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, which was 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.

💡 Is open banking here to stay?

So far, there are over 7 million active users in the UK.

In April 2023, a government committee published recommendations for the next phase of open banking in the UK, cementing its position in financial services.

The next phase started this month, with the Joint Regulatory Oversight Committee looking for input from industry players.

Challenges In Fintech Software Development Services

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.

These principles resonate with fundamental values such as honesty, integrity, and respect for individual rights.

By embracing these principles in your business, you will naturally gravitate towards being compliant.

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

The regulations are more there to ensure fair and transparent services rather than creating insurmountable obstacles.

💡 Start with customers – not regulations

If you start with the regulations and try to build your business from there, you’ll never get anywhere.

Start from the customer value perspective and build your regulatory compliance around it—not vice versa.

Always make sure you understand the necessary regulatory requirements, but don’t let them stifle your creativity and progress.

🔶 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.

If your product gets flagged for potential involvement in money laundering or terrorism financing, you might have your assets frozen or seized—or even end up in court.

💣 The POCA in action

In 2023, a London judge ruled that Caio Marchesani, the owner of Trans-Fast Remittance, a fintech payments platform regulated by the FCA, had to be extradited to Belgium to face criminal charges.

Marchesani was accused of aiding drug traffickers in laundering hundreds of millions of euros through a crypto exchange platform.

Financial regulations aim to prevent this kind of outright unethical behaviour.

They aren’t meant to trap or hinder law-abiding entrepreneurs who want to launch their business ideas but rather to catch real criminals who seek to abuse the system.

🔶 Money Laundering, Terrorist Financing and Transfer of Funds 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: To show that you’re taking active steps to avoid your platform being used for criminal conduct, you need to select a Money Laundering Reporting Officer in your organisation. This is mandatory.
• Transaction monitoring systems: Implement systems to monitor transactions for unusual activity, such as setting thresholds for unusual transaction sizes.

It’s important not to let the regulations intimidate you or become a barrier to entering the market.

You can easily navigate the fintech regulatory landscape by approaching regulatory compliance with a mindset of common sense and ethical reasoning.

💡 Useful tools for startups

The UK Government wants to help you remain compliant, which is why they have set up tools to assist you, including:

• Regulatory Sandbox: This is a safe environment where fintech app development services and website development companies can test new products, services, and business models. The FCA created this sandbox environment so startups can trial their products in a controlled setting with regulatory support.

FCA Handbook: This is a comprehensive guide containing the rules, guidance, and regulatory requirements that financial services firms must follow to comply with UK regulations. It’s an all-inclusive guide that answers all the questions you may have.

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.

Before Brexit, the UK relied on the General Data Protection Regulation (GDPR), which was applied across Europe.

However, after they left the EU, they implemented their own version, known as the Data Protection Act 2018, which governs the processing of personal data within its borders.

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

💡 The chicken or the egg? 

Imagine a financial director who keeps client bank details on a notepad in an unlocked drawer. When GDPR came into effect, he realised he needed to make some changes. 

But, in reality, keeping sensitive information in an unlocked drawer was always a bad security measure—even before GDPR.

Regulations like GDPR are often seen as the reason to change practices, but in fact, they often just highlight practices that were already inadequate or risky. 

If the financial director had applied common sense, he would have recognised the importance of better security measures well before GDPR was implemented.

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.

For instance, if you notice that your payment processing solution simplifies transactions for small businesses, integrating it into a major bank’s platform could extend its reach and impact.

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, especially those in established industries like banking and finance, 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 the more traditional and bureaucratic cultures of big corporates.
• Interoperability issues: Different systems used by big corporates may have varying data formats, protocols, or standards, leading to interoperability issues during integration.

If you can successfully integrate your fintech software development services with a larger institution, then your fintech app development company or startup is set for long-term success.

🚀 How one startup realised its potential

One of our UK clients created software infrastructure that allowed a percentage of purchases to be donated to sustainability efforts.

At first, they planned to create their own debit card to be the vessel for their sustainability rewards programme.

However, once the infrastructure was built, they realised it would be far more effective to leverage the payment products of established financial institutions.

This insight prompted a significant shift in their business model. Instead of selling directly to consumers, they chose to offer their software infrastructure to banks and businesses.

By integrating with established banking institutions, they found a more effective way to realise their vision and expand their impact.

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.

To achieve this, you must make compliance part of your development cycle by incorporating regular reviews and checks.

This will ensure that your software meets all regulatory requirements, reduces the risk of legal issues, and builds trust with your customers.

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.

If it’s not immediately relevant, put it aside and focus on the primary needs of your first user.

Your software development team should focus on this so that your product will solve a real problem from the onset rather than perceived problems.

🔹 What’s the most technical challenge?

Another way to stay on track with your fintech software development services is to pinpoint the most significant technical challenge you’ll face.

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.

This will both simplify your development process and ensure compliance from the start.

🔹 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 or solution.

You need to assess the feasibility and viability of your approach critically and consider innovative ways to overcome any obstacles that may arise.

For example, if you realise that nobody has successfully combined AI-powered financial management tools with cryptocurrency wallets, take a look at what went wrong before.

This may include concerns about keeping data secure, addressing user interface challenges, and integrating with existing financial infrastructure.

Once you know what kept them at bay, you can make an informed decision to either step back or find ways to overcome the inevitable challenges you’ll face.

🔹 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.

For example, if your business is uncertain about customer preferences, behaviour, and willingness to adopt new financial technologies, you might allocate resources incorrectly.

Therefore, addressing this aspect of the business model is important for mitigating risk and ensuring long-term viability.

🚀 How your first user determines your business model

Every business has a unique first user, which is linked to a specific business model. Here’s how two of our clients aligned their priorities based on this:

• Digital mortgage bank: Their goal was to connect Brits to low-cost mortgages through covered bonds. This means they predominantly engage with customers directly, which falls under the direct-to-consumer (D2C) business model. Therefore, their main priority was to develop an engaging user interface that would entice potential mortgage owners to use their services.
• Online payment facilitator: They built an exceptional software infrastructure that offered foundational services enabling other businesses to operate smoothly. As a result, their focus was on ensuring their infrastructure was robust, rather than prioritising user interfaces.

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. 

Get in touch with us today to find out how we can help you lift your dream off the ground.