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Decoding the FinTech Industry

  • Software testing
  • Abhay Das
  • December 15, 2016
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Why a deep understanding of the overall FinTech industry is crucial, to serve customers with appropriate testing solutions?

The use of technology in global financial services is certainly not new. From trading desks and investment banking to corporate and retail banking, technology has been the backbone of banking operations for over two decades now.

So, what exactly is this buzz we’re hearing about FinTech? The term is loosely used these days – to refer to all kinds of technology from wallets and mobile payment apps to small & medium enterprise (SME) lending and, even, expense management apps.

But before we come to the definition of ‘FinTech’, let’s look at some numbers. According to a KPMG study, over US $38 billion is amount of money that has been channelled into FinTech deals; this is more than double the investments in 2014, when it was US $17 billion.

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A PWC estimate suggests that in the next three to five years, cumulative investment in FinTech globally may exceed $150 billion.

It is likely that by 2020, more than 20 per cent of traditional financial services organisations will be at risk because of the rise in FinTech companies, the report adds.

So where is all this money going to go?

To answer that, we’ll first unearth the different sectors and sub-sectors that fall under the FinTech definition; at least, what the venture capital community defines as FinTech.

Category #1: Consumer Facing FinTech applications

  1. Mobile wallets
  2. Loan aggregators and market places
  3. Personal finance & wealth management
  4. Mobile banking
  5. Peer to peer lending
  6. Consumer facing platform for forex, and other financial services

Category #2: SME and enterprise fin-tech

  1. SME loan marketplace
  2. Invoice discounting platforms
  3. Spend management and analytics platforms
  4. SME Finance & accounting management apps
  5. Corporate finance analytics for SMEs

Category #3: FinTech Infrastructure

  1. Underlying payments infrastructure, connecting all layers
  2. Block chain Technology
  3. Enterprise class FinTech platforms and APIs
  4. Bitcoin technology etc.

At Indium, we’re at the forefront of building a focused testing practice to serve the emerging FinTech sector. From a testing process perspective, there are two critical steps:

  1. Use iMobi and iSafe test automation frameworks to ensure an exhaustive test process
  2. Use domain knowledge of the FinTech segment, to compliment this with relevant manual testing processes

Forces driving the FinTech sector

The market: Through solutions such as mobile payments, wealth management, peer-to-peer lending and crowdfunding, as much as $660 billion revenue is expected to migrate from traditional financial services to FinTech in 2016, according to Goldman Sachs.

The opportunity here is huge, but it’ll materialise only if the FinTech solution is better than the legacy solution in terms of user experience, security and is compliant of all regulatory needs.

New technology layers: 

The introduction of blockchain technology, distributed ledgers that drive Bitcoin and cryptocurrencies, enabling decentralized transfer of assets is a big contributor to the FinTech sector.

Regulatory compliance: 

Following the 2008 financial crisis, regulation has become more stringent and is an added advantage to the new FinTech industry, which is using compliance as a USP vis-à-vis traditional financial service providers.

Emergence of cloud & Payment APIs:

With the emergent of cloud computing – BaaS (Back-end-as-as-service), cloud infrastructure and PaaS (Platform as a service) – the barriers to entry to start a FinTech companies has drastically come down. Moreover, in a place like India, India Stack, UPI (Unified Payment Interface) and e-KYC are true game changers for the FinTech startup landscape.

Artificial Intelligence & Data Analytics

The arrival of machine learning APIs is making it easier to deploy BOTs into FinTech applications, raising the level of consumer experience for banks and other financial institutions. This AI layer, coupled with data analytics is driving the growth of various FinTech applications, with the eventual goal of enhancing end-consumer experience.

Of course, all these factors is also driving the venture capital and private equity world to bet big on the next wave of financial services companies, or rather FinTech companies.

The need for quality assurance

Needless to say, there are four fundamental aspects to any FinTech application (across the three categories mentioned above):

  1. Security
  2. Performance under load
  3. Usability
  4. Compliance

However, depending on the type of FinTech application, the intricacies of testing for each of these factors may vary.

For example, for a BOT used by a bank, the regulatory framework is yet to emerge with clarity, yet it is crucial to add several layers of security.

For mobile wallets, the regulations are fairly clear and testing for compliance may be that much easier.

For FinTech startups, there is no doubt that the testing partner must work in tandem with DevOps, right from the early days, even as the various pieces of the FinTech application gets built. A robust testing process will aid the FinTech client in the following areas:

  • Efficient and effective software development lifecycle
  • quick time to market
  • improved user experience
  • cohesive workflow
  • comprehensive coverage
  • traceability of issues

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Traditional financial services companies too are trying to ride the FinTech wave but their challenges are more severe:

  1. Legacy systems can prove to be hindrance to smooth integration
  2. Fragmented solutions that have been joined together by growing needs can hamper traceability
  3. Regulatory compliance needs to be updated and conformed to, creating its own needs

An experienced software testing services provider such as Indium Software with the iAccelerate test automation framework, including iSAFE, iMobi, iFACT and iAVA for web, mobile, cross platform testing and vulnerability assessment, is an ideal partner for FinTech companies.

The domain experts ensure comprehensive test coverage while the framework can be customised to suit the changing requirement while maintaining traceability, comprehensiveness and assuring security, performance, usability and compliance.

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Abhay Das