FinTech Startups Tug the Industry Forward

Financial services companies are among the most highly regulated industries in the world. They also suffer from a trust issue. Trust is a key ingredient in making a financial services business viable. Why would I ever buy insurance, banking services or invest my savings via a company that I didn’t trust?

After the sub-prime debt crisis in 2008 it became clear that the financial services industry would need to rebuild it’s image. Companies would need to zealously rebuild their brands to aspire to become “trusted advisors”. From an IT standpoint it is crystal clear that client and corporate data must be guarded and protected to prevent any loss as well as minimize the potential for damage to an organization’s reputation. How to manage the risk and yet stay innovative?

The response by some financial services companies is to stick their head in the sand and avoid "the cloud", open source technologies, and try to make their networks ever more restrictive. This backfires in several ways:

1. Their economics are always working against them relative to more open competitors, which they justify by convincing themselves that they are more secure and it's "worth it". However managed properly their competitors are just as secure.
2. Their employees skills go stale. Since IT personnel cost so much the result is mismanging a key resource.
3. By outsourcing aspects of their security to companies like Oracle, Microsoft and IBM they convince themselves they are more secure. Does anyone know how many vulnerabilities there have been in the .NET framework over the years?
4. Employees will begin actively circumventing security when it impedes their ability to do their job. I've met employees who use their personal laptops on open Wi-Fi because they tell me they can't work on their corporate laptop and network because it is so locked down.

What's even worse than the problems listed above is the market never stands still. Your future competitors are today's startups. FinTech companies are improving payment processes, reducing fraud, saving users money, promoting financial planning and responsibility, improving lending, and ultimately moving a giant, cautious industry forward.

If we look at a recent article in Forbes that profiles 15 FinTech startups to watch in 2015 we can then also peek at the technologies they are using as see where the future lies with financial services:

• BillGuard: nginx, Apache, postmark, ZenDesk, Amazon AWS, Cloudflare
• PlanWise: nginx, Apache, MailChimp, Wordpress, PHP, Fastly
• OnDeck: nginx, Azure, Wordpress, PHP
• WealthFront: nginx, Amazon AWS, Cloudfront
• CurrencyCloud: nginx, Varnish, Mandrill, Cloudflare, Google Apps
• Stripe: nginx, Amazon AWS, Mandrill, Ruby on Rails, Google Apps
• Epiphyte: Office 365, Azure, Node.js/Express, Bootstrap
• AstroPay: nginx, Amazon AWS, PHP, AngularJS
• BankingUp: Apache, Google Apps,
• Square: nginx, Ruby on Rails, Amazon Cloudfront CDN
• Tipalti: IIS, nginx, Google Apps, Rackspace, Wordpress, PHP, .NET
• Flint: Apache, Amazon AWS, Google Apps, PHP, Akamai CDN
• Check - Acquired by Intuit (no info available)
• Zipmark: Cowboy(erlang), Postmark, Google Apps, Amazon AWS, Ruby on Rails, Heroku
• WePay: nginx, Amazon AWS, Mailgun, Zendesk, Google Apps, Akamai CDN

What can we take away from this list?

1. Fintech startups are not afraid of open source.
2. Fintech startups are taking advantange of cloud economics and scale (AWS, Rackspace and Azure as examples).
3. Fintech startups are not afraid of using other "startup" services.
4. Yet they also must be solving the security issue as well - what the most tenuous point in any companies lifespan and the one where trust matters the most? The startup phase.

What will this mean for incumbent companies that refuse to change? Maybe in the future they will be both secure and irrelevant. Or worse, maybe just irrelevant.

Note: Technology data from builtwith.com