Your Guide to Financial Software Development
Financial software development involves designing, building and scaling software that is used for financial tasks or supports financial services. This could include accounting & finance software, banking software, trading software, payment software, embedded lending software, investment management software, financial planning software, and risk management software. The list goes on.
When building financial software, the goal is to make financial transactions and data management more efficient, accurate, and secure. This is often achieved by using AI and machine learning technologies, automation, blockchain, and data analytics.
In this guide, we will provide all you need to know about financial software development including:
As an experienced financial software development partner we will share our top tips for building market-leading software, and how to choose a financial software development company.
But before we do all that, an obvious question is…
What Type of Company Engages in Financial Software Development?
While financial software is often built for companies that provide financial services or work in the financial sector, that is not always the case.
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- A company might build financial software to assist in debt collection, repossession or asset recovery.
- A firm may build financial software to deal with disputes and chargebacks i.e. when a customer questions a charge on their credit or debit card, and money is returned to the customer after investigation. This could be used by ecommerce retailers, subscription-based services or companies in the travel or hospitality sector for example.
- An ecommerce company, such as Amazon, might build its own financial software to deal with complex transactions, fraud detection or integration in its marketplace.
- A phone service provider or a telecommunications company might engage in financial software development to build a system that’s specific to their needs, and handles billing, customer payments and disputes and chargebacks.
- A firm in the hospitality sector could use their own custom financial software to manage reservations, customer billing and financial reporting.
- A large healthcare provider might build its own financial software to manage patient billing and deal with insurance claims.
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The possibilities are endless.
Financial Software vs Fintech Software Development
There seems to be a small bit of confusion about the word ‘fintech’ and the use of ‘fintech’ to describe a ‘FinTech firm’, so we’ll quickly cover that to avoid confusion.
The word ‘Fintech’ is a combination of two words, ‘financial’ and ‘technology’. Financial technology (aka fintech) is any software, application or piece of technology that is used in the delivery of financial services or that is used to improve and innovate financial services.
The mobile banking app that you use to check your balance is a piece of fintech. The digital wallet in your phone that you use to shop online and the payment platform that you use to process a secure payment are both pieces of fintech. If you are trying to secure a loan and it’s all done through a website or mobile app, you’re using financial technology. So, basically, ‘fintech’ and ‘financial software’ refer to the same thing. For that reason ‘fintech’ and ‘financial software’ are often used interchangeably.
However, there is a difference between a company that uses fintech and a FinTech company. With the digitalization of the banking industry, most banks and financial institutions have integrated with FinTech in some form or another. These firms have adapted to a new online world and integrated with financial technology.
However, there are companies that have built a piece of financial technology and built their entire business around it. These companies are known as FinTech companies. Examples include PayPal, Stripe, Coinbase, Revolut, Kickstarter, and Degiro. Fintech companies often provide the technology that is used by other firms. The number of FinTech companies has been on the rise in recent years. In the United States alone, the number of fintech startups increased from 5,868 in 2018 to 11,651 in 2023.
The incredible rise of financial software has changed customer expectations. Customers now expect fast, effective and secure financial services that are tailored to their specific needs. There are new standards and companies are expected to live up to them.
Key Features of Financial Software Systems
What component do you include in your financial software build? Of course, every product or platform is different and a lot will depend on the idea, the user and the discovery and investigation phase mentioned above. However, we will mention some components and features that are increasingly becoming a part of financial software applications.
1. Cloud-based technology
When it comes to financial software, using cloud-based technology means using cloud computing to host, manage, and deliver financial applications and services over the internet. This is opposed to the traditional way of doing things where on-premise software was run on local computers and servers. Not only did this require significant up-front investment but it was a lot more rigid and restrictive.
The adoption of cloud computing is accelerating rapidly within the financial sector; offering greater flexibility, accessibility and mobility. Cloud computing allows users to access financial information from anywhere. This allows for remote working and on-the-go connection, which is more in keeping with the modern working life.
Using cloud-based technology is also a lot more flexible and scalable as companies can scale resources up and down based on demand. This is also much more cost effective.
2. Artificial Intelligence and Machine Learning
We won’t belabor the point as it has been mentioned throughout this guide but, in 2024, incorporating artificial intelligence and machine learning is a key consideration for all financial software builds. If you don’t consider AI you immediately run the risk of building an outdated system.
3. Fraud Detection Software
Fraud detection software is designed to identify, prevent, and mitigate fraudulent activities within financial transactions and operations. Fraud detection software monitors transactions and customer behavior to recognize patterns, anomalies, or suspicious behavior that may indicate fraudulent activity.
