How to Evaluate a Strategic Fintech Outsourcing Partner

Why Fintech Outsourcing is Not an Option anymore

It is possible to explain why fintech outsourcing has come to the center of the industry first before getting into the evaluation frameworks.

Speed to Market

The financial services will forever be undergoing change. The changes in the customer expectations, evolution of the regulators, and competition are increasing at very high rates. Collaborations with experts enable firms to deliver new features and products more quickly, and decrease the time-to-value.

Availability of Niche Competencies.

The modern financial platforms need skills in:

• Cloud-native engineering
• API-first architectures
• Threat modeling and cybersecurity.
• DevSecOps
• Digital identity, KYC/AML
• Core banking integration
• Real time analytics and pipelines of financial data.

These are skills that would be difficult to recruit within the company and more difficult to retain. This experience is in-built in a strong partner.

Cost Flexibility

Outsourcing is scalable and on-demand capacity in place of fixed overheads and lengthy hiring processes. Particularly it is applicable in:

• Peak development phases
• Regulatory deadlines
• Market expansion
• Product modernization
• Regulatory Confidence

Financial institutions are risk-sensitive. An audit-ready and compliant outsourcing partner minimizes operational, data and regulatory risk.

Shared Innovation

A strategic partner collaborates with a variety of fintechs and banks, providing them with knowledge of the best-in-class architecture, market changes, new technologies, and experience.

Your ecosystem is a key determinant of fintech success in most respects. According to an observation made by Bill Gates, the banking is necessary but not the banks. The reason is that in a world where financial services are defined by software, the selection of the software partner is a competitive advantage.

The differences between a vendor and a strategic partner.

The most common mistake made by many firms is the assumption that all outsourcing firms are identical. However, there exists a world between a vendor and a strategic partner.

A Vendor:

• Follows instructions
• Delivers tasks
• Concentrates on short term projects.
• Works in isolation
• No effect on product strategy.
• A Strategic Fintech Partner:
• Knows your business model.
• Practices product and architecture decision making.
• Knows regulatory limitations.
• Prioritizes security-by-design
• Works as a unified continuation of your team.
• Shares the ownership of results.
• Brings domain experience, and not merely coding skill.

It is too big a game in fintech to be content with execution. You must have someone who not only knows well the financial ecosystem but can contribute to creating your roadmap, and not simply construct it.

Domain Expertise and Strategic Alignment

An outsourcing partner working in the fintech sector needs to be aware of your specific segment of the financial sector- not only technology but also the rationale of the tech.

Deep Domain Expertise

The term Fintech is a generic one encompassing a number of sub-domains:

• Payments & wallets
• Lending & credit scoring
• Onboarding-identity digitally.
• Wealthtech & robo-advisory
• Insurtech
• Core banking modernization
• Regtech
• Blockchain & digital assets
• Banking-as-a-Service

Assess the presence of the partner with actual case studies, practical experience as well as a history in your field.

Key questions to ask:

Have they dealt with other businesses within your area of regulation?

Have they provided products of the same nature as yours?

Would they be able to talk about market trends and regulatory movements without having a script?

Fitment With Your Technological Direction.

Misplacement of technical philosophy may cause cooperation to go awry even with the domain expertise appearing to be robust.

For example:

When you are migrating to microservices, but the partner works on monolith-first thinking, a conflict will be experienced.

When API monetization or open banking are on your roadmap, the partner has to be familiar with the PSD2-style ecosystems.

In case you are going cloud-native, they should be mature in Infrastructure-as-Code, Kubernetes, and automated security testing.

The most suitable partners are able to tell you the future architecture even before you tell them about it.

Strategic fit questions:

What do they think the future of your industry would be in next 3-5 years?

What would they rank your product roadmap?

What would they say were some of the architectural choices they would contest or improve on?

Only a real partner assists in creating your course- not only following orders.

Dimension two: Regulatory, Risk, and Compliance Maturity

This is the most important criterion in fintech. Financial systems have sensitive information, stringent legislations and high operations risk. To survive in this environment, a partner should be well prepared to help you get through the experience.

Regulatory Familiarity

Evaluate their exposure to:

• KYC/AML guidelines
• PCI DSS standards
• ISO 27001 or SOC 2 frameworks
• Regional privacy laws and GDPR.
• Banking regulations that are country specific.
• Requirements on data residency.

Find out signs that they have dealt with regulator audit and compliance audits and data governance programs previously.

Risk and Security Management Practices.

An established fintech partner must possess:

• An established information security management system.
• Periodic external and internal auditing.
• Written incident response standards.
• Vulnerability and penetration testing software.
• Policies of identity and access management.
• Business Continuity/ Disaster Recovery plans.

The most helpful question is the one that asks:

How does your organization respond to a suspected data breach?

Your tests are on clarity, maturity and speed; three foundations of operational resilience.

Dimension #3: Strength of Technical capability and architecture

In a contemporary fintech, your outsourcing partner gets to be a co-architect of your platform. Assess their level of engineering.

