Pitfalls To Watch Out In FinTech Development Outsourcing

Clutch survey finds 83% of small businesses maintain or increase their spending on outsourced business services in 2023. The main reason for using outsourcing services is a close link between reducing costs and bringing industry experience to the team.

In this article, we explore the experiences of top companies using software outsourcing for operational efficiency, and walk you through the process of selecting the perfect partner for your FinTech development needs. 

Why do businesses choose outsourcing?

Outsourcing is used by large and mid-sized companies in a range of industries, from telecommunications and finance to e-commerce and manufacturing. 

Prominent companies such as Microsoft, Google and Apple  outsource tasks and processes. In fact, 13.6% of the average IT department’s budget is spent on outsourced tasks.

It can also be observed that outsourcing rates vary by industry. Around 72% of companies outsource app development in the financial or banking sector. Healthcare companies, on the other hand, have reduced their outsourcing work by 31%. 

For instance, a company may outsource back-end development to a third-party vendor that has expertise in this area. In this way, the company can benefit from the provider’s knowledge and experience without having to invest in the labor costs of hiring and training its own staff.

In addition, outsourcing provides the opportunity to increase or decrease flexibility as demand or business requirements change, while helping to reduce the risk associated with certain business functions, such as legal and financial compliance, by having these tasks handled by experts.

For this reason, outsourcing is an important business strategy that can benefit both large and small companies. By using outsourcing services, companies can increase their efficiency and focus on their core business.

Benefits of FinTech development outsourcing

Outsourcing FinTech development offers a number of benefits that can significantly improve a company’s operations and competitiveness. Here are some of the key benefits:

Cost-efficiency

According to Deloitte data, cost reduction is a primary objective for using software outsourcing services. Outsourcing allows businesses to access specialized expertise without the overhead costs associated with hiring and training in-house teams.

Source: Deloitte Global Outsourcing Survey 

The cost-effectiveness can free up resources for other critical business needs. These cost savings can then be redirected to other important areas such as marketing, research and development, customer support, or infrastructure improvements.

In fact, the cost of outsourcing varies greatly depending on the region in which you plan to use your software development services. 

For example, in North America and Western Europe, which are known for their high cost of living and developed technology industries, you can expect to pay higher hourly rates, typically ranging from $100 to $250, while in regions like Eastern Europe and Asia, hourly rates typically range from $20 to $90.

Software development outsourcing hourly rate by region

Note that the choice of region for outsourcing depends on several factors, including specific project requirements and qualifications.

Faster time-to-market

Aside from saving money, outsourcing can also help businesses save time because it can accelerate product development and deployment. By leveraging the resources and capabilities of an external team, companies can bring their FinTech products to market faster by skipping the hiring process for a technical team.

Multinational e-commerce and technology conglomerate Alibaba, for example, recognized the potential of outsourcing to achieve faster time to market. 

It outsourced various aspects of website development, enabling it to quickly set up and improve its online platforms. This flexible approach enabled Alibaba to stay ahead in the highly competitive e-commerce industry and respond quickly to changing market demands.

Access to specialized skills

Companies are no longer looking for typical software outsourcing services, but require a complex approach with a deep understanding of the FinTech industry, technical knowledge and project scope analysis to meet requirements and develop competitive products. 

This ensures that the solutions developed are in line with industry best practices.

For example, the success story of Microsoft, a major player in the technology sector, includes a chapter on outsourcing: the company has regularly delegated certain software development tasks, focusing on leveraging its global knowledge pool.

Focus on product development

As mentioned earlier, outsourcing allows a company to focus on its core business, such as strategic planning, marketing and customer acquisition, while experts take care of the technical details.

Apple is known for its innovative products, but the company also outsources the production of its products to companies like Foxconn. This allows Apple to focus on product design and development, while leaving the manufacturing process to the experts.

Innovation and technological advancement

Outsourcing partners are frequently at the forefront of technological advancement. Working with them allows companies to take advantage of the latest innovations and stay competitive in a rapidly evolving industry.

Apple’s virtual assistant, Siri, is a great example of how software outsourcing can drive innovation. Apple acquired the technology behind Siri from a startup company called SRI International. The innovative aspect of Siri was its natural language processing and speech recognition capabilities, which allowed users to interact with their devices in a human-like manner.

By outsourcing the original development of Siri, Apple gained access to cutting-edge expertise and technologies in artificial intelligence and natural language processing. This strategic move contributed significantly to Apple’s position as an industry leader in innovative technologies and user-friendly interfaces.

Expansion and scalability

Although we are not as well known as the companies mentioned above, we are proud of our client, a leading MENA PSP that has successfully ventured into new markets thanks to outsourcing.

The leading MENA PSP transforms its central transactional accounting system through SDK.finance on-premise ledger layer software. The goal was to make payments accessible and user-friendly while supporting cashless transactions. The company assembled a team of experts and turned to SDK.finance for a solution that would ensure growth, integration capabilities and scalability.

The result was a transformative accounting system that integrated with an extensive network of POS terminals to deliver efficient accounting, enhanced customer experience, expanded partnerships, increased transaction volumes, improved scalability, and the potential for limitless growth in the rapidly evolving FinTech landscape. Here you can get more information about this case study. 

