Jurijs Meitalovs, PhD, MBA, Head of IT at Bilderlings

So, you’ve got a cool idea, and need the software to drive it. What should you do: devote your labour to develop 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 of 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 a product from someone else 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 your own software development and integration). But, if you work on a custom product, enhancing and expanding it will be cheaper and easier to manage in the long run, and ability to customize, and even pivot business is much higher.

Ready-made solutions: pros and cons

At first, this scenario seems ideal: with limited investment, you can launch your product tomorrow if you really want it. 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 a cost too high for essential customisations. As a result, your total spending could run much higher compared to in-house development.

This depends also from scope of the business — in earlier stages it is easier to implement ready made solutions with limited scope, but it could be harder to expand it if needed afterwards.

In most cases security issues are already taken into account in the existing product, by building your own, you need to think about it yourself, to protect customer data securely. Additional security checks and penetration testing are still on your own responsibility, as a financial regulator requests to have your own processes and requirements regarding this.

Another question to examine — current infrastructure (both technological and business) — how it could be adjusted in case of SaaS and in-house development. Potentially, internal processes should be rebuilt, some parts could be reused, some removed and replaced. Integration with existing processes is an important thing to consider.

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 bear 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 the 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

Do you have enough investment to support a dedicated software solution? → Develop your own

Having 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

Do you 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.

In some cases, the option is to buy existing software with all code base, with the future perspective to expand the functionality with the internal team. This brings some opportunities, like working on a project, with potential to make changes on your own. But downwards are also huge — potentially legacy systems, and most of time will be spent on supporting it and not for developing. In case of end-of-life of some used technologies, the solution should be rebuilt. A team is needed, which is capable to work with technologies used in the project.

Outsourced development team could be used for in-house development, but this as well brings some pluses and minuses, like no need to hire your own team, the minimum personnel is needed — stakeholders (analysts) from the internal team, who will work with the external team. On the other hand, external team members could change, the project knowledge will be lost, and this will slow down the work. The need to build metrics and follow development process, strictly set rules on reporting, etc — otherwise the expenditures to the external team will grow up without valuable output.

In the case of SaaS solutions the small internal team still is needed to analyze requirements for customization, and manage the implementation process. Internal and third-party integrations — that is a separate question. Everything that is related to SaaS directory is done by the vendor, and this potentially could be very expensive, internal integration are related to in-house team development.

In the case of SaaS initial investments are much lower in comparison to in-house development, with all limitations mentioned here. Building a customized solution based on SaaS will bring expenses up, and in the long term in-house solution could be better.

Risks and compliance are another topic of discussion — how that processes will be implemented, what changes in policies and procedures will be needed, how processes will be managed. In many cases SaaS solutions come with external integrations for AML and compliance modules, which could reduce costs on additional services, and such solutions could streamline internal processes.

Multiple built-in processes could be set up directly with SaaS — onboarding, KYC, payments, FX, customer web and mobile app interfaces, accounting and reporting and many others. Considering replacing the existing ones, or implementing new processes could be considered as ones based on vendor offering.

In in-house development, such processes should be built together separately, or by combining third party vendors, but in such cases solutions could be deeply customized.

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.