Shaking Off the Tech Debt
What is tech debt? Tech debt is the idea that when a business uses the easiest tech solution instead of the best tech solution they’re creating a technology debt that’ll need to be repaid in the future.
When it comes to technology, established companies from the pre-digital era understandably think start-ups have got it made; that they can’t possibly relate to the challenges of legacy systems and a complex infrastructure that they face. Surprisingly, they’d be wrong.
Redesigning Loan Origination With Microservices
Many maturing start-ups—industry disruptors that have been around for a few years or more—find themselves unexpectedly grappling with a tech problem. They often find that the technology they started out with didn’t scale as they grew, nor did it prove flexible enough to adapt as business and market needs changed.
So, while legacy technology challenges and tech debt are not the same thing, both traditional financial institutions and fintechs find themselves weighed down by technology that slows down business agility and impacts growth potential.
Tech debt in the financial services industry
Let’s look at, for example, the story of a company I met with recently. It started out three years ago when its priorities were proving its concept and getting a minimal viable product to market. Like many other startups it needed to launch quickly, so it used a combination of simple technology developed in-house and some manual steps to get the job done.
Once the product was live the business experienced a period of rapid growth which placed a heavy burden on the technology underpinning the product. The company quickly realized that it couldn’t grow any more with its existing set-up.
This isn’t the only company I’ve met that finds itself in this situation; in fact tech debt is increasingly common in growing fintechs as well as in the large banks who are famously beset by the challenges of legacy IT. Start-ups aren’t expected to have this problem because they’re new and began in the technology era; they’re seen as nimble and able to deliver value quickly.
In reality, business decisions, and IT decisions that go with them, set companies on a course, and if that course needs to change, the business can only pivot as quickly as their technology can be turned.
The growing interest on your technology troubles: paying the bank of tech debt
Just like any other type of debt, there’s always a cost to borrow. While the cost to future technology development is obvious. It’s the growing interest on your business that is often the bigger problem.
Financial services businesses operating any kind of digital service rely on technology for agility, flexibility, and scalability. Technology provides the frontline defense against fraud, the front of house experience for customers, the gateway that controls risk, and the data analytics to help steer the business forward. When your technology is broken, or in debt, all parts of your business suffer.
So, when situations change, which they inevitably do, and volumes increase or the product focus shifts, in-house technologies and manual processes often don’t scale or adapt to keep pace. And, in the rapidly evolving financial services market this can be a make or break moment that defines their future.
Breaking Down Walls—how to tackle tech debt
Let’s look outside of technology for a moment: The case of the conference venue.
Take a traditional conference venue. It meets the needs of businesses that want to hold an event, but it has a limitation—it can only hold a certain number of people. It’s unsuitable for any event exceeding its capacity. It’s unable to meet the need to hold larger conferences and inflexible in how the space can be used.
To address this limitation, conference venues are built differently now. They are huge halls with partition walls that can be added or taken away depending on the type of event and number of people. This makes them more flexible, scalable, and profitable.
It’s not so very different to the tech debt issue. Technology can become an inhibitor because rapid change has shortened technology’s shelf life. In the past, companies, including those in credit and lending, payments and eCommerce opted for hard-coded systems to perform certain functions. These systems will scale up to a point, and beyond that everything has to be done manually. Making changes to the systems takes weeks or months.
Companies setting up now can’t opt for this approach anymore and those already struggling with a tech debt can’t afford to not plug their IT gap or they will struggle to compete. Throwing resources at the problem doesn’t make rigid solutions flexible. Instead, these companies need to invest now (rather than invest more later) in ‘partition-wall-like’ technology that will grow with them and adapt.
In a digital world where the cost of tech debt is more than just a tech problem, businesses need to look for their ‘partition’ technology. Only with scalable and flexible solutions will financial services businesses tackle tech debt and be prepared for the future.