Get Your Business Off the Ground: How To Approach Fintech Software Development

I've noticed that many startups avoid regulated industries because they seem impenetrable.

Breaking into fintech software development, which is overshadowed by complex jargon and large, tightly regulated corporations, might seem impossible.

But, if you dig a little deeper, you'll find that these industries are far more accessible—and profitable—than you may have imagined.

At the moment, geopolitical uncertainty has reduced investment in the fintech industry by 34% in the UK, similar to what happened during the pandemic.

Despite this, innovation continues:

• In 2023, UK fintech leader Finastra secured Europe's largest fintech deal, valued at £5.47 billion.
• British fintech companies continue to draw more funding than those in France, Germany, China, India, Brazil, and Canada combined.
• The UK's fintech industry includes over 1,600 companies, with projections suggesting they might double by 2030.

In this article, I'll explore the opportunities in fintech software development, discuss its main challenges, and explain how you can successfully approach this field in three steps.

Opportunities for a fintech software development company

The old adage goes that there hasn't been any innovation in financial services since the ATM was introduced in the 1960s.

Although the sector has been a little slower than its less regulated cousins, the reality is that vast innovation has—and continues—to happen.

Today, we simply tap our bank cards for instant transactions, and tomorrow, we may even scan our fingerprints to make payments.

As lines blur between 'finance' and other sectors, and consumers continue to demand the best experiences, fintech continues to drive change.

The most noteworthy developments I've noticed include:

• Open banking: In the past, banks stored their customers' data in isolation. However, with their customers' consent, open banking allows this information to be shared with other banks and companies using APIs. For example, if you run a budgeting app, you can offer users the ability to securely connect their bank accounts to your platform.
• RegTech applications: Fintech software development can also create tools that will help financial institutions comply with regulatory requirements. For instance, an application that provides real-time monitoring of financial transactions to detect fraud.
• Neobanks (digital-only): As fewer people need to go to bank branches, new banks are launching that operate solely on mobile apps or websites. So far, there are 53 neobanks in the UK, including Chip, a pioneering example that provides automated savings features and personalised financial data.
• Artificial Intelligence (AI) technology: Fintech software developers can use this to automate repetitive tasks and analyse vast amounts of data for valuable insights. For example, they can use it to build AI-powered chatbots to assist users with FAQs and create robo-advisors that provide automated investment strategies.
• Embedded finance: Integrating financial services into non-financial products or platforms and allowing them to access financial services within other applications. For example, big tech titans, like Amazon and Google, are moving into the banking space and removing traditional financial institutions as the middlemen.

If you have a business idea that taps into the latest trends in fintech software development, you're set to take advantage of the many opportunities in financial technology.

Challenges in fintech software development

Since your product will influence people's finances, the market is highly regulated to protect them from losing their hard-earned money.

Additionally, launching a financial product, like insurance or a credit account, involves collecting a significant amount of personal information, which must be securely protected.

In the UK, aspiring fintech startups should be aware of the following:

1. Regulatory compliance

Fintech stands out from other industries because of its reputation for strict regulations. However, most regulations can be followed simply by applying common sense.

While they appear complex, many of the principles underlying these regulations are rooted in fundamental concepts of fairness, transparency, and ethical conduct.

For example, fintech companies are typically required to provide customers with clear and accurate information and handle personal data responsibly.

With this in mind, these are the most noteworthy fintech regulations you should take note of in the UK:

Financial Services and Markets Act 2000 (FSMA)

The FSMA is one of the main regulatory frameworks governing the financial services industry in the UK. They exist to prevent misconduct and protect consumers' interests.

Fintech startups engaging in the following activities may need authorisation from the Financial Conduct Authority (FCA) to operate legally:

• Providing payment services
• Offering insurance products or services
• Engaging in peer-to-peer lending
• Offering consumer credit
• Providing investment services
• Issuing electronic money
• Operating a crowdfunding platform
• Providing financial advice or consultancy

Proceeds of Crime Act 2002 (POCA)

The POCA is designed to tackle money laundering schemes and terrorism financing. It gives police and other authorities the power to seize assets that they suspect might be used for illegal activities.

