Financial technologies (fintech) are one of the booming areas in the modern startup community. Numerous projects are appearing to design new solutions for online banking, investment, payment automation, management, financial consulting and management. Their goal is to automate and simplify the process of working with money.
Fintech is a rather specific area of business and a challenge both for business owners and developers. In this article, we will consider the possible challenges to the fintech area and the key points to consider while developing a financial technology product.
It is important to choose the right technology stack when working on fintech projects. One of the most popular technologies for fintech is Ruby on Rails. For you, we have prepared a list of the most famous use cases of Ruby on Rails for fintech startups. We will also tell you about the development of a real fintech startup.
The history of fintech
Fintech is rather a young industry – its history began in the 1950s when the first credit cards appeared. They allowed users to free themselves from cash in their pockets and wallets and became a revolution in the financial industry. In the 1960s, ATMs were introduced to retail commerce. In the 1970s, electronic trading began to replace trading stores. In the 1980s, computers were widely adopted in the banking industry, and in the 1990s the Internet and e-commerce began to flourish.
In the current era, financial experts have created sophisticated risk management, trading, and analytic tools that have been widely adopted by banks and financial companies.
Modern fintech business
At the end of the 20th century and beginning of the 21st, the global digitization of financial services started. Mobile wallets, payment apps, robotic consultants, crowdfunding and online lending platforms appeared. All allow users to securely store their money, make purchases all over the world and even get loans.
Some of these services cooperate with modern banks and branches of government financial industry. Others intend to become a faster and more efficient alternative to traditional banks. Generally, one can subdivide the fintech startups into three major areas:
- Business finance – B2B companies providing software for automation of financial processes in companies.
- Consumer finance – B2C companies providing digital tools for personal finance management and investments.
- Digital payment systems – B2B companies offering businesses financial systems for accepting different types of payments.
Despite the difference between the three types of fintech products, they all should have the following key features:
- Secure data storage
Since fintech applications have access to their users’ money, they should have the option of secure storage and exchange of user data.
- Fraud protection
For the same reason, fintech startups are especially vulnerable to fraud. They target such companies and quickly adapt to the changing types of protection. While developing the product, fintech copmanies should especially concentrate on creating an internal fraud-fighting engine.
The fintech projects should be able to generate the analytical reports so that their clients can monitor their finances. Some of the projects have native analytic tools representing the financial activities in a real-time manner. The basic analytic functionality of the fintech projects generally include the transaction history, summary of the income and expenses, etc.
Like any other software, fintech products have to be able to handle a high load and scale by adding new hardware to the system without modifying it.
Fintech startups that use RoR on backend
In terms of the aforementioned classification, let’s consider four modern fintech startups and their functionality. By the way, all of them were built using Ruby on Rails.
Square is a financial and merchant services aggregator and mobile payment provider headquartered in San Francisco. The core specialty of the product is developing the software and hardware solutions for performing payments via mobile devices.
They started with the development of card readers for accepting payment via the audio jack of a smartphone. Later, they launched the following hardware solutions:
- Square Stand – by integrating with an Apple iPod, it can turn it into a portable device for accepting payments.
- Square Chip Reader – by Bluetooth connection with Android and iOS devices, the reader can accept cheap and contactless payments via smartphones and tablets.
- Square Register – this is a set of two tablets (for the merchant and the customer) with a built-in swipe, chip and tap reader. The device is aimed at small and medium businesses.
- Square Terminal – this is a credit card processor that allows accepting all kinds of payments (chip, swipe, contactless, etc), and displaying and printing the receipts.
The software for maintenance of all their devices is written in Ruby. To improve the security of the product, they use strong encryption on their devices, and none of the client data is stored on their devices.
Fundera: B2B lending
For small businesses, it is often a challenge to find investors or even get a bank loan. Fundera is offering them an opportunity to receive the necessary funds. Actually, it is not a financial institution and the company does not provide any loans – it is a marketplace connecting business owners seeking financing with people ready to invest in small businesses or startups.
Upon registration, the user is asked some questions about his or her business. By analyzing the answers, the system offers the best lending option. For each user, Fundera assigns a personal advisor who will study the business needs of the client and match them with the appropriate lender or borrower.
This is a specialized crowdfunding platform connecting people willing to invest their money with the appropriate commercial real estate projects. The marketplace streamlines the process of investing and raising capital, making it more transparent and accessible to everyone.
Upon registration on the platform, users can review the existing options and choose the most suitable solution for investment. The minimum amount and the interest rate varies in every project and everyone can find a suitable offer for their budget.
Kin is a representative of a subfield of the fintech industry – insurtech. This platform gives its users access to an affordable and simplified insurance procedure: their services include Home, Personal Property, Loss of Use, Medical Insurance and insurance in case of natural disasters – flood and hurricane insurance.
Their primary and core specialty is home insurance: just enter your address and the system will offer you the available types of coverage and calculate the annual cost of the insurance.
Why choose Ruby for the finance industry?
