(1) Introduction to FinTech Ecosystem
A disruption in one industry triggers a cascading effect on the others.
The World FinTech Report 2017 from Capgemini explains that FinTech has emerged as one of the most promising trends of the recent past. Increasing customer expectations, the expansion of venture capital funding, reduced entry barriers, and technology innovations have allowed the FinTech Industry to flourish in every sector. The methods of offering services through traditional firms have not changed much over the years. The fast-changing industry and busy schedules of individuals have highlighted many loopholes in traditional financial systems. On one hand, traditional financial firms believe that their business is at risk due to FinTech startups; on the other hand, various traditional firms are partnering with innovative FinTech firms to tap the market. The figure below maps the FinTech ecosystem with financial services areas.
FinTech, also known as Financial Technologies, hails from both technology and financial services. With digitization, new companies have evolved to provide customers online financial services. For this, companies have come up with software, frameworks, and solutions that allow customers to deal with their money online. The FinTech ecosystem consists of three entities: hi-tech firms, traditional firms, and government.
Hi-tech firms consist of two kinds of companies: Big technology companies like Apple and Google who are becoming active in financial applications. Small companies like PayPal and Stripe who are introducing disruptive technologies that enable clients to handle their money online
A second system, known as traditional firms, includes global and local banks and financial institutions. These traditional firms either partner with hi-tech firms or do in-house innovation to strengthen their market.
The third entity consists of a regulatory body, mainly government, which enforces regulations and policy settings. Services include payments, Blockchain transactions, wealth management, investment banking, retail banking, lending, and treasury functions.
(2) FinTech Services and Their Impact on Various Sectors
Capgemini’s World Quality Report 2016-2017 illustrates that financial firms are partnering with FinTech firms in order to make their presence known in the market. With the changing nature of firms, testing for related applications also changes. Today, we need agile delivery models, rapid QA and testing, and application programming interfaces with service virtualization. FinTech disruption has affected various sectors of the industry through its services, which are based on digital platforms. The heat map below shows the sectors with services currently having immediate impact.
Some of the FinTech Services available include:
1. Lending services: FinTech firms are offering peer-to-peer lending services, including online solutions that allow lenders and borrowers to work together. Borrowers in this case may be individuals or businesses. Examples include companies such as Lendbox and MarketFinance.
2. Payment services: Companies are offering online payment solutions where buyers can pay online and the settlement of money can happen without going to a bank. Examples include companies such as Paytm and Mobikwik. This service has significantly altered the retail and e-commerce segments where customers use online channels or cards to pay.
3. Investment services: Few start-ups are providing solutions that can give suggestions to people on their financial investments by comparing various policies within the market. Examples include companies such as PolicyBazaar and BankBazaar.
4. Equity funding services: FinTech firms are using crowd-funding platforms to approach venture capital funding services. These services target start-ups and early-stage businesses. Examples include companies such as Ketto and Wishberry.
5. Short-term credit services: This service has created a significant impact on the manufacturing industry. Solutions based on supply chain financing help buyers and suppliers to handle the whole retail process from procuring to paying. This service assists both parties to manage their working capital.
6. Financial research: Fueled by analytics, some companies have innovated new solutions and tools that can analyze the financial condition of a firm or an economy. With the use of predictive analytics and business intelligence, companies such as Blue Yonder and Packetwerk are providing solutions for financial research.
(3) Testing for FinTech Applications or Solutions
In order to test FinTech applications, we need to map out requirements and specific types of testing. For a FinTech application or software, there are five key requirements: security, data integrity, user friendliness, functionality, and performance. The diagram below illustrates each requirement in reference to testing.
Security is one of the most important aspects requiring testing in a FinTech application. Financial data used by applications contains sensitive information that can be misused by hackers and malicious software. As such, security testing, including penetration and vulnerability checks, is important.
Data safety, data integrity, and data validation is important for any system, but is especially essential for financial systems. During data migration and data exchanges over communication channels, proper procedures and rules regarding tables and records must be followed.
FinTech applications are used to expand both the reach and ease of business. Applications have to be user friendly so that any user is able operate it. Consequently, this requires usability testing with the help of real users.
Furthermore, functional testing ought to be an integral part of test strategy given that applications interact with many other applications. Load and stress capabilities for applications should also be checked.
FinTech presents both threats and opportunities for traditional banking firms. This duality has resulted in a cascading effect on other sectors. Operational efficiency is one of the biggest achievements of FinTech, a technology that most traditional firms are lacking. Traditional firms have to demonstrate agility in building, acquiring and partnering with FinTech firms in order to capitalize on market opportunities. Capgemini’s World FinTech Report suggests a methodical framework known as “discover, devise, deploy, and sustain.” With the help of senior leadership commitment and a clear vision, this framework can help traditional firms compete through the use of this disruption.
(5) Further Readings and References
1. Capgemini’s FinTech Report–Link
2. Opportunities in FinTech–Link
3. Testing services for FinTech–Link
4. PWC report on FinTech–Link
5. HBR report on Fintech–Link
6. Fintech impact on Financial Research–Link
Main Author: Renu Rajani, firstname.lastname@example.org, Vice President, Testing Global Service Line, Capgemini India
Contributing Author: Pulkit Mathur, email@example.com, Solutioning Consultant, Testing Global Service Line, Capgemini India.
For an in-depth look at the key trends in FinTech, download the World FinTech Report 2017, https://www.capgemini.com/the-world-fintech-report-2017