It’s easy to forget how far we have come. Just a few short years ago, if we wanted to make a financial transaction, we had to leave our house and go to the bank.
Vast sums of money changed hands based on paper contracts, shuttled between offices by hand courier.
Huge financial companies invested small fortunes in risk management strategies based on data sets that are tiny by today’s standards.
Fintech has digitized all of these processes. In bringing them to the Cloud, it has made the “global economy” — which started centuries ago as spice traders on perilous multi-month foot caravans — accessible at the click of a mouse or the tap of a phone screen.
But Fintech has done much more than digitize processes humans have carried out for thousands of years. Disruptive Fintech software solutions have fundamentally changed the financial infrastructure and even cast the very definition of “money” into uncharted territory.
Fintech is short for “financial technology.” It is a subsection of the tech industry that encompasses any software solution for the delivery of financial services.
Perhaps the earliest example of Fintech was the wire transfer, developed in 1872 by Western Union. Suddenly people could instantaneously transfer money on paper, anywhere telegraph lines ran.
In the 1950s came the payment card. Credit and debit cards fundamentally changed how people carried out their everyday spending.
More recent examples of Fintech include:
- Mobile wallets and digital person-to-person payment.
- Online and mobile banking, including virtual check deposit.
- Automated stock advice and securities trading platforms.
- The use of Blockchain to create cryptocurrencies and secure contracts.
- Regulatory compliance technology (aka “Regtech”) to help companies comply with laws that prevent financial institutions from being co-opted by terrorists and money launderers.
- Insurance tech, including CRMs and virtual agency platforms.
- Risk management tech, capable of processing in seconds massive data sets that human brains would take decades to crunch.
According to Research & Markets, as of 2019 the global Fintech industry was valued at over $5.5 trillion and expected to grow a whopping 23.58% CAGR from 2020 to 2025. The COVID-19 pandemic caused the use of Fintech apps to surge by 72% in Europe, according to a Swiss research firm.
Think of the opportunities for industry disruption with that kind of capitalization and growth. To invoke a common phrase, “What will they think of next?”
Speculators can speculate, but world-beating Fintech solutions have a few common fingerprints. Whatever the future holds for this exploding tech segment, here are the five qualities of best-in-class Fintech solutions.
1. The Best Fintech Solutions Understand the Problem They’re Solving
It’s tempting to try and be all things to all people, especially when software is the canvas you paint on. A creative software developer can make an app do anything, so why not make an app that does everything?
However, best-in-class Fintech solutions have not been generalists. Rather, they have been hyper-focused. They know the problem they are trying to solve, and they attack it with single-minded abandon. Even if the app can do other things, it makes its brand name on its one core value proposition.
PayPal became famous after it was acquired by eBay in 2002 to help facilitate user payments to each other. It remained dominant as a peer-to-peer payment option, until Venmo came along. Venmo made P2P payments as easy and enjoyable as looking up your friends on social media. P2P payments is all it does.
Similarly, Ethereum isn’t just a cryptocurrency. The Ethereum network has many other uses–but Bitcoin remains the most popular cryptocurrency on the market, universally recognized for its groundbreaking alternative to fiat currency. It recently hit a new high in its valuation, reasserting its dominance over less-focused alternatives.
The solutions that bear the Fintech standard into the future will offer better and more refined solutions for one of the key problems that Fintech is in a position to solve. These include:
Payment Options. Starting with the wire transfer and the credit card, Fintech payment solutions have only increased, reaching their current apex with mobile wallets like PayPal and Apple Pay. Fintech payment solutions like this make it easier to run a global team or support a global family, able to cross oceans and transfer currencies as users send money cascading all over the world with a tap and a click.
Cutting Costs. It used to require an expensive merchant bank account to process credit and debit card transactions. Point-of-Sale processors like Square and Clover, along with in-platform payment API on apps like Shopify, have made these costs all but obsolete. Fintech also offers solutions to automate your business, reducing labor costs and increasing profit margins.
Transaction Security. All that money floating in the digital ether is a tempting target for digital theft. High-profile cybersecurity breaches have resulted in multibillion-dollar losses, with many companies closing their doors for good. Fintech software solutions attack risk management, contract security, and transactional security through breakthrough technologies like biometrics.
