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HIGHWAY TO HYPERGROWTH

How fintechs can use business process as a service to scale successfully



Known for their swift innovation, fintechs are constantly evolving and
reinventing themselves. Those that focused on lending are moving rapidly into
the deposit and investments space – and vice versa. For example, SoFi, Chime,
Robinhood, and Bread have all recently announced new consumer banking products.
On the upside, soaring valuations can accompany this kind of growth. On the
downside, it presents fintechs with some major challenges. Here's how to tackle
them.


THE TIPPING POINT

Fintechs often start with a core, monoline business model. But they don't end
there. Instead, there comes an inflection point – often when there's been a
significant capital injection – after which they seek to grow vertically (into
new segments or geographies) or horizontally (into new products). This kind of
rapid growth brings significant risks, which fintechs need to take proactive
steps to mitigate.


FIVE KEY CHALLENGES FOR FINTECHS IN RAPID GROWTH MODE

Fintechs typically face five key challenges as they grow:

1. Regulatory complexities: With rapid growth, fintechs can underestimate
important regulatory requirements, or worse, miss them entirely. For example,
requirements for explaining pricing and deadlines for responses to queries or
complaints vary from product to product and geography to geography. But
awareness of these variations is not enough. Instead, fintechs need to make
changes – both upstream in customer-facing processes and downstream when
reorganizing operations – to accommodate them. Such changes are not always
immediately apparent, posing a regulatory risk.

2. Reputational risk: Customers expect seamless omnichannel experiences. In the
startup phase, fintech customers are often OK with a 'beta' experience. However,
as the customer and product mix expand – and channels become less digital-only –
fintechs may not adequately prioritize their experience strategy for their
non-digital channels. That can turn customers off and damage a fintech's
reputation. When launching new products and processes, many fintechs encounter
more exceptions to business rules than they expect. For example, when a fintech
launches a new lending product and customers begin submitting loan applications
to its automated underwriting system, surges in 'refer decision' responses are
common. This type of exception requires a human underwriter to take a second
look at the loan and perhaps underwrite it manually. In most cases, fintechs do
not have the staffing capacity to manage such a surge. That's a big reputational
risk, especially in new product sales.

3. Compliance of new processes: With growth into new products or segments comes
the need to quickly deploy new processes, with the appropriate controls.
Established banks face the same challenge. Some traditional enterprise banks
have even tried to offer new products using the know-your-customer process for
an existing product. Such approaches could expose fintechs to costly fines from
regulators.

4. Delays and cost increases: With all this complexity, deploying new processes
securely, robustly, and quickly may prove difficult. Poor planning and design
upfront will inevitably cause delays down the road. And plugging gaps with
contractors on day rates can rapidly and exponentially increase costs. Though
big banks might be able to afford such a stopgap solution, fintechs don't
usually have the same margin for error.

5. Technology: Building in-house technology to support new processes and
products is often prohibitively expensive. At the same time, finding third-party
systems is risky. Integrating and testing them is riskier still. Assessing
best-in-class technology and deploying it on the cloud or on-premise can become
very complex and time-consuming. And it requires dedicated specialists to manage
it.


HOW BUSINESS PROCESS AS A SERVICE SOLUTIONS CAN HELP

A cloud computing service model that allows a partner to execute certain
processes end-to-end for the fintech addresses these challenges. Lending
administration, product origination, payroll management, and accounting are all
examples of fintech business processes that are ripe for such a solution. The
model, known as business process as a service (BPaaS), focuses heavily on
process automation, which reduces the chance of manual errors. But it can also
include manual activities, such as call answering.


TURBOCHARGING FINTECH GROWTH

For fintechs, BPaaS can provide a highway to hypergrowth because it delivers
four key benefits:

1. Confidence: There's confidence in the tried and true. BPaaS solutions are
prebuilt, usually on top of deep operational expertise. Well-defined processes
are reused, avoiding the risks that come from designing processes from scratch.
Established processes, which are well understood by operations teams, also have
a lower degree of compliance risk.

2. Speed: It takes time to identify, assess, and select technology. A BPaaS
model relies on already established and validated technology ecosystems. So
fintechs don't need to spend time on these activities. It also eliminates the
need to establish and manage multiple vendor relationships. Prebuilt solutions
are also easier (and therefore faster) to implement because they've usually been
deployed multiple times before.

3. Future-proof operations: The past decade has witnessed rapid change in
technology and consumer behavior. Fintechs need the scalability to handle the
unanticipated – for example, volume surges or unexpected exceptions. A BPaaS
model affords this as well as access to best-in-class technology and innovation.
The multi-tenant, cloud-hosted infrastructure enables fintechs to take advantage
of enhancements developed for other operations. And technology is easier to
upgrade or diversify, which frees up the fintech to focus its core business of
serving clients.

4. Economics: Especially during periods of business growth, capital expenditures
or major upfront investments can mean less cash flow for the rest of the
business and impact short-term operations. BPaaS allows fintechs to shift from
capital to operational expenditures, freeing up resources and creating
opportunities. At the same time, there are various commercial models, such as
per transaction or per user, which fintechs can select. BPaaS enables fintechs
to access economies of scale. For example, technology deployed on a multi-tenant
cloud will be cheaper than in a dedicated instance.

Huge growth in a short amount of time is exciting for a fintech. But without a
sustainable model underneath, there's no guarantee of success or even survival.
Taking the right steps to create a foundation that supports growth will help
fintechs expand and scale at pace and come out of hypergrowth a winner.

This article first appeared in The Fintech Times and was authored by Alex Bray
and Joe Nixon, global practice leads for fintech strategy, Genpact.


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