Money Laundering Regulations 2017 (MLR 2017)

In addition to POCA, you should be familiar with MLR 2017, which focuses more on preventative measures. This requires you to:

• Implement Customer Due Diligence (CDD): Conduct thorough checks on new clients to verify their identity and understand the nature of their business.
• Ongoing monitoring: Continuously monitor transactions and client activity for signs of suspicious behaviour.
• Report suspicious activities: File Suspicious Activity Reports when you detect potential money laundering or terrorist financing.
• Appoint a money laundering reporting officer: This is mandatory to show you're taking active steps to avoid your platform being used for criminal conduct.
• Transaction monitoring systems: Implement systems to monitor transactions for unusual activity, such as setting thresholds for unusual transaction sizes.

2. Data security measures

As you enter the fintech industry, the software you create will likely collect and store all your customers' data, like their banking details and personal information.

This means you're responsible for keeping this data safe from external threats, like hackers who want to exploit or sell their private information.

Today, all businesses (including fintech companies) have to abide by the UK's version of GDPR — the Data Protection Act 2018— which includes getting clear consent from customers before collecting and storing their data and being transparent about data collection practices.

3. Integration with existing systems

Your fintech software development company may start with a grand idea that could revolutionise the entire industry. However, as your team builds your product, you may realise that it could work better if it's able to integrate into a big corporation.

Integrating with large corporates can give you access to extensive customer bases, an opportunity to work under a credible brand, and valuable resources and expertise.

If this is the direction you decide to go into, then you may encounter the following challenges:

• Legacy systems: Many big corporates rely on legacy systems that may be outdated, complex, and difficult to integrate with modern fintech solutions.
• Cultural misalignment: Fintech startups often operate with a culture of agility, innovation, and risk-taking, which may contrast with more traditional corporate cultures.
• Interoperability issues: Different systems may have varying data formats, protocols, or standards, leading to interoperability issues during integration.

How to approach fintech software development

Your fintech idea relies on great website and app development, and the way you approach this will either make or break your startup.

Based on the two decades I've spent in the industry, I've realised that there are a few key steps you need to follow to do this successfully:

1. Get to know the landscape

You need to have a clear understanding of the environment your fintech software development company is entering. In the fintech industry, this means considering the regulations that your business needs to abide by.

Overall, regulation is there to protect people who are not experts in high risk fields. Not every team member needs to be able to recite these regulations, but you should set up a compliance oversight function to work closely with the software development process.

2. Ask the right questions

It's easy to get wrapped up in an idea and lose sight of the core problem you're trying to solve. Whenever I feel like I'm losing focus, I ask myself these questions:

Will this benefit the first users?

This question always brings clarity when I'm swept away by an expanding idea. If I can't justify proposed changes based on the needs of the initial user, I discard that line of thought and refocus. Picture the first user who's signed up to use your product and ask yourself whether they need all the features you're currently considering.

What's the most technical challenge?

Start by identifying the toughest problem and figuring out if there's a solution. If there isn't, it's time to reconsider your business idea. If there is, tackling this challenge first will help you decide which smaller features to address next. Focusing on your biggest problem first also means that you only need to pay attention to the regulations that apply to that software—everything else comes later.

If nobody has done this before or succeeded, why not?

You need to explore the potential barriers or challenges that may have prevented others from pursuing or achieving the same idea. Assess the feasibility and viability of your approach critically and consider innovative ways to overcome any obstacles that may arise.

What part of the business model carries the most risk or uncertainty?

By openly acknowledging the primary risk factors, you will have a clear understanding of the challenges ahead. This might involve discussing factors such as regulatory compliance, market volatility, technological dependencies, or customer adoption rates.

Get the most out of fintech software development

If you have a fintech business idea, we want to hear about it.

At MOHARA, we specialise in turning innovative ideas into successful software solutions. By outsourcing fintech software development, you will be able to leverage expert skills, reduce development costs, and accelerate time-to-market.

With our expertise in fintech software development, we can help bring your idea to life, from initial concept to final product launch.