Creative Financing. Traditional lenders have very narrow approval parameters. It often seems like you have to have money to get money–in which case, lending becomes an insular “Old Boy’s Club.” Creative financing solutions of the future will use technology like blockchain to create trust structures of secured contracts and automated loan fulfillment, while P2P lending platforms have already made it easier to rally small-cap lenders and investors around the proverbial “great idea.”
Investment Access. Investing has also historically been an “Old Boy’s Club,” closed to small-dollar involvement. Fintech solutions like online securities trading platforms, partial trading of securities, P2P lending, even robo-financial advisors have already significantly expanded and democratized access to investment opportunities.
Banking Access. As of 2017, 1.7 billion people did not have a bank account. Cloud-based banking has created a first-ever opportunity for unbanked people to consume banking services and participate in global financial markets.
Perhaps the most exciting frontiers of Fintech are the solutions to problems that haven’t yet been recognized as problems, at least until some clever solution erases the problem and changes everything.
2. The Best Fintech Solutions Put the User First
Understanding the problem that they are trying to solve is a necessary first step, but to effectively solve it, Fintech companies must design with the user in mind. An app that effectively solves a problem is useless if the user finds it cumbersome or impossible to use.
Best-in-class Fintech payment solutions and software solutions prioritize UX design. Short for “user experience,” UX incorporates constantly-evolving standards of user-friendliness, accumulated through decades’ worth of user feedback, split testing, and analysis of user behavior.
So what are the crucial elements of UX as applied to Fintech? Top players in the field focus their UX design strategies on techniques like:
Well-Defined User Journey. Users will discard an app if they get lost at every turn. Fintech apps succeed when they make it intuitively clear how to benefit from the app’s core value proposition. If it isn’t obvious from the home screen, with one step logically following another, the UX design needs work. Mobile UX designers in particular rely on visual shorthand. Why try to reinvent the “hamburger menu?” Until someone comes up with something better, it works just fine, because everyone knows what to do with it.
Visualized Information. When designing a user-friendly app in a data-heavy industry like finance, a picture is worth a million lines of spreadsheet data. The right image can convey a lot of information at a glance—which is critical, especially if you only have the size of a smartphone screen to convey that data. Best-in-class Fintech software solutions will leverage the human brain’s preference for elegant imagery over mountains of digits. Even if the digits technically do tell you “more,” your average user isn’t going to sift through them.
Layman-Friendly Language. Finance is as jargon-heavy as the next high-ticket industry, but impenetrable jargon has no place in UX design. You can always spot an outdated Fintech app if it includes terminology that requires you to actually work in finance to understand. Industry-leading Fintech apps cast a wider net. Easily understandable language is paramount to Fintech UX.
Gamification. To many consumers, finance is a chore. Fintech companies win big when they make it into a game, something fun to compete with actual game apps. UX design can “gamify” Fintech apps by incorporating puzzle Captchas, rethinking the graphics on trading platforms, and providing “rewards” for task completion.
Color Palette. Color selection is a big part of UX design. Too many colors can make the app look busy and confusing. Two anchor colors is optimal, but if you don’t pair your colors correctly the app can become hard to use. And let’s not forget that colors like red and green carry a lot of semantic baggage in the finance world. Even the most beautiful crimson color palette might send the wrong message to the user of a personal investment app.
Localization. Best-in-class Fintech apps can spread like wildfire across the globe–but then they face the challenges of integrating with local banks, maps, and currencies. Good Fintech UX addresses localization with the expectation that users all over the world will adopt it.
Fintech apps that lead their industries predictably exhibit stellar UX design. Examples include:
- PayPal. It’s nearly impossible to get lost in the PayPal app, from the clear user journey to the easy-on-the-eyes blue and white color palette.
- MINT. Free app MINT rules the roost among personal finance trackers with beautiful visual data and gamification of financial goals.
- Robinhood. Robinhood owes its popularity to taking the complicated process of stock selection and investing, making it easier, visually immersive, and light on the jargon.
