Under growing regulatory scrutiny, fintechs must shift from buying monitoring tools to building observability for a competitive differentiator

This week, the chair of UBS sounded an alarm over “looming systemic risk” in the private-credit market, warning that the opacity of ratings and interconnected exposures could echo the 2008 crisis.

Looming in the background is the EU’s Digital Operational Resilience Act (DORA), which comes into effect next year, but only only 8% of firms had achieved full compliance with many remaining unprepared. The combination of heightened regulatory scrutiny and growing systemic fragility makes one thing clear: scaling fast is trumped by the need for visibility. 

“In today’s climate, where regulators are demanding operational proof under DORA, every investment now has to show tangible business value. The comments from UBS highlight a broader vulnerability across modern financial systems: when data flows are fragmented and risks spread faster than firms can detect them,” said Sean Carmody, Business Development Officer at Leading Resolutions.

“For years, the industry could justify huge technology spends in the name of speed and scale, but that model is no longer viable. Regulators want proof that IT leaders have full visibility across their digital estate, and as such, observability has become a critical business capability”

Carmody believes fintechs can achieve true observability through building on their existing data architecture.

“Many firms will assume this requires buying expensive new tools, AI platforms or monitoring stacks, but this would be a costly mistake. These tools only compound the problem, adding licensing and maintenance costs that quickly outweigh the limited value they deliver.

“This pattern has already played out across much of the insurance and finance sector. Over the last 18 months, many firms were led by vendors to purchase governance platforms simply to demonstrate regulatory readiness. In many cases, the business problem was never clarified and as a result, businesses were left with expensive technology deployed on top of fragmented data foundations, leading to little uplift in insight.

The real challenge, Carmody argues, is not data scarcity, but data unity.

“Most fintechs already generate data from APIs, payment processors and mobile apps. The problem is that this data lives in silos and is therefore unable to create a wider picture of business operations. That lack of integration prevents firms from spotting cause-and-effect relationships that could improve operations and customer experience. An additional new layer of tools will only provide superficial visibility that adds cost and complexity.

“The smarter approach is to stitch together existing data, such as transaction trails, operational telemetry and infrastructure data, into a single data fabric to identify correlations that were previously missed. This might be linking latency spikes in payment authorisation with an increase in failed transactions or a sudden rise in fraud alerts to a recent infrastructure change.

“When systems can see these relationships in real time, fintech’s can see how minor backend fluctuations can ripple through customer experience and, in turn, embed corrective measures such as isolating faulty pipelines or rerouting transactions before customers even notice.”

Carmody continues by outlining how business observability isn’t only about tracking uptime, but also understanding the human impact a technical fault can have on the customer journey.

“A single payment-processing delay can set off a chain reaction of failed transactions, duplicate charges and frustrated users flooding support channels, which ultimately erodes trust in the brand. An observability model that also caters for a customer-centric view can make these connections sooner.

“Linking backend telemetry such as queue delays to specific customer cohorts can quantify the human impact of each incident. When enriched with external context such as credit-risk signals, fraud-detection indicators and other economic trackers, firms spot early warning signs and take pre-emptive action.

“This includes automatically scaling capacity, rerouting traffic or triggering proactive messages to affected users. Over time, this feedback loop builds a seamless, responsive customer experience.”

Carmody concludes: “Observability has become a critical business capability and data strategy, but businesses should stop reflexively buying new tools and instead, maximise what already exists. By unifying data, firms can connect fragmented systems, expose hidden dependencies and turn technical performance into business insight. The firms that achieve this will not only meet the demands of DORA and regulators but also earn true observability for enhanced customer experience, agile operations and scale dynamically in an uncertain financial climate.”