By Eduardo Martinez Garcia, CEO and Co-Founder, Toqio
In the rapidly evolving landscape of the financial service industry, many companies are starting to consider launching their own embedded finance solutions so as to better cater to their customers’ needs. But where to start? And, most importantly, how much will a project like this cost?
Money and time to market are two of the most critical aspects of creating a project from scratch, so in this article, I thought we’d go over all expenditures in order. Bear in mind that many of these costs can lead to incremental savings year after year if used effectively, even though prices will likely increase as time passes. Realistically, the quicker you can get a project done, the cheaper it is.
Infrastructure
The price of creating a full digital infrastructure really depends on whether you’re going to create one that’s physical and completely under your control or whether you’re going to use a cloud platform. Developing your own server structure can pretty much cost whatever you want and every single change you make is going to require an investment. A cloud solution that can easily scale with the flick of a switch is probably the best course. The most commonly used ones are Amazon Web Services (AWS), Microsoft Azure, and Google Cloud.
Toqio is built on AWS, so let’s go with this as an example. Regardless of where you are as a company, AWS pricing is based on how many resources you use which is based on your number of users. Annual costs are variable depending on site traffic and usage. At Toqio, AWS services represent our primary infrastructure costs, totalling around €345,000.
Technology
In general, many tech stacks are built on open-source software, a massive cost saver for most businesses. That said, proper development tools are a must-have. These stacks are best-of-breed tools that are scalable to be used by any size business. They include React, React Native, Java, Springboot, MongoDB, Docker, and others.
Once you have your technology stack chosen, you’ll need to consider the financial services you want to integrate, such as banking services, payment solutions, card programmes, lending products, and others. There are scads of pre-built modules you can pay for to be included in your embedded finance project, like real-time currency exchange rates, chat or call integration, etc. Many may be optional, it really depends on what you’re trying to build.
Though many of these tools may be free or low-cost, you’re going to need qualified people to handle development and testing, which normally amounts to two front-end developers, two back-end developers, and at least one QA testing specialist. If you already have a team of developers in place, you also need to consider how many of their regular tasks they won’t be doing while you build your new embedded finance solution, how much training they’ll need if they don’t have it, and what sort of hardware-software they’ll require to work efficiently. Bear in mind, that’s the minimum, you may need more staff to get things done more quickly or to create a dedicated internal squad. Based on what we spend on technology at Toqio, and considering the average starting pay for specific positions in the EU, we estimate a minimum spend of €200,000 for staff and around €77,900 for tech stack.
Product production
Once you have all the preliminary tasks done, you can actually get to work on building your solution. To do that, you’ll need someone to lead the initiative, like a Product Manager, and someone who can provide technical guidance on development, such as a Product Owner. To develop the interface and make it comparable in quality to other embedded finance integrations on the market, you’ll need a specialist in user experience (UX) as well as an expert in user interfaces (UI).
That’s the minimum number of people to get your solution across the finish line, and they’ll need tools in order to be able to work, including a project management suite like Jira, a documentation repository like Confluence, and a design system like Figma. All told you will need to spend on salaries, software licences per seat, and numerous sundry costs. For this, we estimate you’d need a minimum spend of €200,000 for staff and about €68,700 for tools.
Tech support
If you plan to offer an app or site to a multitude of users, they are inevitably going to run into technical issues. We think it’s prudent for a new venture to hire at least two tech support professionals to start, though some companies get away with one by having other technical professionals lend a hand until the volume of user support tickets hits critical mass. The realistic staffing spend for this would be around €160,000.
Compliance
This is actually pre-work that needs to be done prior to building anything. If you skip this step, you’re probably going to run into difficulties with regulatory bodies and risk massive fines, loss of credentials, limitations on types and volumes of transactions, or all of the above. You can’t skimp on this.
Certifications – such as the Revised Payment Services Directive (PSD2), the Payment Card Industry Data Security Standard (PCI DSS), and ISO 27001 – cost money and obtaining them includes a number of services, such as external auditor charges, employing consultants and senior level staff, numerous legal fees, staff training, rebuilding or rescaling architecture, and others, not to mention recurring annual costs like renewal fees, consultant charges, and periodic audits and penetration tests.
Compliance really depends on how much you can DIY, the stage of maturity of your company with regard to processes, and how much you need to do to get your company in shape for audits. At Toqio we spend around €160,000 yearly on ensuring compliance, including certifications, renewals, audits, and other related items.
The final figures
Looking at the numbers, if you were to try and develop an an embedded finance project from scratch with absolutely no existing assets at your disposal, you’d have to invest a minimum of about €980,000 to launch something that’s passably viable. More likely, you’d need about €1.66 million to do it well. If you already have professionals in place, the cost of building a new solution obviously goes down but then the issue becomes one of how much time your team can actually dedicate to a new project.
Recurring annual costs need to be factored in, including salaries for tech support and other staff, compliance certification renewals, infrastructure and hardware upgrades, and perhaps even research and development. Long-term total cost of ownership (TCO) is going to bring figures up for every year of operation.
Companies considering embarking on this journey should investigate on their own to come up with figures they think are reasonable according to their current situation. Consider that when you’re running through the numbers and trying to figure out how much an in-house embedded finance project will cost you in terms of money, time, and the impact it will have on your day-to-day business.
