Bringing the Backend to Front of the Fintech Conversation
August 11, 2020
By Tory Jackson, In-Country Manager—Mexico, Galileo
For all of the amazing user experiences and innovative businesses that our local fintechs have brought to market in recent years, it is difficult to escape the underlying truth that many of them depend on enablers that were simply not built for the kinds of new digital use cases and rapid change required for sustainable success.
Like new model automobiles with engines from another era, they eventually face major performance headaches. That’s because addressing new opportunities and longstanding challenges, like how to serve the underbanked, require innovating from the backend forward.
We may associate innovation with sleek new user interfaces, but real innovation usually lives deep below the surface. In fact, the backend is where much of the important financial disruption and differentiation of recent years has originated. Take the case of Plaid. The ability to connect bank accounts more easily, Plaid’s central achievement, was a backend innovation that helped countless developers disrupt a host of financial services, helping the company achieve a $5.3 billion valuation along the way.
Conversely, connecting amazing user experiences with backend systems that are outdated or broken limit fintechs’ ability to differentiate and evolve. This is because it often leaves them in closed and unfriendly systems that handcuff homegrown ingenuity, for example by not being sufficiently API-enabled.
This situation has real long-term consequences as fintechs that find initial success seek to fight off copycats, expand their business models and tap into new sources of revenue. In today’s environment, this can translate into an important liability as more fintechs compete for funding from fewer and ever-more backend-savvy investors.
So, what constitutes a modern, enabling backend and what kinds of things can they do? This is a broad question whose answer varies by business model and existing tech stack. Generally speaking, however, enabling platforms share a fairly common set of characteristics: They are API-based, customizable, scalable and offer advanced provisioning models.
Traditional payments systems offer a familiar example with which to illustrate the point. Say you’re a challenger bank using a legacy debit and credit processing platform. You’ve long since launched and things are going well, but you need to incorporate new use cases. You realize you must be able to issue virtual accounts and deploy more tap-to-pay capabilities to address the growing number of card-enabled IoT devices and the shift to contactless payments, respectively.
Your developers are excited, drawing up workflows and what your next wallet version will look like. But, then, you realize the partner you depend on either doesn’t yet have the capabilities to enable you (“It’s in development.”) or they do, but their delivery model is so outdated that it will cost you months and hundreds of thousands of dollars in development and integrations to make it happen.
If the situation were different, and you had a more enabling platform, you would map out your backend requirements while your front-end developers worked away, and in a few weeks you could be testing all the required APIs in a sandbox in anticipation of launch.
In Mexico today, the latter example is a reality, not something of the future or simply a hypothetical. Sadly, the former example is also a reality. One is born of the portability of well-documented tools and experience from markets that adopted early, and the other is born out a “payments is a commodity” and insufficient investment that today can strand even our best fintechs whether in lending, gig economy, investing or consumer and commercial payments.
The kind of local, creative problem solving and progress that’s taking place in our fintech community is too promising and important to be slowed down. Fortunately, avoiding these kinds of setbacks just requires a little more upfront conversation about the backend.
Enjoy our Insights?
Why Customer-Centricity Is a Must in B2B Embedded Finance
Embedded finance can fulfill booming business demand for consumer-like offerings. What can you do to get started with your B2B company?
Meet Bobby: Guiding Galileo's Architecture and Mentoring Others with a Client-First Mentality
Meet Bobby Ball: Principal Software Engineer at Galileo. With a passion for our client-first culture.
Anti-Fraud Playbook: 6 Tips to Jumpstart Payment Fraud Prevention
Your business can no longer afford to lose to fraudsters. Here are 6 tips to help you jumpstart your fraud prevention framework and get ahead of fraud losses.
Beginner's Guide to Open APIs in Banking for Fintechs
Learn how open banking APIs are reshaping the financial services industry and how Galileo's banking APIs allow you to quickly create payment card programs.
What Are the Business Benefits of Using Fleet Cards?
Learn more about how companies with vehicles or equipment can leverage fleet cards to streamline purchases, better manage spending and glean actionable data for further savings.
Why Core Modernization and Cloud Migration Matters For Banks
Customers–both consumers and business users alike–are more exacting than ever when it comes to digital banking–and many of their demands are going largely unmet.