All these different projects are united by using Ruby on Rails as their programming base. Now, in a period of rapid growth of the fintech industry, Ruby is one of the most popular and effective languages for fintech products. Let’s find out why using Ruby on Rails for fintech startups is a good idea:
- Time- & Cost-Effectiveness
Due to the simple syntax and lots of out-of-box solutions, development on Ruby is handled about 30% faster than on the majority of the other languages. In the modern rapidly known market, this is a great advantage since your competitors are constantly developing new products, scaling the existing ones, and regularly delivering new features. Additionally, the high speed of development will decrease the initial cost of your product a bit since there will be less billable time of the developers’ work.
As we have already mentioned, one of the must-have features of any fintech product is security, since they all work with large amounts of the clients’ money. In Rails, there are plenty of built-in security mechanisms and it allows easily introducing additional protection. To find out more about security in Rails, feel free to consult the corresponding article.
Like all the modern scripting languages, Ruby can boast a high speed of work and stability of performance. The applications written in Ruby will demonstrate the ability to handle a high load, which is particularly useful for the fintech industry – the interruption of work may result in a serious loss of money for the app users.
By gradually developing your application and promoting it, you will see your brainchild becoming more popular and quickly acquiring new customers. This positive factor may result in an increasing load on the servers, and the necessity to scale the application. Ideally, the capacity problem should be solved just by switching on new servers that will take part of the load from the other ones and stabilize the performance.
You have learned about using Ruby on Rails for fintech startups and the features that make Ruby a good programming base for your future project. Now, we will tell you about the development of a real fintech startup using Rails.
How we used Ruby on Rails for a fintech project
Since October 2016, one of our major projects has been CityFALCON. It is a financial news aggregator that provides a relevant and personalized news feed according to the interests of the users.
The target audience of the product are investors and traders. The goal of the project is to help them to monitor the financial market and make the right financial decisions. You can look through a full case study here.
The project idea
By rating the financial news, tweets, and authors, CityFALCON offers the users the most relevant content for the set topic. The system is powered by natural language processing and machine learning.
The NLP algorithms analyze the content of the article, define its subject, score the relevance, and decide if it should be displayed to the users. The ML algorithms analyze the user’s interaction with the application, their behavior, and their preferences. This helps the app to offer each user a customized news feed.
Currently, CityFALCON’s algorithms analyze and rank the information from over 100 reputable financial resources, including Twitter. They also provide a paid API for the commercial use of the business.
The development process
When we started working with City FALCON, it was a mature startup with an already-built MVP. Our task was to expand the functionality and to deliver a fully featured product. This project required not only technical work from us, but also lots of analysis and research – we had to understand the business of our client and adapt ourselves to the financial market.
Since we were working with a ready-made MVP, it was obvious that we would have challenges in scaling. Along with the first users appearing, the number of database records increased, there were delays in returning the information, and controversies between the backend and frontend part.
To deal with this challenge, we split the application into several components (enterprise API, web and processing engine) and added hardware to the database. This helped us to reduce and distribute the load. It also helped us to speed up the request processing. To optimize the workflow, we added caching of the most frequent requests.
Another challenge we faced was that the output displayed to the users could contain spam or irrelevant information. To avoid this, we introduced a spam filter that analyzes and ranks all the articles, and filters out the low-rated ones.
The spam filter was based on natural language processing, particularly the Naive Bayes Classifier. We uploaded samples of spammy and relevant news, and trained the system to define their content and key points. By means of lemmatization, tokenization, and filtering of stop words, all the texts were presented to the computer in a comprehensible format so that it could understand the content and define their relevance. To learn more about the spam filter and applying the NLP algorithms in the news industry, feel free to consult this article.
The project results
The CityFALCON score became a significant trust factor in the financial news information. The project won several international competitions (including the Collision competence in Vegas, Twitter Hatch, and Twitter Global Startup competition).
They handled a crowdfunding campaign and collected more than £150,000 from about 120 investors. Later, CityFALCON became a finalist in the nomination for “Digital Business of the Year” at the Amazon Growing Business Awards.
Later, we adapted the platform to Amazon Echo, Google Home, Cortana, and Siri. With these updates, CityFALCON took part in the VivaTechnology exhibition in Paris, handled by Bank BNP Paribas. A few months later, they participated in Kickstart Accelerator in Zurich.
Several international banks now use CityFALCON’s paid API in their work.
In this article, we have considered the specifics of the fintech industry and the history of its development. Now you know that, despite the innovation in this area, the first fintech projects have successfully operated in the market since the middle of the past century.
We have also considered the must-have features of fintech projects. Let’s recall them once again:
- Secure data storage – in order to perform safe operations with their money, users should have the option to securely store and send their sensitive data.
- Fraud protection – since the financial projects work with huge amounts of money, they will always be of interest to hackers and fraudsters. That is why they must have a secure fraud-protection mechanism.
- Analytics – for the convenience of the users, the project should provide custom analytic tools for displaying the financial activities in real time.
Dealing with the area of financial technology, we have also considered examples Ruby being used for fintech projects. We have spoken about the payment processor Square, the loan marketplace Fundera, the crowdfunding platform EarlyShares, and the insurance company Kin.
Sloboda Studio also has experience of developing a fintech project on Ruby. So, if you come up with an idea for digital financial service, we are always here to help you.