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Bringing the Backend to Front of the Fintech Conversation

11 de agosto de 2020

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.

Constraining Backends

Conversely, connecting amazing user experiences with backend systems that are outdated or broken limit fintechs’ ability to differentiate and evolve.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.

Enabling Backends

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.

Local Implications

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.

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