This two-part blog series looks at the jobs to be done in fintech and argues that the right tool for the job, the Erlang/Elixir/OTP open-source ecosystem for software development, has its roots in telecom – an industry that has already resolved many of the new challenges confronting fintech currently.
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The Brave New World of Fintech
The world of financial services using technology to make individuals’ lives easier and more prosperous is becoming increasingly similar to the world of telecommunications.
The simple reason is that since the introduction of the iPhone (a smart telecommunications device also known as a “smartphone”) in 2007, most of our interactions with banks and other financial institutions are through smartphones.
This means that we expect the banking experience to be as good as all our other smartphone experiences, be it entertainment or work related, including around the clock availability and responses within fractions of a second. This is backed up by research showing that response times above half a second makes people wonder what is going on and get stressed.
Since it is about money and other financial instruments, we also expect all interactions and personal data to be highly secure from e.g. intrusions and theft. The essence of all financial services is trust. You trust banks to not lose your money. If you lose the trust in your bank, you will switch to another bank or at least move parts of your business elsewhere.
In more technical terms, we want our financial interactions to be done in real-time and be extremely secure and reliable.
The Job to Be Done
From a customer perspective, we have just seen how our financial services needs are for real-time, secure and reliable products and solutions. Also, we expect new innovative services that simplify our daily lives, e.g. saving us time and money while growing our financial wealth. One example is instant payments using your smartphone as a digital wallet connected to your bank account where work is ongoing to enable instant person-to-person payments also across national borders.
The traditional banks have a track record of security and reliability leading to trust, loyalty and long-standing personal relationships with their customers with e.g. personal banking experts available for financial advice. In the past that trust was established with large imposing buildings signifying they were here to stay. Over time banks have eliminated buildings – particularly in the branch network in order to reduce costs and as a consequence “trust” has become more intangible.
As a traditional bank, you would like to extend the experience to the digital world and at the same time reduce your large cost base which is due to very old hardware and software. One example is a European bank that developed a new, well-designed and innovative smartphone application that unfortunately did not work since it took up to 30 seconds to fetch customer data from the legacy software system. They realised that their legacy software system was not fit for the future and have since then started to replace the system with future-proof technology, one “elephant carpaccio slice” at a time.
If you are a startup providing financial services, your needs are your customers’ needs, so real-time, security and reliability in order to secure their trust and loyalty are still valid. Since you are competing with the incumbent giants, you need a unique, focused offering that can be developed quickly and operated at low cost. Additionally, you want to provide a smooth onboarding experience to acquire new customers quickly. Backbase and Tide offer one minute customer onboarding time, a process that usually requires at least 48 hours to fully vet and comply with regulations.
If you are one of the big US technology giants, you may want to consider your particular superpower, e.g. social networking, superb user experience or superior customer understanding, to expand your offering to embrace selected financial services as an integral part of your brand. One example is Apple Pay which extends the real time facility without having a current account or complying with onboarding requirements. Another example is Uber Money with digital wallets and credit and debit cards.
If you are one of the clearing houses, banking centrals, credit card companies or central banks, the huge number of financial transactions due to the real-time interactions lead to massive requirements on scalability and resilience of your technical infrastructure since the systems you operate are critical, not only for your specific customers but for society at large. We are seeing experiments with digital currencies run by several central banks in the world, including Sweden’s “Riksbank”, founded in 1668.
If you are one of the providers of digital currencies based on blockchain technologies you also face the challenge of minimising the energy consumption for all the computations needed.
Considering the engineers and developers who design, deliver and operate the financial systems, they want an environment where you can develop and deploy easily – including smooth programming languages requiring few lines of code supported by libraries, frameworks and tooling – and get quick feedback from both development, test and commercial deployments. Motivated and engaged employees lead to better services and happier and more loyal customers.
To summarise: we need real-time, secure, reliable and scalable systems that can be developed quickly and smoothly, operating at low cost with interoperability across borders and currencies.
The Telecoms World
Fortunately, the needs of real-time, secure, reliable, scalable and interoperable systems that can be developed quickly and operated at low cost have already been fulfilled in the telecoms world starting in the 60s and 70s when the telecom operators started deploying the first digital software switches for local, regional and international phone calls. This infrastructure critical for society was designed, developed and tested for global, real-time around the clock operation with billions of users from the very beginning and global standards for interoperability were key enablers.
The technology evolution grew very rapidly in the 80s and 90s due to the increased demands for communication on the move using handsets connected to mobile networks, first using national network standards (the first generation, 1G, for voice calls only), then regional network standards (the second generation, 2G, for voice, text messages and limited data transmission), and, finally global network standards (the 3rd, 4th and 5th generations, 3G/4G/5G, optimised for higher and higher rates of data transmission).
This evolution happened in parallel with the evolution of systems for secure and reliable financial transactions. The biggest difference was that the telecom systems had far more transactions to handle due to the real-time nature of phone calls, mobile phone calls and browsing the web whereas the financial world handled this particular challenge through daily batches around midnight where all the financial transactions during the past 24 hours were processed.
Finally, telecoms have been commoditised by regulation, standards and global competition and is now a low margin business. There is a similar threat to financial services. In telecom, threats such as Google and others were well known to telecoms yet the telecom operators failed to act and now the value has been taken by the Big US Tech players with a global mindset.
To summarise, telecoms have already mastered the challenge of real-time, secure, reliable, scalable and interoperable systems that can be developed quickly and operated at low cost. At Erlang Solutions we believe that a lot of our learnings from this industry can be applied to exciting new projects in the fintech space.
Erik Schön, Managing Director, Erlang Solutions Nordic, is an executive with 20+ years of telecoms experience from global standardisation, system design and managing R&D organisations of up to 400 people at the global telecom giant Ericsson. Erik is a big fan of Erlang since the 90s and his latest book is The Art of Strategy.
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