Should you be worried about getting your tech stack wrong?
The finance industry is ripe for disruption. FinTech has had many unicorns but banks, along with other industry incumbents, are still by and large the main provider of crucial financial services.
Do FinTech startups lack the technology to fully disrupt this space, and become to go-to providers of financial services in business and consumer markets?
In Fintech Regulations ≥ Technology
Before we dig deep into the subject of tech stacks in financial startups, we must first mention something other than pure technology. It’s important, but you must also consider that FinTech startups can too easily be engineering-driven to a fault.
Finance is one of the most regulated industries and it’s no wonder why. Startups in this area don’t enable people to post and exchange selfies, get a comfy place to stay at when travelling or hitch a ride.
Startups in Fintech handle money. Money is created and distributed by government institutions and when you try to handle money using new technologies, you have to deal with heavy government regulations along with the doubt coming from conservative folk.
However, throughout the years even conservative people must have realised the benefits of disrupting finance with new technologies, as even the Chinese market has become riddled with fintech unicorns.
In a surprising turn of events, Business Insider’s annual fintech unicorn list in 2016 was dominated by companies based in the country that used to be the manufacturing hub of the world. What’s interesting is that 41% out of 27 companies that made the list are startups that offer lending or credit services.
This could be related to the fact that regulations in this space are the easiest to handle when it comes to building new startups, or it might just be a coincidence and it’s simply the “hottest” space for finance disrupters.
Whatever the reality is, this still goes to prove a few things:
1. Technology startups can succeed in a heavily regulated market (even the Chinese financial market)
2. The global market is ready for disruptive financial services.
3. Many startups already compete to be the leaders of key market niches, like peer-to-peer lending.
How does all of this translate to decisions regarding your tech stack?
1. Consider regulation first, technology later.
2. Your next profitable market can be anywhere around the world, so your tech stack needs to be universal.
3. To crush competition you need better regulatory insights, not necessarily better technology.
4. All in all you shouldn’t let your tech stack limit your business capabilities.
Tech can’t be your ball & chain
Your tech stack should give you freedom in order to keep many options open. You should be able to pivot the design in accordance with new regulations and market opportunities that arise with them.
When a research institute analyzed the tech stacks of private venture-backed companies valued at or over $1 billion, the first finding was that the most popular programming language was JavaScript, with 81% companies using it. Other popular languages were Python (67%), Java (64%), Perl (44%) and PHP (42%).
The startups’ frameworks and databases were also taken into consideration. Git (70%), Jquery (63%) and Hadoop (63%) topped the “frameworks and libraries” category, whereas MySQL (85%) dominated the “database” category, followed by Oracle (58%) and Hive (46%).
The overwhelming choice of open-source databases is easy to notice, perhaps proving that the biggest startups can’t be limited by their technology. It can happen if you try to rely on trendy new technologies in your tech stack, which is never a good idea as even Reddit CTO Martin Weiner confirms, advising startups to use mature technology whenever possible, as it will help them get operations running as smoothly as possible.
I know that mature technology seems boring, but it works. Need proof? Let’s examine the tech stacks of successful fintech startups that have made it to The Fintech 250, a list of startups redefining the financial services industry published recently (03.07.2017) by CB Insights.
Leading Tech Stacks in Fintech
The list below contains the most promising fintech startups in 17 categories, and I picked one from each category that also posted their stack on Stackshare. Here are the results:
I’ve tried to pick the companies that were most public about their stacks and published as much of their tech as possible. Short analysis of these stacks shows us that:
1. 14 out of 17 companies use nginx
2. 8 out of 17 companies use PHP
3. 7 out of 17 companies use (often several) Amazon Web Services
4. 5 out of 17 companies use Ruby,
which are generally considered mature technologies.
Then again, 9 out of 17 companies use Bootstrap which isn’t exactly an old front-end framework, but it’s already the most useful technology for it’s purpose. It may be seen as proof that the best fintech startups care primarily about the usability and reliability of their stack.
To disrupt finance, startups have to work with (not against) the industry incumbents in order to succeed. To do so they need to be compatible with the technologies that banks, insurance companies, regulators and governments know and trust.
Of course if a bank likes a product, they’ll just buy it and re-write it to fit their legacy code. But choosing the wrong stack is a risk that you don’t want to take, because the competition is strong and you might not be the only one with the product they want.
Reliable tech and regulatory insight
The full fintech stack consists of reliable technology and regulatory insights. It’s not enough to build an MVP in whatever technology to compete in fintech. Investors, as well as regulators and end-consumers, won’t trust you until you show that you understand the challenges.
You can’t just be a tech master to succeed, you need to be (or partner up with) an expert in regulatory compliance and think of regulations first. Your tech? It needs to be reliable.
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