Over the past few years, the market for the provision of banking and financial services has significantly changed. Our life as users has been significantly simplified with the advent of digital-only banks. We do not stand in lines to open bank accounts, nor do we go to the bank branch several times to get a plastic card. Digitalization has come into our daily lives to fundamentally transform it.
The new type of banks changed the minds of consumers and made the high-street banks tense up. Why so? Users started moving to new mobile-only institutions that provide almost the same range of services at a lower cost (since they don’t have to spend money on branch maintenance).
That is why, in the UK, these banks began to be called challenger banks — the ones ready to challenge the system. You can also find the names digital-only, neo-banks as well as banks using cloud computing.
I have been developing fintech projects from scratch for over 3 years. I have managed to gain enormous experience through direct work with the CEO, CPO, CTO of various banks and financial institutions. We jointly create new applications, improve current functionality, and fill backlogs with newer features.
To feel comfortable in the fintech industry, you need to understand two main areas of financial institutions' activity:
As this knowledge is of great use to any team member regardless of their role, we've decided to organize a series of skill-up lectures on fintech and discuss the peculiarities of application development in the fintech industry.
The first lecture is dedicated to digital banks and their main components. According to the Fintech News report, 6 digital-only banks have been estimated at more than $1 billion. The number of users in such banks reaches 15 million (a prominent example is the Brazilian NuBank).
There is a particular pattern and key functionality to be present in every digital bank. It is formed on the basis of market requirements and the regulatory system of every country. Let us take a look at the crucial points:
KYC (Know Your Customer). It is the most important phase of the registration of a new user. In short, the bank remotely validates the person’s identity and related documents. Services such as Troolio, Jumio, Onfido, and Comply Advantage help validate the data by analyzing the document not only through the unique numbers and check-sums but also with the help of databases, such as PEP (Politically Exposed Person), sanction lists, and lists of cybercriminals. Sometimes banks insist on additional checking: registration permit or the presence of the name in the voters roll. In fact, at this stage, the bank decides whether to cooperate with the client or not. In the case of disputed verification results, the compliance team of the bank may connect and request additional user data.
Payments. As soon as the registration is over, the user receives a plastic, ready-to-use card. Depending on the license, financial institutions can issue only debit/pre-paid cards (e-money license) or debit + credit cards (full banking license). There are different types of bank payments: money transfer within one bank, money transfer within one country, international transfers, and regular payments, which are made automatically at certain intervals.
In the UK, we also became acquainted with another area — Direct Debits. This is a system allowing a third-party service to regularly withdraw money from a customer’s card. For example, I can activate the Internet service accompanied by the activation of payment services through direct debits. From now on, the cost of services will be deducted from my account without my participation on a regular basis, thus, excluding the human factor.
Customer support. Since digital-only banks have no branches to turn to, high requirements have been set to ensure the efficiency of the customer support team. At the same time, pressure comes from two sides — real users and regulatory services. All the banks have certain policies, norms on providing a reply, and speed of solving a particular problem. To quickly resolve issues, the customer support team needs a set of tools that we are developing.
The aforementioned functionality list is basic, but there are more features available if necessary. Banks add all kinds of integrations and synthesize new products. Throughout our pre-sales practice, we have come across lots of cases when the bank wanted to introduce cryptocurrency, thus ensuring conversion in both directions: cryptocurrency <> fiat money.
Another popular solution is integration with long-term and short-term investment products. One example is the Dozens application that includes both short-term bonds and long-term investments in various portfolios.
The most popular service that we have implemented in recent years is the integration of banks with other banks through the Open Banking API. We've prepared a separate lecture on this topic, which is going to be conducted in the near future.
In general, Open Banking is an initiative of the Financial Conduct Authority (FCA), which obliges all the existing banks to provide a specific set of APIs. Open Banking sets clear requirements concerning the structure and operation of each API. All the existing licensed organizations can register as TPP (third-party providers) and use the API of another bank to expand the range of their own services.
Having worked on various projects in the fintech field for several years, I can talk for hours about the complexities of the system, my experience, and all the intricacies of developing fintech projects.
My projects are developing, and customers want newer features. Therefore, I am always looking for those who like creating, thinking through, analyzing, and implementing fintech products. I am ready to share knowledge and help everyone interested understand modern banking, be it a business analyst, a QA, a developer, or a DevOps.
Leader of the Product development team of ITOMYCH STUDIO.