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June 13, 2023   FinTech and Alternative Finance, Fintech International, Fintech Services, Innovation and Resources, Leadership, Competition, Human Capital, Health, Marketing, Strategy, Growth, Venture Funding and Building   No comments

Benefits Of Outsourcing For Fintech Startups

ScienceSoft | Stacy Dubovik, Financial Technology and Blockchain Researcher| June 13, 2023

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Surviving the first few operational years is no easy feat for a fintech startup. According to The Wall Street Journal, as many as 75% of fintech startups supported by venture capital do not succeed. During its first critical years, a startup must focus on strategic moves to conserve capital and limit unnecessary spending.

And that’s where outsourcing can help. Continue reading to learn more about how outsourcing can benefit a fintech startup company by offering cost savings, access to skilled labor, increased efficiency and productivity, scalability, and improved risk management.

What is Outsourcing?

Outsourcing is the practice of hiring an external company to aid the startup with specific processes. Outsourcing is a collaborative partnership between the two companies in which the outsourcing company offers their skilled labor and expertise to take over key tasks for the startup.

Here are some examples of tasks and functions that startups might choose to outsource:

1. Accounting and Bookkeeping

Instead of hiring an accountant to handle accounts receivable and other bookkeeping tasks, a startup can outsource this role to a professional accounting firm. This is a good option when a startup lacks expertise in tax law and has a limited budget for more staff.

2. Human Resources

To stay in compliance with any labor laws and regulations, startups can outsource their human resources department, allowing an HR company to handle benefits, payroll, employee onboarding, and even recruitment.

3. Digital Marketing

Digital marketing is a core focus of many startups, as it’s a key part of a good growth strategy. When a startup outsources its digital marketing tasks, such as social media management, SEO optimization, and advertising efforts, it can reach the target audience and help build an online presence.

An experienced digital marketing agency can execute a polished marketing plan and gain way more upside than a newly founded in-house marketing team.

4. IT Services

Startups within the tech space may need to outsource IT services, ranging from network management to cyber security and system/server maintenance. Different agencies may focus on specific fields of IT, so it's important for the startup to look for an agency that can provide the expertise it needs. These tasks are not only time-consuming but highly critical to the startup’s success and reputation. Sometimes it's just better to leave this to third-party professionals instead of trying to handle this in-house if the team has limited IT expertise.

5. Software Development

Software development is a complex and expensive process but is essential in today’s highly competitive business world. Regardless of the industry in which the startup is operating, it will likely need to develop custom software to automate work processes, offer customer-facing apps, or build internal systems.

Outsourcing software development to a trusted provider can be a game-changing solution to addressing this important area of a startup's growth plan.

6. Customer Support

Customer support is a major pain point for startups that may be working with limited resources and very limited staff. There is no way for most startups to offer 24/7 customer support during the formative years. Outsourcing customer support can fill this void while offering top-notch customer service that aligns with the ideals of the startup.

7. Manufacturing and Logistics

Startups that specialize in a physical product may find significant value in outsourcing manufacturing and logistics to a third-party service provider. When outsourcing these tasks, startups can scale their operations much more quickly and efficiently by leveraging the warehouse space, manufacturing specialization, and logistics connections of the outsourcing provider.

Top 5 Benefits of Outsourcing for Fintech Startups

More and more entrepreneurs are turning to outsourcing to help their startups survive and thrive because it's a brilliant business strategy to increase the startup's access to resources and talent while saving money and reducing risks. There is a limited downside to outsourcing from a startup's perspective.

As a startup grows and stabilizes, it can start pulling functions and tasks that it outsourced back into the fold, taking a slow and strategic approach to setting up these in-house teams. Let’s take a closer look at the top 5 advantages startups can expect when outsourcing:

1. Cost Savings

Fintech startups can enjoy considerable cost savings by outsourcing crucial tasks and functions. According to ISO, most startups can up to 15% of their costs on expenses, like labor and overhead, by utilizing shared services. By leveraging the expertise of outsourcing providers, fintech startups can avoid the need to recruit and hire specialized staff. This means the startup doesn’t need to spend as much on benefits, paid time off, and other labor expenses.

2. Access to Skilled Labor

Outsourcing can unlock access to skilled labor that the fintech startup might not otherwise have the resources to invest in. When outsourcing, a startup can enjoy the specialized expertise of the third-party provider.

For instance, a fintech startup can partner with a software development agency that has top developers with extensive knowledge in various programming languages and technologies. This way, the startup can enjoy the same level of talent without incurring hefty labor expenses.

3. Increased Efficiency and Productivity

Outsourcing vendors can help fintech startups increase their overall efficiency and productivity by allowing the startup’s staff to focus on core competencies and business goals. By outsourcing business functions that aren’t core to daily operations, the startup can streamline its operations and focus on its mission.

4. Scalability

Perhaps the most significant advantage of outsourcing is the ability to scale the business much quicker than would otherwise be possible. Outsourcing provides fintech startups with access to resources to grow and expand operations, all while reducing risk.

And as the startup grows, the business can use outsourcing to scale its teams without adding to its internal headcount.

5. Improved Risk Management

Outsourcing can also help startups mitigate risk by sharing risk with service providers and improving compliance. By outsourcing non-core functions such as accounting and legal services, fintech startups can ensure that they are meeting regulatory requirements and avoid costly legal issues. And when outsourcing functions like customer service or IT services, fintech startups can shift the responsibility and risk of these functions to the outsourcing provider, taking some of the load off the startup's full plate.

Recap

Outsourcing has the power to equalize the playing field and open many new doors within the business world that would otherwise remain closed to a budding new startup. Fintech startups can leverage outsourcing beyond digital marketing, human resources, and other tasks discussed in this article. Outsourcing is flexible because a startup can hire help for any process or task that is posing a challenge to the business.

See:  How to Create Your Own Payment Gateway in 2023

Regardless of why a fintech startup hires a third-party provider, the startup can expect major savings, improved scalability, and risk management, increased efficiency and productivity, and access to top-tier talent. These benefits are a given in almost all outsourcing situations and are the primary reason the outsourcing industry is growing so rapidly.

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