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Avoiding Technical Debt: The Build vs. Buy Decision

Can a financial institution get everything they want
without building their own technology?

Paul Stanczak

The year is 2020. The world has changed; customers are interacting with financial institutions via self-serve and digital channels more than ever before. As examples, BMO has seen a 15% increase in digital engagement with its customer base and Truist’s new chatbot handled 20,000 queries between April and August. Although some financial institutions might be looking forward to a time when normal business can resume, and customers gleefully skip back into brick-and-mortar branches to do their banking, some may likely never return. Financial institutions are acutely aware of this, contracting branch networks to reduce costs as customers shift to digital channels. Citizens Bank is even reimagining some branches as “advice centers” as customers complete their day-to-day transactions digitally.

As reluctant as some financial institutions have been to fully invest in digital transformation, there doesn’t seem to be denial that customers are shifting to digital channels. McKinsey research found the most satisfied banking customers use their financial institutions’ digital channels at least once per week. The circumstances of 2020 have created an environment in which customer expectations are changing in a hurry, and digital transformation has become a priority.

Well-resourced financial institutions have a big decision as they approach digital transformation: build vs. buy. With both budget and talent on their side, the option to build to spec may be tempting. Based on my research, the case against building is supported by industry experts and financial institutions that have tried it. Still, internal builds continue to be on the table with financial institutions. Why is that?

Suggested article: Is the traditional technology upgrade dead?

What’s so attractive about homegrown solutions?

Control: Control is important in a highly regulated environment. Financial institutions are understandably risk adverse and historically, if something goes wrong, the buck stops with them – not their vendors. Keeping core solutions in-house mitigates the risk that an outside vendor doesn’t meet the financial institution’s security and compliance requirements.

In-house Expertise: Many financial institutions have savvy IT teams with no shortage in technical talent. It’s tempting to utilize resources who already know the tech stack, especially if IT workloads are light in the moment.

Configurability: There is something special about every financial institution; many institutions might think that building their own technology solutions is the only way to maintain their “secret sauce”. Also, with a market that changes rapidly, financial institutions want to adapt workflows, add products and change prices quickly. Operating self-sufficiently, and not being beholden to a vendor’s assistance, is attractive.

Can financial institutions get what they want without building it themselves?

Digital transformation can be complex for many financial institutions. A recent survey indicates that 55% of companies are not satisfied with their digital transformation projects. Change can be uncomfortable and is only made worse with extraordinary pressure (like a pandemic that forces customers onto digital channels overnight). In times like this, when there is simply too much work and not enough time, there is just one thing to do: partner. Instead of taking on the world, financial institutions can choose from the ever-growing field of software solutions configured for their business needs. To ensure project success, financial institutions can:

Seek out configurable solutions.

Vendors used to build one-size-fits-all platforms that clients needed to fit into. Simply put, that’s not how technology works anymore. Many vendors, including Linedata, offer a best practice model that is configurable to fit unique business practices. Todays’ solutions are also built to provide self-sufficiency, so financial institutions can adapt to market changes quickly without the vendor’s assistance.

Look at vendor selection and vendor management in a new way.

In this, the age of technology, there are likely several potential solutions for any given need. Financial institutions should be clear on the goals and desired results of any given project and seek out vendors who specialize in that area. By digging in on security, regulatory compliance, configurability and culture, decision makers can uncover if the vendor and their solution is an appropriate fit. That’s just the beginning of the relationship. In my experience, clients are more satisfied by their third-party relationship when they treat their vendors as partners - informing them of major institutional changes, speaking candidly about challenges and asking how they can get more out of the solution. A good vendor can be leaned on in the same way as an internal team.

Use internal resources at a higher level.

Enterprise-wide financial institutions may be working with hundreds of vendors, siloed within business lines. Internal IT teams can be utilized to bridge the gaps between business line solutions, helping to create the integrated ecosystem many financial institutions want. Internal IT resources can leverage open APIs to connect the right solutions and un-silo the organization in a way no external vendor could. They should be involved in vendor selection to ensure each new relationship plays nicely in the evolving ecosystem, or what I like to call the core institutional fabric.

Weigh costs beyond on-paper expense.

In the buy vs. build decision, several costs need to be considered. The time cost of implementation, long-term IT support and ongoing enhancements are big factors. A recent Forrester survey of financial institutions that built their own technology found that 52% of projects took longer than expected to complete. Once implemented, 34% were updated just once a year or less. With many vendors offering Continuous Integration (CI)/Continuous Delivery (CD) solutions that provide customers with new features and functionality regularly, infrequent upgrades can create a severe competitive disadvantage. Additionally, up-to-date technology improves employee productivity and satisfaction. Can an internal team continuously innovate and update an in-house build to offer a user experience that attracts and retains top talent?

Be part of the vendor's roadmap.

Technology solutions are developed with more flexibility than ever before. For most vendors, product development roadmaps are also flexible. Customers are able to influence the roadmap as they experience new challenges or customer trends change. Cloud solutions utilizing CI/CD methodology offer faster, more frequent delivery of new features and functionality, so waiting for major upgrades is no longer necessary. Features and enhancements are now streamed at a higher pace and made much easier to consume.

As a VP of Sales at a technology vendor, I won’t pretend to be neutral on this topic; I feel strongly that financial institutions are best served by vendors who specialize in technology. More vendors offer flexibility, open platforms that encourage integrations with open APIs, and work with clients as partners. I see a clear win for a time-tested solution, proven implementation methodology and constant innovation investments vendors can offer. So, to financial institutions I say: focus on making great informed decisions and supporting your clients’ needs by creating a core institutional fabric that leverages the best solutions the market has to offer. With the right partners and an internal team with a holistic view of your tech stack, you will be positioned to stay ahead of the game even when the world throws you a curve ball.