If You’re a Fintech Founder, Make Sure 50% of Your Staff Are Engineers
Being in fintech means being both “fin” and “tech”.
Fintech is all the rage now. Yet, when I look around and see so many fintech companies out there that have fewer than 10% of their staff in IT or even completely outsource the technology function to agencies, I think to myself, “These guys are not fintechs. They’re just fin.”
Many entrepreneurs that I speak to are surprised to hear that we’re not a financial company — we’re a technology company first and foremost. The distinction for me lies in the staffing: how much of your staff is developing software versus other functions, like compliance. At Silverbird, we make it a point to maintain at least 40% of staff expenses on IT. And it’s important to us because that ultimately decides whether we’re an IT company or not. Because we want to consider ourselves an IT company first and a financial services company second, we’re building a lot in-house and we’re hiring a lot of IT engineers from around the world and pay them well.
Of course, there are certain functions that will inevitably need to be delegated and outsourced. Nobody wants to reinvent the wheel, nor do you need to. I am a bit wary of that word that is being overused in every fintech-related talk at every conference — “ecosystem” — but it’s true that fintechs are very much about integration with other providers.
For example, we don’t want to develop our own accounting system, which makes sense for us financially and otherwise, because accounting is a commodity. There are great providers on the market which will provide us with a stellar service at a fraction of the cost than if we were to do it in house. When I was doing e-commerce and building Wikimart, the “eBay of Russia”, we were very much an IT-first company from the get-go. We invested heavily in functions such as SEO, marketing, or software of working with B2B vendors. But as much as we wanted to be a “hands on marketplace”, we didn’t make our own WMS (warehouse manage system). There was no need for us to do it because we found so many cheap providers on the market with whom to integrate.
What surprised me most about working in fintech today is just how much this industry is about integration with other providers. You have to build in-house, sure, but you also need to build relationships with banking partners. I’ve been an entrepreneur for two decades and have built several companies but I haven’t seen that level of integration in other tech businesses, including eCommerce. When I speak about this to other fintech founders, we inevitably come to the conclusion: one of the most important (and early) strategic decisions that founders make is what kind of tech to focus on developing internally vs. what to outsource. This will more or less determine the business you’re in as a founder.
From the start, at Silverbird we decided to focus on business-substance type of compliance and outsource everything that has to do with UBOs and documents. We use Tuum as core banking system but at the same time building something called Payments Hub in-house, a sort of midware that allows us to seamlessly integrate with other providers and expand our banking services to things beyond just international payments.
When fintech founders talk about their business model, one idea pops up invariably: the reduction of IT cost as the company grows. But I don’t think this is a given. If you’re a true fintech, you have both of the parts of the business to maintain — your compliance and MLRO teams and your engineers building the product. There can be a 10–20% deviation, but more or less every employee in your team would fall under one or the other umbrella. Your IT costs might go down as the percentage of revenue — after all, scale what makes a company truly global — but don’t think of IT cost reducing as the percentage of your overall costs.
If you’re in the fintech business, you’ve got to be well both “fin” and “tech”.
