The Fundamentals of FinTech Architecture: Demystifying Secrets

The FinTech market recorded considerable growth last year and is expected to reach a turnover of USD 197.8 billion by 2024.

But what is the reason for the increasing importance of FinTech? Behind the scenes, in the intricate network of ones and zeros, there is the fundamental architecture that is shaping the future of financial services.

In this article, we examine the core components of FinTech architecture and decode the technological trends and their future.

Definition and significance of FinTech architecture 

What is FinTech architecture? 

FinTech architecture refers to the technical structure of financial software which is designed to align with business requirements and product vision. It comprises various components and infrastructure that are essential for creating functional, secure, scalable, and compliant FinTech solutions.

So, why does software architecture matter so much in FinTech?

Architecture is a crucial aspect of FinTech when it comes to developing a reliable and flexible financial solution that can easily scale up or down. Essentially, the architecture serves as a blueprint for designing, building, and deploying your payment solution. To understand the importance of architecture, let’s compare two systems- one with poor architecture and the other with good architecture.

Scenario 1. Cruft

In the first scenario, we have a system with a lot of cruft- redundant or poorly written programming code. This makes it difficult to modify and scale the software, leading to additional time and effort in adding new features. 

Scenario 2. Clear architecture

In comparison, the second scenario shows a clear system architecture without any cruft, which makes it easier to add necessary functionality and scale up or down without any trouble.

That’s why high internal quality leads to faster delivery of new features.

Source: MartinFowler 

Besides the speed of adding system features, a well-structured FinTech can minimize the risks of compliance and integration issues, and protect users from data breaches. 

Robust architecture underpins financial technology

A strong architecture is the foundation of financial technology, providing the necessary structure to support the seamless operation of financial products. 

Scalability and flexibility

Scalability and flexibility are vital for FinTech companies to adapt to changing demands and scale operations efficiently.

For instance, PayPal’s scalable architecture allows it to process an average of 41 million transactions per day.

Security measures

Security is paramount in financial transactions, and therefore, FinTech architecture must be fortified with advanced security measures to protect sensitive transaction data.

For example, Revolut employs end-to-end encryption algorithms that secure sensitive user data and transaction information, reducing the risk of unauthorized access.

Explore the picture below to clarify how end-to-end encryption algorithms work: 

Source: TechTarget

API integration

API integration is another critical component of FinTech architecture. Application Programming Interfaces (APIs) facilitate seamless integration with third-party services.

To illustrate this, we will use our own example: SDK.finance’s API-first architecture approach empowers businesses to effortlessly connect with a wide range of payment services, using our 400+ API endpoints.

Cloud computing

Cloud-based architecture, exemplified by AWS (Amazon Web Services) and Azure, provides FinTech companies with the flexibility to store and process data, ensuring accessibility, scalability, and cost-effectiveness.

Regulatory compliance

In the modern FinTech industry, regulatory compliance can be challenging. Payment companies have to adapt their FinTech architecture to a regulated environment. Companies can use RegTech solutions that automate compliance processes, such as regulatory reporting, risk assessments, and monitoring.

In summary, a robust architecture is the bedrock of FinTech, empowering companies to deliver secure, scalable, and innovative financial services. From blockchain technology to cloud computing, the FinTech architecture stays compliant with regulations and meets the dynamic demands of modern customers.

Understanding FinTech architecture 

The system architecture reflects the way your company organizes the “stuff” for building payment products. Below, we highlight the key elements of it. 

The architecture of a FinTech system design is determined by how a company organizes its components to create payment products. Below we explore the key elements of FinTech structure.

FinTech system design 

The system design is an essential aspect of a software system that shapes its architecture and functionality. One of the primary decisions to make is whether to use a monolithic architecture or a microservices approach.

In a monolithic architecture, all components are unified and tightly integrated, and they function as a single unit. This design simplifies initial development and deployment, but it may pose challenges as the system grows. 

A monolithic architecture

Source: FreeCodeCamp

On the other hand, a microservices architecture breaks down the system into smaller, independent services that can be developed, deployed, and scaled separately. Microservices offer scalability and flexibility but introduce complexities in managing interactions between services.

A microservices architecture 

Source: FreeCodeCamp

The decision between these two approaches involves considering factors such as scalability, maintenance, and flexibility. 

The technologies for finance system architecture

FinTech architecture relies on strategic decisions regarding programming languages, frameworks, and databases.

The choice of programming languages, such as Python, Java, or JavaScript, shapes the development process, impacting factors like efficiency and scalability. 

Frameworks like Django, Flask, or Spring facilitate the rapid construction of robust applications, offering predefined structures and functionalities. Data is a critical asset in FinTech, and its storage and security are paramount. 

FinTech architectures include robust data storage solutions that cater to the vast amounts of financial data generated.

The decision between relational databases like MySQL or PostgreSQL and NoSQL databases such as MongoDB depends on the nature of financial data and the specific requirements of the application.

Read our article on the best FinTech stack to explore the most common technologies for financial software. 

Infrastructure for FinTech system design

The infrastructure of a fintech ecosystem encompasses a choice regarding the deployment model—whether to establish an on-premise infrastructure or leverage the advantages of a cloud-based solution.

On-premise infrastructure provides businesses with direct control over their hardware and software, offering a sense of security but requiring substantial upfront investments and ongoing maintenance. 

On the other hand, cloud-based solutions, offered by providers like AWS, Azure, or Google Cloud, provide flexibility, scalability, and cost-effectiveness. Cloud infrastructure enables seamless scaling based on demand, ensures high availability, and eliminates the need for extensive hardware management.

SDK.finance provides two versions of ready-made FinTech software: cloud-based and on-premise (with source code license) models.

