risks of outsourcing IT services and how to get it right the first time

When we’re asked to define offshore outsourcing and explain its pros and cons, the latter mainly comprises transparency, security, quality, and roles & responsibilities. These are the top four IT outsourcing challenges that we’ve heard from our clients and the ones that we’ve helped them overcome.

  • Transparency: talking about outsourced IT solutions, this item suggests the visibility of the workflow and the absence of hidden costs. For the latter experienced providers use an IT outsourcing service level agreement (SLA) that defines acceptable downtime periods, disaster recovery strategies, data management processes, and data recovery timeframes. To make sure that external fintech app developers stick to the timeline and follow the agreed workflow, we recommend adopting seasoned product and project management tools.
  • Security: in today’s digital world, this is one of the major concerns, and it includes not just an intellectual property (IP) integrity but also information security, data processing methods, and risk management strategies. Non-Disclosure Agreement (NDA) is a must-have for working with outside fintech consulting companies or engineering teams since it describes what kind of information is confidential or sensitive and establishes the regime of its treatment. Besides that, verify that a product outsourcing contractor has a proven security management plan, and they are ready to sign necessary IT outsourcing contracts and performance measurement standards. Due diligence may predict possible risks and ways of treating them, making your collaboration safe and sustainable.
  • Quality: contracting out fintech app development is all about providing high-quality products within a short time. It goes without saying that in-house employees understand the needs of your business and can transform them into a product. Talking about IT software outsourcing, stakeholders worry that distributed/offshore teams don’t have the same engagement and insight into the business, and this entails poorer quality. The solution here is to discover a b2b outsourcing company that strives for excellence as much as you do. Choosing an external IT partner, pay attention to their mindset, ask for completed works and references, and, if possible, speak to several old or current clients.
  • R&R or roles and responsibilities: loss of control is one of the most frequently mentioned concerns that we hear from business owners. This issue implies vague terms and borders, unclear roles, and poor or no communication strategy. Before delegating control to an outsourcing development company, draw up a management plan describing what you leave up to a provider and how you want them to interact with you on the updates and critical questions. Typically this plan comes with meeting timelines, report templates, change requests policies, and key personnel on both parts.

It has to be noted that the suggested solutions don’t imply that all leading outsourcing companies provide the same level of service and address your concerns, as the Dashdevs team. Therefore, please be careful when choosing a service provider for your IT project and follow our recommendations on how to find a reliable fintech software development company.

Tips and Tricks on How to Choose the Right Software Outsourcing Company

Financial service companies are continually being pushed to reduce indirect cost, improve performance efficiency, and enhance services, all while holding a competitive edge and keeping pace with technological advancement. It’s no surprise that outsourcing in the banking industry has turned into a survival strategy.

We closely work with innovative fintech firms and global banks to help them build game-changing solutions, win fresh markets, generate new revenue streams, and so stay in business. Speaking from our own experience, software product development outsourcing has great potential to become mainstream. However, despite the plethora of fintech app development companies on the market, choosing a qualified vendor with the right selection of skills and knowledge remains vital. That’s why we’ve prepared a checklist to help you make the right choice.

  • Culture: we’ve already mentioned that negotiating with an IT outsourcing services company, it’s important to make sure that they follow the same values and principles that you do. Similar priorities, such as commitment to quality and drive for results, will make your cooperation smooth and efficient.
  • Communication: no matter if you choose to outsource your IT department or just one of the functions, timely communication is critical. Discuss the preferred tools and vendor’s methods. If you decide to proceed, elaborate a comprehensive strategy for everyday contacts and urgent matters, and don’t forget to identify key individuals on both sides for faster dealing with problems.
  • Technical competence: Availability of technical knowledge and skills is one of the main reasons why most financial companies opt for software product outsourcing. Make sure that the vendor has vast experience with those frameworks and tools that you are interested in. If you need knowledge of emerging technologies like the Internet of Things or Beacons, ask for relevant cases and references. Moreover, it’s also important to verify that the provider can not just build but also introduce your product to the market and provide post-release support as we do for the Dozens fintech app.
  • Knowledge of the industry: For a long time, domain-specific expertise hasn’t been obligatory for outsourced software product development, but today it is nearly a must-have for the fintech industry. Global and local regulations, dealing with sensitive data, critical vulnerabilities and risks, and other nuances require acquirements and confidence. Check the vendor’s portfolio and ask relevant questions that can showcase their wide grasp of industry trends and the ability to think on their feet.
  • Maturity of processes: This criterion is often ignored, though it can help you save time and costs significantly. Well-established knowledge management (KM) processes, proven work approaches, and risk management methods — these are the definitions that can help you distinguish an expert team from newcomers. During the negotiations, ask for recommendations on the processes, examples of implemented KM strategies, encountered IT outsourcing issues, and applied risk management techniques at various stages of a software project.

But most importantly, don’t be afraid to ask questions, because IT outsourcing is a powerful strategy that can either make or break your business.

Why Outsource to Dashdevs

Dashdevs is an outsourcing partner and fintech mobile app development firm that helps companies build high-quality software products on time and budget. We work closely with some of the world’s innovative banks and financial startups, transforming their approach to digital product implementation.

Dashdevs offers a holistic set of services, ranging from prototyping and engineering implementation to product advancement and maintenance.

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