Technology Stack Depth

Make sure that they are experienced in:

• Which languages are your main (Java, Python, Node.js, Go, .NET, etc.)
• Cloud environments (AWS, GCP, Azure, internal one)
• Open banking trends and API gateways.
• Microservices architecture and event-driven architecture.
• Streaming and analytics of data in real time.
• Connection to the main banking systems.
• The current DevOps/DevSecOps pipelines.

Engineering Standards

Ask about:

• Code review practices
• Automated testing coverage
• Branching strategy Versioning.
• Infrastructure as Code
• Release management
• Observability (logs, metrics, tracing)
• SRE guidelines of down time and latency.

Good partners do not spell these in generalities, but in concrete examples.

Dimension #4: Operational Resilience and Security-by-Design

Security is no separate fintech track, it is everywhere.

Security Practice Engineering.

The right partner should:

• Use the least privilege access.
• Encrypt data in transit and rest.
• Hidden or coded sensitive fields.
• Ensure your safety by managing a strong key.
• Threat modeling at the start of the SDLC.
• Ensure sound development policies.

Resilience and Stability

Financial platforms are 24×7. Down-time has an effect on revenue, trust and compliance.

Evaluate:

• Multi-region deployments
• Redundancy strategies
• RPO/RTO commitments
• Workflows of incident management.
• Culture during the post-mortem (faultless or otherwise)
• Resilience is not really architecture it is discipline.

Dimension 5: Strength of team, dimension culture, and dimension delivery model

Technology is important-yet it is people who provide it.

The culture and talent models of your outsourcing partner have an impact on the speed as well as the quality of communication.

Delivery Approach

Determine their preference of:

• Agile, product-driven teams
• Scrum or Kanban
• Dedicated squads
• Onsite-offshore hybrids.
• Complete ownership or joint ownership.

The partner must not be inflexible: he or she must adjust to your working model.

Quality and Retention of Talents.

You want answers to:

• What is the proportion of their financial services experience workforce?
• Who are your senior architects on your account?
• What is their turnover rate annually?
• What do they do to maintain the continuity in case of the departure of someone?
• Important resources are those named and having real experience as compared to generic resumes.

Culture Fit

This is usually underestimated. You want:

• Transparency
• Proactive communication
• Accountability
• Curiosity
• Collaborative problem-solving
• Comfort with ambiguity

When there is a good culture fit, the results of delivery will be improved and the occurrence of misunderstandings will be reduced.

Dimension #6: Commercials, SLAs and Contract Structuring

Pricing Models

The typical models of engagement are:

• Flexibility by providing time and Materials.
• Pre-determined price on definite projects.
• Specialized capacity teams of long-term roadmaps.
• KPI-based outcome-based models in which fees are based on KPIs.

These models are usually combined in strategic partnerships.

SLAs and KPIs

Define metrics for:

• Platform uptime
• Deployment frequency
• Change failure rate
• Incident response
• MTTR
• Defect density

They must be more of an incentive and not a friction.

Contracts and Legal Clauses

Pay close attention to:

• Data processing agreements
• Liability caps
• IP ownership
• Subcontractor controls
• Termination clauses
• Right to audit

Contracts in fintech must secure your business and allow you to work together.

Dimension #7: Models of Transparency, Governance and Collaboration

Great governance leads to great outsourcing relationships.

Multi-level Governance Structure.

This should include:

• Quarterly executive steering committees.
• Meeting on operational governance (monthly).
• Suicide bombers rituals (daily/weekly)

Transparent Reporting

Your partner should provide:

• Real-time dashboards
• Read-only access (at least) to repositories.
• Easy access to backlog, risks and releases.
• Incident and post-mortem reports.
• Visibility builds trust. Trust builds velocity.
• Red Flags to Watch Out For
• Keep off any outsourcing partner that:
• Says “yes” too quickly
• Lacks experience in the field of fintech.
• Lacks inability to express regulatory requirements.
• Shuns process or system transparency.
• Offers poor resourcing strategies.
• Overpromises on timelines
• Lack of a definite security system.
• Bon Appetit: Take your engagement as a hobby.
• Base-tremendous in offering reference.

The most convenient method of gauging the future behavior of a partner is through his actions in the course of evaluation.

What a Good Strategic Partnership feels like

You will know when you have found the right partner as:

• Your teams are naturally communicating.
• They put you to test in the proper ways.
• They predict dangers which you never spied.
• The velocity of your product increases after the first month.
• Teamwork is not tiring but invigorating.
• Security and compliance are addressed in advance.

You acquire the ability to do in the long run, not only in the short term.

At one point, Marc Andreessen wrote, software is eating the world.This is more so in the case of fintech- all financial products have become digital products.

A strategic partner is incorporated in your competitive advantage.

Bringing It All Together

The assessment of a fintech outsourcing partner is an art and science. You are not only recruiting a team but a partner who will:

• Develop mission-critical systems.
• Manage delicate financial information.
• Support regulatory audits
• Make a contribution to your product strategy.
• Become more operationally resilient.
• Assist you to climb high and on a sustainable basis.

By following the seven dimensions provided in this guide, you are likely to find a business partner who takes your business to the next level- not performing duties.

The future of financial services is in businesses that develop robust, strategic ecosystems. Select your partners carefully, and they will assist you in the creation of the following generation of technological advancement in the field of fintech.