Jurijs Meitalovs, Dr.sc.Ing., head of IT at the British fintech platform, Bilderlings
So, you’ve got a cool idea, and need the software to drive it. What should you do: devote your labour to developing a bespoke solution, or rent a service? Either option comes with its advantages and its issues, so here’s a quick rundown.
Every fintech business is faced with this decision – either to produce a standalone software solution or to rent one from a service provider. To be more precise, there are three distinct options:
- renting ready-made software (Software-as-a-Service, or SaaS solutions),
- commissioning software development from a third party (outsourcing), or
- allocating your own IT team to develop a solution.
The choice hinges on your specific needs, available alternatives, and how soon you have to launch.
Your business profile
If you’re creating something outside the box, making your own tools will be more convenient. Fintech companies find that working with an in-house product is both quicker and easier – with a continual cycle of necessary improvements and modifications that are cheaper and faster to produce for a dedicated team of colleagues. At the same time, the modern software landscape is rich in useful services and pre-packaged solutions that could simplify the early stages of development and integration of other systems (client onboarding services, AML checks, analytics etc.) down the line.
Getting everything right early on
Whether you choose to buy someone else’s product or hire software engineers who will take a year of development to reach marketability – the price tag could end up about the same. With a pre-made solution, you can launch immediately and spend the entire year selling and turning a profit (instead of software development and integration). But, if you work on a custom product, enhancing and expanding it will be much cheaper and easier in the long run.
Ready-made solutions: pros and cons
At first, this scenario seems ideal: with limited investment, you could launch your product tomorrow if you really wanted to. Just buy a platform and the relevant banking systems, hire an IT team to integrate the solution, and you are done. Eventually, however, you will hit the ceiling of any third-party platform’s capabilities and customisation options.
The platform you have bought could be unable to support features that eventually become indispensable. It might hit a technological limit, unable to develop your product further. You could end up having to pay too high a cost for essential customisations. As a result, your total spending could run much higher compared to in-house development.
SaaS: what are the risks?
First and foremost, your service provider could simply go out of business. This would disable your product outright.
Another major risk is data leaks. Any data stored offsite is data you can’t control and make 100% sure it remains in good hands. If a leak occurs on the supplier’s side, you still carry the reputational and financial risks.
Risks with standalone development
Nobody is insured against conceiving a product incorrectly.
Over time, most IT systems expire once a new feature becomes impossible to add and support. This often happens as the number of your clients grows – if your software can’t perform at scale, you will hit a wall.
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All things considered, your choice depends on the primary resources you have at your disposal.
Time
Can you wait a year to launch? —> Develop your own
Need to launch ASAP? —> SaaS
Funding
Have enough investment to support a dedicated software solution? —> Develop your own
Limited seed investment? —> SaaS
Market
Are there multiple offers on the market that can support your idea? —> SaaS
Is your idea so unique that existing solutions aren’t entirely adequate yet? —> Develop your own
People
Have the energy, time and money for an in-house IT team? —> Develop your own
Can’t afford a sizeable IT department? —> SaaS
Important things to consider before you start:
* potential earnings from launching immediately with a rented service (i.e., the potential lost profits from taking a year to develop your solution);
* growth ambitions: as workloads scale up, rented solutions will require modifications and updates, which may cost more than starting off with a dedicated software product.
Whatever your circumstances, there is no ideal scenario. There are many factors to consider. Your greatest asset in this business is the ability to weigh multiple relevant factors and adjust to the situation at hand.
