25 Aug 2022
Banking as a service and embedded finance – why new fintech solutions need a trusted software partner
Money is constantly changing hands, and the fintech industry is ever-expanding – those two universal rules are the financial sector in a nutshell, and nothing proves it better than embedded finance and banking as a service (BaaS), two solutions gaining traction every day. What are they, and what kind of development team is necessary to implement fintech software solutions? Describing a so-called ‘Super app’ will be the first step in answering that question.
One super app to rule them all
Imagine being able to book and pay for your entire holiday using one mobile app. Nothing unusual, but what if you could use that same app to book a fine restaurant, view activities available in the area, rent a car, reserve a hairstylist, and pay for everything you need while using the same app. But what if you don’t have enough money for such a purchase? You can always take advantage of one of the hottest trends and use the Buy Now and Pay Later (BNPY) solution. A super app lets you do all that and much more.
A super app, an ‘app for everything’ solution, has revolutionized the way customers interact with services in Asia. Thanks to embedded finance and BaaS, fintech companies bring similar solutions to Western markets with the help of software development partner.
In its purest form, a super app acts like a portal with access to various products and services. The best real-life comparison is a mall with everything in one place. Once you are inside, you never have to leave. With only one login app, the user has everything at their fingertips.
Super apps became huge in Asia because local consumers adopted a ‘mobile-first’ approach long ago, which fueled the rise of digital ecosystems, including platforms offering a one-app solution for a wide range of services. Super apps first emerged in China, with so-called ‘app of apps’ gradually becoming popular in Japan, South Korea, India, Indonesia, and Vietnam – as reported in the “Future of Asia: The future of financial services” by McKinsey & Company.
Western tech giants thought they would be able to follow in Asian footsteps, but European and North American privacy and consumer regulations put those endeavors on hold. Converting a 1:1 super app solution from the Asian to the European market is impossible. But even without an option of delivering a multidimensional app like those used in Asia, the vision for a universal fintech platform covering digital payments, banking, e-commerce and other financial needs remains on track in the rest of the world.
Banking as a service is becoming the standard in the Fintech world
Angela Strange, a general partner at Andreessen Horowitz, a venture capital firm in Silicon Valley, believes that every company will eventually become a fintech company. Embedded finance and banking as a service will play crucial roles in that unstoppable digital transformation.
What exactly is banking as a service? According to the Deloitte Digital report “Banking as a Service, Explained,” BaaS provides banking products and services through third-party distributors. The innovative solution integrates non-banking businesses with regulated financial infrastructure. This approach allows non-financial companies to integrate banking products into their offering faster. In this scenario, a fintech company can act as a middleman between the bank and the service provider.
Here are some real-life examples of BaaS-enabled financial support, according to the Deloitte Digital report:
- Convenience stores that act as bank branches (accepting retail deposits instore from other distributors),
- Point-of-sale loans (obtaining credit for purchases in-store, during the checkout process),
- Bundled renters’ insurance (providing renter’s insurance by a bank partner of the property management company)
- Cashier-less shopping (using an app during checkout with funds withdrawn from a bank account).
The digital transformation of financial services is an ongoing process that will not stop, as proved by the popularity of super apps in Asia and the ever-rising number of embedded financial solutions delivered by innovative companies in the US and Europe. The next step of the digital financial metamorphosis will not be attainable without a proper application programming interface (API) that enables digital instances to communicate with each other.
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Fintechs and banks can only provide financial services to non-financial companies if digital integrations are seamless. Open banking payment services in the internal market (PSD2) require the right banking APIs to enable third parties to access payment accounts. Poland plays its part in the process, with the PolishAPI standard acting as a key element of open banking in the Polish market, once again proving that experienced software developers are always at the center of the fintech revolution.
Fintech software development services require the right team
McKinsey & Company report that focusing on embedded finance and BaaS means software engineering is a core competency in the digital transformation of financial services. Rising customer expectations are driving demand for implementing BaaS embedded finances solutions. To achieve this, companies need to partner with the right software development services provider. What are the core competencies that a fintech software development team must have?
Strong business experience is the first core competency that comes to mind, as there is no room for mistakes or experimentation when partnering with a fintech software provider. The outsourced development team should be familiar with the client’s business needs, as well as the financial industry itself.
It’s essential that the team helping a fintech company has the right work culture. Taking ownership and actively participating in the process are crucial factors in any endeavor. Along with the right culture comes another cornerstone of fruitful cooperation – communication. An outsourcer needs to focus on constant and meaningful contact with a client’s employees. A company that chooses an outsourcing service provider that does not match its culture will have to deal with unnecessary difficulties.
Mindset and cultural fit will not suffice without skillful software engineers adopting the most efficient methodology, and fintech software development outsourcing seem to be a perfect match. Being capable of embracing ongoing changes makes for an adaptable and flexible software development process that enables an organization to implement business agility to stay ahead of the curve in the fintech market.
The Fintech industry requires a tailor-made development approach. Deployment frequency is essential, especially when crucial updates must be ready and fully operational when necessary. One of the most valuable metrics is the lead time for changes, which focuses on how long it takes to go from code commitment to code running in production. Quick code deployment plays a crucial role when it comes to cybersecurity.
Security – a vital aspect of the fintech outsourcing team
Security is an utmost priority in fintech solutions. The software development process needs to include the best possible security practices, focusing on writing safe and secure code from the early stages of development. Software engineers participating in the process must adhere to the highest standards. Along with the developers, the outsourcer must provide the necessary credentials.
Software partner must be able to provide all the necessary cybersecurity measures and incorporate relevant legal requirements. An audit based on Service and Organization Controls 2 delivers the most reliable way to demonstrate such readiness. SOC 2 is an international standard for collecting and sharing information about control procedures and processes in IT organizations. Professional firms run the SOC 2 report to assure that the verified controls applied in the audited company operate according to the standards and are fully effective.
Software Mind is subject to examination based on SOC 2 Type II and custom audits of our clients. What is a Type II report? It describes the security management system’s operational effectiveness and control framework. But that’s not enough to be a trustworthy partner for the fintech industry. Here are additional elements that play a crucial part in the fintech security process:
- Enhanced security – employing a security officer and an information security policy assures that a workplace is fully secured,
- Stable environment – complying with all EU regulations, including GDPR, as a part of the European Union,
- Employee vetting – conducting criminal and financial background checks on employees and third parties
A mature and responsible approach to security is one of the greatest benefits a software partner provides when working with a fintech company.
Fintech needs a trusted software partner
There is no doubt that the financial industry, as a whole, is in the midst of adopting BaaS and embedded financial services. Traditional banking institutions are evolving due to more straightforward ways of connecting non-financial companies with innovative solutions allowing them to provide clients with financial assistance. Embedded finance and banking as a service are spearheading this revolution. However, companies will not be able to reach the upper echelon without an experienced fintech software services provider.
Teaming up with an experienced and skilled software partner is the fastest way to take your fintech business to the next level. If you want to learn more about such cooperation, or discuss your situation, use this contact form – we’re eager to share our expertise, and our experts are happy to help you find the best solutions.