Potential pitfalls in FinTech development outsourcing

Outsourcing FinTech development offers numerous benefits, but it’s not without potential pitfalls. Recognizing and overcoming these challenges is critical to a successful outsourcing process. Here are common pitfalls and why they can be detrimental:

Lack of clear objectives and product requirements

• Detriment: without clearly defined goals or product requirements, outsourcing teams cannot fully grasp the goals of the project, leading to misalignment and inadequate results.
• Solution: establish clear product requirements and clear objectives. Document detailed product requirements, features, and expected outcomes.

Communication challenges

• Detriment: poor communication between the internal team and outsourced developers can lead to misunderstandings, missed deadlines, and increased project risks. This can lead to inefficiencies, errors, and even project failure.
• Solution: create effective communication channels from the start. Hold regular meetings, both synchronous and asynchronous, to keep everyone informed and involved.

Security concerns

• Detriment: security breaches or data vulnerabilities in financial software can have serious consequences. Failure to adequately address security concerns can result in data breaches, regulatory violations, financial losses, and damage to a company’s reputation.
• Solution: ensure robust security measures are in place. Regular security audits and penetration testing should be part of the process.

Quality control issues

• Detriment: inconsistent or inadequate quality control may result in a final product with defects, errors, or performance problems.
• Solution: implement effective quality control procedures, including testing, code reviews, and quality assurance protocols. Continuous monitoring and feedback loops are essential to maintaining product quality.

Lack of FinTech expertise

• Detriment: outsourcing to a team without sufficient FinTech expertise may result in solutions that do not meet regulatory standards or industry best practices.
• Solution: gain FinTech expertise by partnering with SDK.finance‘s team of experts. With a decade of experience in FinTech software development, our team has deep expertise in this specialized area.

By avoiding these potential pitfalls, companies can realize the full potential of outsourcing FinTech development, turning challenges into opportunities and leveraging the expertise of dedicated partners to create innovative and secure financial solutions.

Factors to consider when selecting a FinTech development outsourcing partner

Selecting the right FinTech development outsourcing partner requires a systematic and well-informed approach. Consider the following factors to ensure a successful partnership:

Technical background

Review the partner’s technical skills and expertise in FinTech development. Look for experience with relevant technologies such as blockchain, artificial intelligence, machine learning, or mobile app development. Assess knowledge of programming languages, frameworks, and databases commonly used in the FinTech industry.

Industry experience

Evaluate the partner’s industry experience and understanding of the FinTech landscape. Look for partners who have worked with financial organizations similar to yours or have a deep understanding of the specific challenges and regulatory requirements in your industry. This industry knowledge will enhance their ability to deliver solutions tailored to your organization’s needs.

Certifications and partnerships

Consider any relevant certifications or partnerships that the outsourcing partner holds. Certifications such as ISO 27001 for information security management or SOC 2 for data protection demonstrate the partner’s commitment to security and compliance. Partnerships with industry-leading FinTech software providers or technology vendors can also indicate their expertise and access to cutting-edge tools and resources.

Innovation and adaptability

Assess the partner’s ability to innovate and adapt to new technologies and industry trends. Look for evidence of its involvement in research and development activities, participation in industry conferences or events, or contributions to open source FinTech projects. A partner who stays ahead of the curve and is committed to innovation will bring fresh ideas and perspectives to your project.

Past projects and case studies

One of the best ways to assess an outsourcing partner’s capabilities and reliability is to review their past projects and client recommendations. Request case studies or references from customers who have worked with the partner in the past. This will give you valuable insight into the partner’s project management skills, the quality of the delivered products and overall customer satisfaction.

Team augmentation vs. outsourcing: key differences

From time to time, companies need additional talent to fill gaps in their organization or to execute a large project. Team augmentation and outsourcing are the common models that provide additional technical teams to support software development, but they differ in key ways.

What is the team augmentation?

Team augmentation involves adding external experts to your internal development team who work closely with your existing staff. These experts become an integrated part of your organization, working on-site or remotely.

With team augmentation, you retain a high degree of control over project management, task prioritization, and workflow processes. You can directly manage and oversee the work of the extended team.

What is outsourcing?

In outsourcing, an external service provider or team is contracted to perform certain parts of a project or the entire project. The outsourced team works independently of your internal staff and is often located outside the company.

Outsourcing provides a lower level of control over project management and execution. Typically, the outsourcing service provider manages the outsourced team while you provide high-level oversight.

Key difference between team augmentation and outsourcing

When it comes to team augmentation, SDK.finance stands out as a pioneer in offering a complex solution of not only expert professionals but also a cutting-edge Platform tailored to accelerate the development of FinTech products. 

Conclusion

Choosing the right FinTech development outsourcing partner is an important decision that can significantly impact the success of your project. Thoroughly evaluate potential partners to ensure their skills, certifications, and industry expertise are a good fit for your organization.

To streamline your FinTech project, you can leverage a pre-developed solution with core functionality without having to start from scratch. With a decade of experience and deep understanding of FinTech products, SDK.finance offers a complex solution to accelerate your project development and speed time to market.