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Making the Big Decision: Should You Build or Buy Your Loan Management System for FinTech Lending?

Updated: Jan 22

There are several FinTechs emerging into lending and many consumer tech businesses starting their lending arm. Its a great way to make sustainable money.

Major decision for FinTechs in Lending is Build vs Buy.

Is there any Thumb-rule to decide "Build vs Buy"?

Below thumb-rule generally works

  • Whatever is unique to FinTechs should be built in-house

  • Whatever is standard available through third parties should be bought from the market and stitched within the in-house tech. Provided

    • Long term costs of third are viable

    • Agility and support is not a problem

    • All requirements are being fulfilled through standard products + in-house tech

Why this thumb-rule?

  • Every product has a depth on its own. From outside it might look simple but it has to go through maturity cycle

  • For standard products, it doesn't make sense to think and develop in-house and traverse the maturity journey. Its a big distraction! Not every battle is worth fighting for.

Ok got it. Can you share some example of standard products?

  • APIs for KYC, Bank-statements and other validations

  • Accounting software

  • HRMS

  • Dashboarding tools etc

Is Loan Origination System (LOS) - a standard product OR is it unique to FinTechs?

  • No - Case1: Self onboarding journey - Usually FinTechs offer self-service customer journey which is a unique experience they want to give to customers. In such cases it is highly recommended to build the onboarding tech in-house from scratch.

  • Maybe - Case2: Assisted journey - In case you want to onboard customers through assisted journey by your fleet-on-street, you can choose a configurable LOS product or platform

Is LMS an standard product OR is it unique for each FinTech?

  • Yes, ideally LMS should be 100% standard product just like accounting. Its ultimately a back-office core software. Provided it satisfies all your requirements.

If LMS is such a standard product then why most of the FinTechs have chosen it to develop it in-house?

There are primarily two reasons

Reason#1 - Lack of right LMS provider

While we were busy in building world's best LMS, there were no good options available earlier

  • Option#1 - Go with established LMS players

    • Pros

      • Feature rich

      • Mature and

      • Stable

    • Cons

      • They were built on legacy tech - difficult to upgrade

      • Heavy Capex investment

      • Lack of agility

      • Poor support

      • Arrogance

      • Lack of new age features

      • Lack of APIs

      • Lack of scalability

      • Mismatch with startup pace - Slow in making changes

  • Option#2 - Go with new age players

    • Pros

      • Startup DNA

      • Agility

      • Better support

      • APIs

    • Cons

      • Lack of features

      • Limited loan product coverage - specifically built to handle only 1 type of loan product

      • Behind in regulatory compliances

      • Mostly built on open source - Apache Fineract. It made sense to directly build on fineract

      • Lack of depth in the product

      • Startups die fast - its a core system. Can't risk it

Reason#2 - Availability of open-source Apache Fineract

  • With Apache Fineract, it looked we have complete LMS with minor tweaks we can have our own LMS

  • Looked good to handle standard PL products

  • It could give a quick head-start

Building on Apache Fineract seems like an excellent option, isn't it?

Apache Fineract was developed by MIFOS foundation and it gives a good software to handle micro-finance use-case.

But it carries below problems

  • Limited loan product support - Only MFI and PL term loans can be handled well. For other products, nuances need to be incorporated. Credit line, BNPL, SCF, Commercial Vehicles, Tractor loans, MSME business loans might require significant changes

  • Initial customisation is needed to suite Indian regulations - These customisation are 1) Unknown to FinTechs due to lack of expertise in regulation 2) When they get known, it can take 4-5 months of efforts to make it suitable

  • Architectural debt - Fineract is built in certain way. Building it on it leads to carrying the baggage of the architecture

  • Compliances consume energy and bandwidth - Regulator regularly roll out new rules and clarification. LMS system needs to be continuously upgraded. With time, Instead of energy going in innovation, it starts draining towards compliances

  • Maintenance is expensive - Evolution and changes never stop, continuous maintenance is required. Having an in-house team of experts requires heavy expenditure on man-power

  • Maintenance is risky - LMS by its very nature is a large complex system doing calculations everyday. There are more than 50K scenarios that need to be tested. Which is humanly not possible without test automation. This can lead to wrong calculations and hence compliance and financial issues

  • Leads to bulky ops teams - Several operations can be automated, but due to system design - automations needs to be added over time. By the time automation is achieved, your ops team get quite bulky.