Fraud detection has many applications within the broad spectrum of financial services software development. In banking, it can detect suspicious or unauthorized credit card transactions. In insurance, it can spot fraudulent claims or abnormal claiming patterns. For eCommerce companies, fraud detection can highlight activities that could potentially lead to fraudulent disputes and chargebacks. Across all sectors, it can also play a key part in identifying and preventing money laundering and safeguarding financial transactions.
4. Open Banking
Open Banking is where traditional banks allow third-party developers to access the bank’s customer/client information through APIs (application programming interfaces). This model changes the way financial data is accessed and shared, providing a safe and secure method of exchanging financial data.
Previously, only a customer and its bank could access financial data. However, with open banking, a customer can authorize a third-party to access its data. For example, a customer might be using a mortgage-brokering app like Rocket Mortgage and will authorize the app to access their personal financial information so that it has a better understanding of their financial position and can provide a better, more fluid customer experience.
Open Banking allows financial institutions to provide greater transparency into consumers’ finances, which can lead to improved customer satisfaction and retention. This is seen as a fuel for innovation within the fintech industry.
5. Embedded Finance
Embedded finance is the integration of financial services into non-financial offerings. For example a car dealership might offer a potential buyer an on-the-spot loan so that they can purchase a car. Embedded finance is most effective when it’s offered at the point of need. Examples of embedded finance include:
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- Embedded lending – Retail stores might offer micro loans or an option to buy-now-pay-later. This could be splitting a $500 purchase into five payments of $100 for example.
- Embedded payments – One click payments is the ultimate example of embedded payments. For example, when shopping in the Amazon store you could add a product to your basket, then go to checkout, then add your card details, then complete the purchase. Or, if you’ve shopped there before, you can simply click the ‘Buy Now’ button and Amazon uses your existing credit card details to complete the purchase on the spot.
- Embedded investments – Investing has been made more accessible and mainstream with the introduction of embedded investments. Gone are the days where only traders and stock brokers could buy shares in a company. Embedded investing allows non-investment service companies to offer investment options that enhance customer experience and open up opportunities to collect fees on these share purchases.
- Embedded banking – While embedded banking can be used to describe all embedded finance solutions, here we are mainly referring to scenarios where businesses offer debit or checking accounts. For example, Shopify or Lyft, offering users the chance to set up accounts directly with them so that they can receive payment without going through traditional banks.
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Stages of the Financial Software Development Process
So, let’s get down to the nuts and bolts of it. You want to build financial software and offer something new and innovative to your customers.
How do you do it?
While every financial software development build is different, the steps are essentially the same. There is, however, a preliminary step where you have to decide whether you want to build your software in-house or enlist the services of a financial software development partner. For this example, we’ll assume you are choosing the latter. We’ll also assume that you have an initial idea or concept and you’ve approached a financial software development partner to help you decide if your idea is feasible, viable and scalable. What happens next?
Below, we will go through our own financial software development process.
Step 1: Discovery and Investigation
Every software development engagement kicks off with an initial phase of discovery and investigation. At Keeper Solutions, this takes the form of a design sprint.
The main focus of the product discovery stage is to gain a better understanding of you, your idea, your end user, the scope of your project, the risks, challenges, and overall objectives. At that early stage, it is important to test any preconceived assumptions you might have about the product you are trying to build.
Design sprints are used to validate your product idea, investigate if the market is worth pursuing, and whether your solution is tailored to the actual needs and wants of your audience. This stage will also inform the product design.
Step 2: Software Product Design
Software product design is more than just a plan of how to build a software solution. It is about considering the user at all times and building a product that resonates with them and allows them to create real value.
To build a product that captures the imagination of your audience, you need to step into your user’s shoes. A user-centric approach to product design allows you to spot challenges, identify opportunities and build a UX interface that your customers will love.
At Keeper Solutions, during the design stage, we take a deep dive into figuring out the mind of the user. We develop user profiles (a snapshot of a user’s needs, wants, desires, and fears), user stories (an informal description of the features included in a software system) and user journeys (details of the steps a user takes to reach their goal and derive value from a given feature).
Another key element of the design sprint and product design phase is continually posing the question ‘how could this process be enhanced with AI technology?’.
Step 3: Development of a Working Prototype
During the design sprint, we develop a working prototype and perform continuous user testing on it. These tests provide immediate feedback, serving as a litmus test for the solution’s market fit. Vigorous user testing drastically reduces risks, increases time-to-market, and informs investment decisions.
Once the design sprint is finished, a technical architect is able to recommend a technical architecture. Within this, the architect teases out the scale of the project, what devices the product will be designed for, be it web or mobile, and what integrations are required in the back-end. They also provide an estimation of the costs and how long it will take to build the product.