3. The Best Fintech Solutions Get Security Right
Cybersecurity is a pressing concern for businesses in all industries, as well as for individuals. With Fintech it becomes even more pressing because peoples’ money is at stake.
And it’s not just the money—data commingled with our financial accounts include tax identification numbers, birth records, mailing addresses, everything a hacker might need to hijack a user’s identity and make their life miserable for months.
Best-in-class Fintech payment solutions and software solutions make security a top priority. Data security presents a particular challenge to UX design, as immersive UX can create inroads for cybercriminals. Fintech designers must therefore strike a delicate balance—no compromise on UX or cybersecurity.
Critical elements of Fintech data security include:
Secure Code/Architecture. Data security starts at the code level and carries through to the infrastructure level. Fintech apps must be designed with many security considerations such as encryption and algorithms to automatically detect errors that cybercriminals can exploit. They must also be defended from SQL infusions amongst a myriad of other things like ensuring there’s no trace of any sensitive information that can be compromised outside of the system.
In addition to guarding against coding errors, Fintech developers must protect their code from unauthorized tampering, installing authentication checks before developers add or change code.
Encryption. Encryption is the process of encoding information so that it looks like gibberish to eavesdroppers. Most forms of encryption rely on dispatching encrypted data, with the recipient using a decryption key to decipher it. Many apps, including Fintech apps, execute this process without the user even being aware of it.
Of course, the existence of a decryption key is an inherent vulnerability of encryption, as are outdated encryption cyphers that cybercriminals have adapted to break. Data cryptography is an arms race, and Fintech must stay on the very cutting edge to remain credible.
Authentication. Authentication is the process of verifying a user’s identity, so they have access to data they are authorized to access (and only that data). The process of username and password authentication is a complex one, with many security controls happening behind the scenes.
Usernames and passwords must be stored under secure conditions. The process of “hashing” (scrambling) passwords is another arms race. Hashed passwords must be “salted” to be truly secure. Once “salted hash” fails, data security experts will come up with something else to stay ahead of cybercriminals. Fintech can’t afford to fall behind, which is why we have seen the rise of two-factor authentication.
Tokenization. Tokenization is similar to encryption in that it scrambles data into gibberish. Unlike encryption, however, there is no key, no mathematical process to undo the scramble. Instead, the relationship between the token and the raw data is stored in a “token vault,” where it can be retrieved.
The token can be used as a substitute for the real data in various functions, of no use to any bad actor if intercepted. Examples of commonly tokenized data in Fintech include the last four digits of a credit card number, which may get included on receipts.
Security doesn’t stop at the coding level, either. Servers need to be secured, employee practices rigorously audited for safety controls, and premises tested for person-to-person security. Some of the most notorious data crimes have been committed not by a hacker exploiting flaws in code, but by someone disguised as an outside technician gaining access to a secure facility with lax internal controls.
Most importantly, Fintech apps are exhaustively tested, often using “Penetration Tests” or “PenTests”—simulated hacks by companies trained in the most current cyber-threats. If a PenTest reveals a vulnerability, industry-leading Fintech developers take the solution back to the drawing board.
4. The Best Fintech Solutions Are Built to Evolve
Facing rapid growth, adoption, and an ever-changing technological landscape, best-in-class Fintech solutions must be designed with the future in mind. Developers who code their apps into a corner risk fast obsolescence.
As discussed above, this is especially true in the cybersecurity arms race. As fast as cybercriminals learn to circumvent data security best practices, the apps must evolve to meet new standards.
Fintech must also prepare for success by leaving avenues open for growth. PayPal started out facilitating eBay transactions. As the brand gained strength and credibility, the app evolved to facilitate P2P transfers, as well as integrate into digital payment APIs.
Square started out as a dongle you could use to accept credit card payments on your smartphone or tablet, in an ad-hoc kind of way, without a merchant account. This left the door open for merchants to adopt the technology, leading to the development of a full-fledged Square point-of-sale solution.
B2C Fintech apps need to plan for B2B functionality, and vice versa. Finally, a great solution needs to prepare itself for the world stage, with the capacity for local integrations in as many countries as possible.
