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Outsourcing in Emerging FinTech

Outsourcing in Emerging FinTech

The idea of FinTech development first took the form of a credit card payment system back in 1950. It was focused on entertainment and travel, and came about because one of its founders once ran out of money to pay for dinner at a New York restaurant.

Next came the first bank credit card. In the 50s and 60s, self-service points at gas stations, supermarkets and public transport created the environment for the emergence of ATMs. In the 70s, the first electronic trading emerged.

The field of financial technology or FinTech is developing rapidly, especially now. Every year thousands of applications and sites appear in the world, helping users to pay for goods and services, obtain loans, and make money transfers faster and easier. The number of investments in fintech is also growing.

Inextricably linked to FinTech is the concept of outsourcing, which is defined as the involvement of a regulated entity by a third party (either an affiliated entity within the corporate group or an entity external to the group) to perform on a continuing basis (now or in the future) functions that would normally be performed by the regulated entity.

Across the board, financial services companies are increasingly using third parties to perform activities that would normally be performed by the companies themselves.

Industry studies and surveys conducted by regulators indicate that financial services companies are outsourcing a significant portion of their regulated and unregulated activities. These outsourcing activities are also becoming increasingly complex.

What is outsourcing?

For modern businesses, keeping a large staff is unprofitable and inefficient. It is more rational to delegate some of the tasks to another organization. 

Thus, outsourcing is, in simple terms, the process of a company transferring part of its production or business processes to another company that is an expert in the field. That’s why many companies resort to using outsourcing

Why is it profitable?

Currently, outsourcing is increasingly being used as a means of reducing costs and achieving strategic goals. Its potential impact can be seen in a variety of activities, including information technology (e.g., application development, programming and coding), special operations (e.g., issues related to finance and accounting, back-office operations and information processing in that division, and administration), and contracted functions (e.g., call centers).

Outsourcing as a business model solves certain problems depending on the situation and strategy. Most often the impetus for its adoption comes from the serious changes taking place in the credit institution. 

In such cases, it seems very right and logical to concentrate on core business processes and transfer auxiliary functions to a professional partner. Such companies provide a full range of outsourcing utilities for the effective and successful functioning of any organization.

If a company is rapidly developing and creating new subdivisions and branches, the transition to the outsourcing model can be beneficial for it, as it allows to quickly develop the necessary structure, avoiding considerable initial investments and staff expansion.

There are examples in the banking market, when large banks create subsidiaries, the entire infrastructure of the subsidiary: servers, data centers, communication channels organization – is outsourced.

How does it help to develop the FinTech market?

One of the most important factors for the successful application of outsourcing in the field of financial technology is achieving a certain level of maturity of the customer and service provider organizations. 

Only with formalized planning, interaction, incident and change management processes in place, it is possible to organize a high quality service that will meet business requirements. In addition, outsourcing is a specific form of partnership between the organization and the service provider, so it is appropriate to talk about mutual trust as a necessary factor for success.

Also, FinTech allows non-financial organizations to expand the customer base. We are talking about food delivery, buying movie and theater tickets, paying for parking lots, hotel registration, and much more. 

We can say that FinTech means technologies that help financial services and companies manage the financial aspects of a business. They include: software development, applications, processes and business models. At the same time, funds are withdrawn directly from the card, without the use of a mobile terminal. 

We all know that it is now possible to pay for goods or services not only with a bank card, but also through a phone or even a smart watch – you just need to bring your device to a wireless terminal, and the payment is made instantly.

Conclusion

The future is in FinTech development outsourcing! It is quite possible that in the future, in order to become a client of a bank, you will simply have to download an application to your phone. Communication with bank employees will completely move to messengers. And in the near future, most employees will be replaced by chatbots. Another direction of development is fintech banks, which consist entirely of fintech solutions. In this case, FinTech is very helpful in dealing with big data processing.

Now there are more than 5000 fintech start-ups in the world. Their technical capabilities, expertise, client bases and financial resources already make it possible to make a full-fledged fintech bank. Yes, it will replace a regular bank, but it won’t destroy it – classic banks will still have an important role – providing services for issuing licenses and controlling the quality of work, organizing the work of processing centers – in short, creating infrastructure.

Telecommunications companies, messengers and Internet giants will also launch financial services. They will need infrastructure platforms, which classical banks can provide.

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