At this point you have everything you need to decide if you want to pursue the final financial software build and create a market-ready software application.
Step 4: Development and Further Testing
If you decide to go ahead with the project, a development team is put in place, features are decided upon and the software build commences. When building financial software, it’s incredibly important to put a robust security system in place that complies with global financial standards and regulations.
When building software that is integrated with AI technology, it is also vital to ensure that proper AI guardrails are in place so that they maintain fair and ethical standards.
Throughout this stage, there is continuous testing and quality assurance. Incorporating QA at an early stage can help you to increase speed-to-market and reduce the need for costly rework.
Step 5: Product Launch and Continued Support
Building financial software and launching it on the market isn’t the end of the journey by any means. In fact, often it’s just the beginning.
To stay ahead of your competitors and satisfy the growing needs of your users, you need to be constantly innovating and evolving. You may add new features or improve on existing ones. You may spot new challenges that your user is trying to solve. You may expand into new international markets and adapt to new currencies and policies. There is also an ever-evolving financial landscape to contend with. It’s all part of the journey!
Fintech Software Development Challenges
All software development projects come with their own unique set of challenges and hurdles to overcome. However, because of the highly regulated and lucrative nature of the financial space, building financial software can be particularly complex.
Below are some of the key challenges that come with developing FinTech software.
1. Data Security and Fraud Prevention
If you talk about financial software development, you cannot help but mention security, the two are intrinsically linked. In 2023, the finance sector was listed as the most attacked sector, just above the healthcare industry. This is according to a report by Kroll.
“The financial sector is an attractive target for cyber criminals not only for the immediate financial gain but also due to the wealth of sensitive customer information it holds,” reads the report.
The previous year (2022), the financial sector had been ranked in second place for number of cyber attacks, just below the healthcare industry. However, while the financial sector placed second for number of attacks, it incurred the most losses, with losses to financial organizations amounting to approximately $5.9 million per cyber incident in 2022. This is higher than the average across all industries ($4.45 million).
For this reason, ensuring that financial data is secure is absolutely crucial. Data encryption, user authentication, fraud protection and secure coding techniques are common forms of defense. It is also vital that software adheres to the industry standards and best practices for security, and robust security systems are in place for all fintech software.
2. Regulatory Compliance
Hand in hand with security is regulatory and compliance, as the industry is guided by an extensive regulatory system. This includes Know Your Customer (KYC), Anti-Money Laundering (AML), Fair Lending, Unfair, Deceptive, Or Abusive Acts Or Practices (UDAP), dispute management, Payment Card Industry Data Security Standards (PCI DSS), GDPR, and other money movement considerations.
This is without even mentioning the different laws and regulations that govern the area that you are doing business in. Complying with the myriad standards, such as ISO 20022 for payments, can be a real challenge, and needs to be considered from the start of each financial software development project.
3. Keeping Up With Technological Advancements
The Technological Gap is a concept developed by Nelson and Phelps in 1966 which highlights the difference between the technology used by the market leader compared to the industry average, and the gap that exists between them.
Sometimes it can help to picture that gap as one of those cracks that appears in the ground during an earthquake, where the land starts to separate at a rapid pace. If you were standing with your competition as the ground started to separate and needed to jump over the crack to ensure safety, you need to act fast. However, if you don’t, the gap starts to wide and the jump becomes all the more difficult. If you hesitated for too long or let fear take over, the distance between you and those that jumped early would become almost insurmountable.
This is a perfect analogy for the financial space. Twenty years ago, banks started to digitally transform and become online entities. Those that reacted quickly kept pace with the competition, while other financial institutions that failed to react were left with an insurmountable gap. In a rapidly evolving industry, this cycle repeats itself regularly and organizations must keep pace to survive.
Right now, technologies such as AI, machine learning and blockchain are transforming financial software. With McKinsey predicting that AI can generate up to $1 trillion additional value for the global banking industry annually, it’s crucial that companies keep pace. You need to know when to jump!
4. Maintaining Resilience and Durability
Resiliency and durability are two incredibly important qualities when it comes to financial software. Fintech software systems must be able to handle huge volumes of sensitive data and numerous user transactions without compromising quality and performance. Financial software must be able to withstand cyber attacks, data breaches, hardware failures and unexpected surges in traffic (sometimes caused by fast economic downturns).
Ensuring resilience requires a strategic approach to scalability, and designing a software solution that is built with long-term growth in mind. Durability comes with thinking beyond the first crop of users and considering how a software system would handle millions of users, international market and significant functional expansion. It’s not about building software for the company you are now. Instead it’s about building for the market-leading company you want to become.