5. The Best Fintech Solutions Are Mindful of Compliance Issues
All over the world, the financial industry faces stiff regulatory burdens. Penalties for failure to comply with necessary regulations can be merciless, with civil and criminal penalties in the offing.
Moreover, Fintech companies that want to compete in foreign markets may have to design with foreign regulatory burdens in mind, even if they don’t plan to launch in those markets until sometime in the future.
As onerous as they may seem to finance and Fintech companies, they exist for good reason. Users trust financial companies with their money and their most personal data–data that cybercriminals can use to wreak havoc on a user’s life. Financial companies are also susceptible to fraud and money laundering schemes.
Industry-leading Fintech software solutions must therefore be designed not only with security in mind, but also compliance. What’s more, they need to be adaptive enough to grow, to accommodate potential changes in regulations.
Anti Money Laundering (AML). Fintech companies are required to comply with a number of anti-money laundering regulations across numerous jurisdictions, to make sure that criminals do not use Fintech apps to hide the source of ill-gotten income. These regulations are also sometimes referred to as “Know Your Customer (KYC)” statutes.
US Fintech companies need to comply with AML regulations imposed by the Securities and Exchange Commission (SEC), the Financial Crimes Enforcement Network (FinCEN), and the Commodity Futures Trading Commission (CFTC), as well as regulations imposed by the Attorney General and financial regulators in their state.
Payment Card Industry (PCI). Payment Card Industry Data Security Standard (PCI DSS) is a standard for companies that store, transmit, or process credit or debit card information, which is almost every company today. The PCI standard was formed by the major credit card companies in an effort to make the overall industry more secure and prevent fraud.
Using PCI best practices is prudent and required for Fintech companies, as it is a prerequisite for doing business with a substantial number of companies and industries, including the five major credit card companies.
Payment Service Providers Directive 2 (PSD2). A 2013 update to the original 2007 PSD, PSD2 is a European regulation designed to make electronic payments more secure.
PSD2 helps Fintech companies access the banking infrastructure as third parties through an Open API architecture, encouraging competition and disruptive tech advances.
EU General Data Protection Regulation (GDPR). The GDPR is a standard of protection for personal data that Fintech companies must comply with to operate within the European Union. Otherwise, they face stiff penalties.
Regulatory Technology (RegTech) is a tech subset that helps Fintech and other industries more easily and reliably meet their compliance burdens.
If the tech industry has taught us anything, it has taught us not to burn too much ink making predictions. Technologies are disruptive precisely because they are unexpected and unprecedented. Trying to predict the unexpected is not only a losing battle, it also takes some of the fun out of it!
Fintech is no exception. The industry has already changed the way we do business, from transfers of billions of dollars to splitting the dinner check among friends. Where it goes next is anybody’s guess. But if the past has any power to predict, best-in-class Fintech payment solutions and software solutions will continue to exhibit the five qualities upon which other industry leaders have built their empires. These solutions will:
- Understand the problem they are solving, identifying a clear problem or pain point in the financial marketplace and then providing a targeted solution.
- Put the user first, developing a UX strategy to make the app visual, beautiful, and intuitive, guiding users through a clear and gamified user journey.
- Get security right, taking seriously the trust users extend to them over their money and personal information by staying on the very cutting edge of cybersecurity to prevent exposing users to data theft.
- Be built to evolve, anticipating user demand and being prepared to scale, not only to an expanded user base but into a globally diverse marketplace.
- Be mindful of compliance, taking care to adhere to current regulations, as well as stay nimble in the face of a changing regulatory landscape.
Liventus is a custom software developer that crafts Fintech software solutions with the above five qualities top-of-mind. We design secure, compliant, adaptive, user-first software solutions, creative and targeted solutions to well-defined problems.
If you are a financial company in search of a custom Fintech solution, we not only solve problems—we design every solution with the expectation that it has the chance to bring something entirely new to the marketplace and potentially change the world. Reach out to Liventus with any questions you have. Our team of Fintech development professionals has the answers.
Dan Levin is president and co-founder of Liventus. Connect with him on LinkedIn here.