Why Lean & Agile Methodologies Have Upended Fintech

The Waterfall methodology is familiar to anyone with an understanding of a factory assembling line; each of the eight stages of a product (conception, initiation, analysis, design, construction, testing, implementation, and maintenance) proceed sequentially. Because it’s so easily managed, Waterfall is a great process for the on-time delivery of established products, or to meet clearly defined needs.

Neither of those apply to the world of software very often, however, hence the advent of alternative approaches, such as “Lean” and “Agile.” The former charts its origins to Toyota’s early days in post-World-War II Japan, where, facing extraordinary supply and credit constraints, the Japanese car manufacturer was forced to adopt a revolutionary new approach to manufacturing. Lean emphasizes the production of a term now familiar to anyone in software, “Minimum Viable Product.”

Agile skyrocketed in popularity after a group of software developers released “The Agile Manifesto” in 2001. Different and yet complementary, the Lean and Agile methodologies are perfectly suited to the present-day, software-first business environment. Moving away from Waterfall has greatly increased success rates in software development, improved quality and speed to market, and boosted the motivation and productivity of IT teams. The amorphous, fast-paced world of software development has found its north star(s).

That’s not to say barriers don’t still remain in certain industries, and finance in particular has been slower than other sectors to loosen its grip on Waterfall. In years gone by, financial organizations would embark on large development projects that would require months, and sometimes even years, to complete from start to finish. On the one hand, such a conservative approach is somewhat understandable for institutions and vendors processing hugely consequential financial transactions. Furthermore — and relatedly — tight regulatory scrutiny over the financial sector often mandates a cautious approach to the deployment of vital financial software. Waterfall worked with the legacy systems Wall Street once employed.

But “once” is the operative word, as finance today increasingly employs the same tools, and subsequently, methodologies, as Silicon Valley. In fact, Lean and Agile principles have helped mold financial technology, or “fintech,” into what it is today. Certainly one important factor has been the cloud’s drastically increased role. Cloud architectures have created more opportunity to innovate at a higher pace and lower cost, and there has been an ensuing industry shift toward digital frameworks and business models. With the cloud, companies can build entirely new value propositions and revenue streams, and then easily scale those models as their business grows, a proposition that does not readily suit Waterfall.

The cloud has led to another technological development that prioritizes Lean and Agile thinking: interoperability. Cloud-enabled platforms can talk to each other via APIs, which opens up a host of exciting possibilities for different platforms to work together, empowering a new generation of financial applications. Lean and Agile methodologies work best in fast-paced, amorphous environments where the needed outcome isn’t always clear. This perfectly describes the modern financial ecosystem, in which a new wave of trading, communications, risk and analytics applications can enhance returns in unexpected ways thanks to interoperability. But, to maximize the benefits, institutions and vendors must embrace Agile and Lean workflows in lockstep. More agile working environments should encourage experimentation, which is exactly what 21st century finance needs with respect to software development.

More recently, the COVID-19 pandemic put even greater emphasis on Lean and Agile thinking. Collaboration tools and remote working have been adopted by financial organizations throughout the world, which necessitates greater agility across business lines as well as a lean mindset, and not just when it comes to development. For example, a leading European bank recently adopted the Spotify model to Agile workflows. Just as in other fields, the development of lean and agile principles has enabled the fintech industry to dramatically increase the rate at which technology is adopted by businesses that operate within the industry.

The financial industry has at long last adopted a customer-first mindset; business leaders in the field are increasingly recognizing that any discussion about software development decisions must start and end with the customer experience vs internal considerations. The few remaining holdouts risk losing those customers if they don’t embrace the speed, adaptability and innovation galvanized by the Lean and Agile methods.

By Leo Koutikas, Vice President of Software Development, IPC