Companies seeking deep customization and complete independence can obtain a source code license of the FinTech platform. However, if you are looking for an affordable subscription-based solution, we offer a cloud-based software version.  

Role of API in FinTech architecture 

APIs (Application Programming Interface) play a crucial role in the seamless functioning of FinTech architecture. They enable different financial systems, services, and apps to communicate and share data effortlessly.

The API-first strategy provides effortless integration with payment providers, offering high scalability and flexibility of the fintech system design. 

SDK.finance implements an API-first approach to facilitate integration with third-party providers and services and drive our customers’ product innovation.

The Platform offers a wealth of out-of-the-box functionality through its 400+ interactive API endpoints, all exposed as Open APIs. 

This approach enhances interoperability and empowers developers and businesses to leverage the extensive capabilities of SDK.finance in creating innovative and tailored financial solutions.

Understanding the core components of FinTech architecture is vital for creating seamless and secure financial experiences for users. The synergy between front-end technology, back-end systems, and data storage is essential for the successful functioning of FinTech platforms.

Common challenges and solutions in FinTech architecture 

Compliance and regulatory aspects 

Challenge: Financial companies face strict regulatory requirements that make operations challenging. Non-compliance can result in severe legal issues and penalties. 

Solution: to address the challenge, a robust architecture that integrates regulatory requirements from the start, can help comply with data protection laws, KYC regulations, and AML requirements.

Cybersecurity measures 

Challenge: financial data and transactions require robust security measures to prevent unauthorized access and safeguard sensitive information.

Solution: using the following technologies you can enhance the overall finance system architecture security:

• Two-factor authentication
• Biometric authentication
• Data encryption
• Real-time notifications

Regular security audits and updates are also crucial for identifying and addressing potential vulnerabilities for the FinTech system design.

Integration of innovative technologies 

Challenge: incorporating cutting-edge technologies like AI and blockchain can be complex. 

Solution: strategic planning and phased integration strategies help seamlessly assimilate innovative technologies. Collaborating with experts and leveraging well-documented APIs facilitate the adoption of these technologies while maintaining system coherence.

Long development period

Challenge: FinTech architecture development is a complex process that encompasses numerous difficult steps.

Solution: to overcome this challenge you can use agile methodologies for software development, divide the process into smaller sprints, or leverage a pre-developed software to speed up the product launch.

SDK.finance provides a ready-made back-end Platform for building any PayTech products like mobile wallets, currency exchange systems, payment acceptance software or neobanks. . Let us explore it in more detail.

SDK.finance architecture and its advantages

API-first architecture

SDK.finance uses an API-first architecture that employs REST APIs to seamlessly integrate the system with third-party solutions. With more than 400 API endpoints, SDK.finance ensures flexibility, scalability, and interoperability, making it adaptable to the evolving needs of the industry.

The use of OpenAPI facilitates the automatic creation and maintenance of interactive API documentation, allowing users to access the latest information in real time.

Modular structure

The modular structure, comprising over 60 modules, provides a framework for independent upgrades and improvements to services. This modular structure not only increases flexibility but also enables efficient distribution of the system load, contributing to a more stable and scalable platform.

Security by design

The architecture of SDK.finance puts security first, applying the principles of ” security by design”. The implementation of automatic code review and static code analysis adds a layer of protection and ensures the robustness and integrity of the platform.

AWS server infrastructure

SDK.finance’s architecture is hosted on the AWS cloud infrastructure, which ensures world-class resilience and security as well as compliance with the strictest regulatory requirements.

The flexibility of AWS services allows SDK.finance to deploy its platform regionally in 87 availability zones while meeting specific data management requirements by regulatory requirements.

The future of FinTech system architecture 

The FinTech industry is constantly evolving, thanks to technological innovation. To remain relevant and meet the needs of users, it’s essential to stay up-to-date with industry trends.

The future of FinTech architecture is shaped by the following trends:

AI and machine learning

According to McKinsey research, AI can generate up to $1 trillion additional value for the global banking industry annually. Integrating these technologies can improve operational efficiency, enhance risk assessment, and reduce operational costs.

Quantum computing

Quantum computing allows FinTech companies to analyze enormous datasets in real-time. This capability enhances data modeling, risk analysis, and the development of more accurate financial predictions. 

To learn more about quantum computing and its potential, you can watch this video: 

Open banking 

Open banking is regarded as the bedrock of present-day FinTech, facilitating more convenient and efficient payments as well as simplified communication with users. According to Statista, the number of open banking users worldwide is projected to reach 132.2 million by 2024.

These technologies provide secure interoperability by allowing third-party service providers to access financial data from institutions through 100%-secure API-powered connections and robust authentication protocols. 

For example, Revolut, through secure API connections, allows users to link external bank accounts, providing insights into spending patterns, budgeting features, and seamless fund transfers.

Cloud-based computing 

Cloud computing is a cornerstone technology that has gained widespread adoption among FinTech companies globally. A McKinsey survey shows that around 54% of leaders in the financial services industry are planning to shift at least half of their workload to the public cloud over the next five years. 

Its appeal lies in its ability to simplify access to vast datasets, providing invaluable insights into customer behavior and preferences. A major advantage is the elimination of the need for substantial investments in expensive hardware and IT infrastructure for data storage. 

SDK.finance software is available through the hybrid cloud delivery model. The backend is hosted on our servers or via major public cloud platforms and maintained by our team. The databases are stored on your servers and managed by your own team to meet the cloud data management regulators’ requirements.

Wrapping up

Understanding the fundamentals of FinTech architecture is key to successful payment software development.  By considering different approaches and technologies for financial system design, you can choose the right solution for your PayTech product.

With a ready-made FinTech Platform by SDK.finance you can significantly speed up the development process and start building your product on top. Contact us to share your FinTech product vision and let’s start the journey together.