For Fintechs, Leveraging an External Data Platform Can Boost Innovation

While we’re all familiar with traditional financial institutions, alternative banking solutions have made the financial world – and consumers – sit up and take notice. Fintechs are multiplying rapidly around the world, with innovative offerings that include buy now, pay later; “cash advances” for salaries and bills; and rapid credit decision-making by using “alternative data” to deepen and broaden financial service offerings.

In November 2021, fintechs were numbered 10,755 in the United States only, with a footprint that goes beyond our borders in the EMEA region (Europe, Middle East and Africa) and the Asia-Pacific region. The size of the fintech market is expected to grow 47.7% through 2028, reaching a value of $722.6 billion.

Today, we are seeing a trend of fintechs starting in one country, maturing, and then going global. The reasons for the growth are many, including increased consumer appetite for innovative digital solutions, technological advancements such as cloud technology and, of course, the pandemic – a major driver of digitalization. But make no mistake, traditional banks are also jumping on the digital bandwagon, with innovation “labs” and/or the acquisition of fintechs. Example: Acquisition of American Express Cabbage in 2020. Yet, just as fintechs expand their footprint, so does the definition of “fintech.

The many aspects of Fintech

Fintechs are typically startups that focus on innovative technology solutions in the financial services industry. Under the fintech umbrella are neobanks, sometimes called challenger banks, which offer apps, software and other technologies to streamline mobile and online banking. These up-and-coming challengers frequently partner with another financial institution (FI) because they offer innovative products designed to compete with larger, more established players in the industry. Whether it’s a fintech, a neobank, a challenger bank or a traditional bank, the bottom line is growth.

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Growth and innovation require external data

Need data develop an FI – at drive key workflows including customer profiling, onboarding, underwriting, credit adjudication, fraud, and collections. Each of these fundamental workflows requires real-time, up-to-date, and compliant data. While there are more data providers than ever before, FIs need to think about what data they rely on to power these core processes. Missteps can be costly, not only because incorrect decisions will almost certainly result in losses, but because regulators also closely monitor how FIs (fintechs in particular) leverage external data when seeking to protect the consumer.

Obviously, due diligence is mandatory, but accessing and managing data is not easy, especially as fintechs are rapidly expanding their product offerings and aiming for global expansion. Even for those focused on a single geographic area, the pressure to automate processes and manage fraud risk forces FIs to constantly optimize their integration of external data. With expansion, these problems are amplified as FIs must maintain relationships with multiple credit bureaus and multiple IDV/fraud vendors, and monitor the performance of these vendors against risk requirements. Consider these typical scenarios:

  • A fintech startup must verify customer identity, extract credit data, and perform KYC checks. What datasets do they need, and from where?
  • A fintech that expands into other markets has no knowledge of the data landscape or the infrastructure in place to process the data. Which providers do they get global data from? Are the data reliable? Who can help with deployment?
  • An established fintech is witnessing a massive number of fraudsters despite existing workflows verifying transaction risk. What data sets are needed to help circumvent fraud before it reaches the onboarding stage?

The Challenge of Managing Multiple External Data Providers

As fintechs and incumbents launch new financial products (e.g. buy now, pay later; cash advance; virtual cards; etc.), the burden of managing external data can be challenging for FIs on several fronts.

3 Big Challenges Fintechs Face in Managing External Data

  1. It can be difficult to find, test, and integrate the right external data providers for every use case among the sea of ​​available data providers.
  2. As FIs evolve, managing the overhead of data provider contracts across different regulations is not a trivial task.
  3. FIs must constantly monitor external data integrations for availability and performance to ensure the integrity of their workflows.

Ultimately, financial institutions struggling to meet these challenges will face significant product delays, which can be extremely costly in today’s competitive environment. For example, an FI struggling to deploy an additional data provider to help combat growing fraud may have to temporarily shut down a product line (or face severe losses), which will weaken its customer relationships. .

Where an external data platform excels

In these situations, an External Data Platform (EDP) streamlines the process of identifying the best external data providers for each case, deploying those providers into workflows and managing procurement processes with vendors. upstream. In some cases, we’ve seen product launch times go from months to weeks by leveraging an EDP.

Specifically, EDPs allow FIs to access hundreds of data products “under one roof” and accessible through a single, configurable API endpoint. Other features include:

  • The ability to cascade and combine data providers,
  • The ability to quickly onboard incremental data providers and add them to a waterfall within weeks, and
  • Monitoring transactions for errors.

EDPs also allow FIs to test and discover new data providers, then quickly put them into production to address urgent use cases. A no-brainer for FIs.

For good reason, today’s financial institutions are turning to external data platforms. Along with the convenience of an API, contract and deployment, they help minimize risk and facilitate incremental increases in key areas, whether it’s offering more loans to businesses more legitimate, more credit cards to more solvent customers or to launch new banking products. faster. And it’s especially good for financiers and users.

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