  • Your expertise become rate-limiting factor in evolution of LMS - Evolving the LMS from the base fineract is the sole responsibility of you yourself. It will be good only to the level of your expertise and knowledge.

Ok understood problems with Fineract. Whats the problem in building it in-house from scratch?

While some of the problems with apache fineract, you'll be able to resolve by building from scratch but below problems would still persist.

  • Limited loan product support

  • Initial customisation is needed to suite Indian regulations

  • Compliances consume energy and bandwidth

  • Maintenance is expensive

  • Maintenance is risky

  • Your expertise become rate-limiting factor in evolution of LMS

Software decisions should be driven by maintenance first approach.

As LMS is backend software, building it in-house does not give you any specific advantage in business.

So you are saying don't build in-house and also don't use apache-fineract? then whats the solution?

Use Synoriq LMS - its the best LMS in the world so far. Focus on your core, and leave the worry of loan management to us.

Synoriq LMS carries the best of both worlds

  1. Maturity and product coverage of legacy players

  2. Agility and modern architecture of new age players.

Highlights of Synoriq LMS

  1. Feature rich mature LMS

    1. Matured over 3 years with 200+ man years of efforts

    2. Feature rich - checkout the feature list -

    3. Wide loan product coverage

    4. Coverage of 100K+ scenarios

    5. Servicing Rs 30,000Cr + of loan book with 30+ customers

  2. Handles innovative loan products

    1. Supports 15+ loan products across term loans, credit line, co-lending, subvention etc

    2. Any type of innovation you have in mind, can either be configured OR tailor made for you.

    3. Its built from scratch in an architecture, allowing us ability to support whatever is needed

  3. Future proof architecture

    1. Evolutionary architecture - releases every month - constant evolution.

    2. System stability through test automation - every day 35K+ test cases executed

    3. API first - 40+ APIs to readily enable you to build anything on top of LMS

    4. Scalability - achieve near unlimited scalability

  4. Startup DNA

    1. FinTechs find us agile and aggressive

    2. We understand FinTechs well and can work at the desired speed

  5. Compliances focus

    1. Any changes are quickly incorporated and provided as free upgrade

    2. You never need to worry about software changes related to LMS compliances

    3. Advisory is also offered in case of any compliance opinion needed

    4. ISO27001 and SOC-2 Type-2 certified

What is the business advantage of using Synoriq LMS?

Its threefold advantage

  • Cost benefits

    • Significantly cheaper in long run if you consider the cost of in-house team and bandwidth of senior management

    • Reduction in ops team with automation offered by Synoriq LMS

  • Time benefits

    • Roll out any new product or changes faster

  • Ease of life

    • Worry free life in terms of compliance related to LMS

    • No more worry to keep evolving LMS - we continuously evolve it for you

    • No more worrying about Infra - downtime and scalability

Ok good, Synoriq LMS looks like what I needed. But I have already built in-house tech. What to do now?

  • If you are thinking of long term game in lending - you should migrate to Synoriq LMS

  • Synoriq can help you with complete data migration as a hassle free service

  • Synoriq's APIs can be consumed by your in-house tech

Is Synoriq large enough to handle such critical operations?

  • We started back in 2017 and now aged 6 year old

  • We have been bootstrapped and profit making for last 6 years. We have built this business for really long run

  • We are 150+ strong team with 11 member top leadership founding team

  • We are handling 30+ customers with Rs 30,000Cr+ AUM. Large enterprise customers are already trusting Synoriq

Ok, I am convinced. What are the next steps?

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