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Buy vs. Build in Banking: Which Option is Right for You?

 
 

Banking | Pierre Kovacs |
11 October 2022

Whether it’s replacing a small back-office function or redesigning a major organisation-wide operation, IT decision-makers in the banking industry are continually faced with the decision of whether to buy or build solutions for their organisations.

It’s a challenge they’ve faced for decades, and one that’s grown as the tech landscape has evolved and new solutions and opportunities for development have emerged in the market.

Innovative fintechs now offer highly specialised software and services targeted to serving very specific functions, often with an API-first design, making purchasing a more attractive option than it’s ever been.

Meanwhile, the productivity of modern development environments has continuously improved for organisations with the right skillsets, leading many to build their own solutions. And these opportunities have only grown as cloud technology has become more prevalent and organisations have gained access to low-code development platforms. In fact, analysts at Forrester have reported more clients than ever choosing to build their own solutions.

But with countless options comes a difficult decision for IT leaders in banking. Throughout my career, I’ve worked on both sides of the debate – for a portfolio management system vendor selling a specific product, and as a tech lead at investment banks and asset managers, helping these organisations build their ideal solutions.

In that time, I’ve picked up some insights that might make the decision in your organisation a little easier.

THE BENEFITS OF BUYING SOLUTIONS

Purchasing solutions for a specific function used to be the instinctive choice for many IT decision-makers – and for good reason. It often offers a fast time to market as the solution is already built and ready to deploy, just leaving you with the task of connecting the solution to your legacy systems.

This has become even easier since the boom of software-as-a-service (SaaS) solutions, which offer organisations access to cloud-hosted solutions, easy deployment and integration with existing architecture, as well as flexible options for scalability.

Choosing to buy also offers a relatively known cost for the project. Unlike a self-build, where a project’s price can flex as needs and challenges change, most off-the-shelf solutions have a clear price tag, making it easier to manage from a CapEx perspective.

In many cases, organisations don’t have the level of expertise among their teams that will have gone into building an off-the-shelf solution, either. By buying the solution, they can avoid having to hire those skills or source them from third parties.

Another key reason so many IT leaders trust the purchasing route is because when buying from traditional solution vendors, you can take comfort that their solutions and systems are used by dozens of banks worldwide. That means you benefit from the best practices across organisations, and you can feel assured that the robustness of the solution has been proven in other organisations.

However, while many of these benefits offer compelling reasons to buy, they also come with some major setbacks.

WHERE BUYING RESTRICTS FINANCIAL ORGANISATIONS

To get the best value from a commercial off-the-shelf solution (COTS), you should use it the way it was designed to be used. However, this might not fit with your current operational model.

It’s difficult for a vendor to support all possible versions and customisations of their product. And even when they can, you might end up with a “proprietary version” of the product that doesn’t deliver the cost savings and robustness benefits you’re looking for.

For the same reason, you will probably need to run user acceptance testing for every release, unless you have assurance from the vendor that your use cases have been tested with reasonable data and that the changes are self-contained.

Scaling a COTS can also create major challenges, too. If a solution or system isn’t designed to operate on the same scale as your growth ambitions, you can quickly run into problems across your operations.

It's not just the solutions and systems themselves that introduce challenges when buying, either. Combining multiple vendors and fintechs to create your overall technology stack can be a logistical challenge. You need someone to manage relationships, negotiate your service-level agreements, and ensure your organisation’s needs are prioritised. And to add to the challenge, you also need to know where your cybersecurity responsibilities lie with each vendor to ensure you remain protected across your entire IT estate.

These setbacks can quickly complicate a seemingly simple option – and they’re key reasons why so many organisations opt to build their own solutions instead.

WHAT BUILDING OFFERS OVER BUYING

Building is a route that offers greater control over the development and integration process of your solutions and allows you to create solutions customised to your use cases and existing technology estate.

It also makes it easier to focus on delivering value to specific parts of your operations that need prioritising, on your time scale. For example, this could be customer-facing, such as building a new customer engagement portal, or a risk management function, such as building post-LIBOR models.

Being built alongside your existing infrastructure, and with your unique needs and use cases in mind, there’s often a significantly shorter time needed to productionise changes. And if you’re taking a DevOps approach with a modern CI/CD stack, you can continuously deliver value to your business.

Crucially, one of the key advantages to building your own solutions is the edge it offers over your competitors. By building a solution, you retain the intellectual property, and you gain a USP for your brand.

BUILDING YOUR OWN: WHAT TO KEEP IN MIND

There’s a lot to gain from building your own solutions, but there are some crucial points you’ll need to keep in mind when taking this route.

You’ll need to ensure you have someone on hand who can help you outline your goals and requirements, and accurately scope out your project’s costs before you start. Fail to take this step and costs can quickly scale as project demands shift.

This process will also require you to consider whether you have the necessary skills within your organisation for the development process, or whether you’ll need to hire or source third-party expertise. While many PaaS, SaaS, and IaaS platforms offer convenient low-code solutions for citizen developers, many projects will still require a certain level of development experience.

And finally, you need to consider whether building is the right route for your use case. While it’s an attractive option for many digital transformation projects, for use cases that are not differentiating and commoditised, such as people and client management functions, it can be easier – and just as beneficial – to buy an off-the-shelf solution.

Pierre Kovacs

Banking & Capital Markets Industry Lead

Pierre is our Banking & Capital Markets Industry Lead based in London. He has spent 20+ years delivering systems from leadership positions at Investment Banks and Asset Managers. Prior to joining Endava, he was Chief Technology Innovation Officer at a fintech providing cross-asset, front-to-back office systems to hedge funds, investment banks, private banks, and energy trading firms. Over the summer of 2021, Pierre took a short break to complete the UK Ironman fitness competition in Bolton and the Ventouxman race in France.

 

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