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The Dilemma of Building Versus Buying in Digital Banking

August 19, 2020

Why digital banking platforms are the best of all worlds

There are many reasons why a bank needs to reorient, evolve or directly change its technology to interact with customers through digital media. Investing in technology improvements offers many advantages to banks, including:

  • Improve the customer experience to become more competitive. It is clear that the vast majority of present and future financial interactions are or will be digital. The digital experience will be a major factor in how individuals and companies choose their banks.

  • Increase sales by taking advantage of the opportunity to engage customers in multiple points of contact.

  • Generate new business opportunities through open banking models, alliances with third parties and expanding to new markets.

  • Provide a platform that allows agile innovation, improving the time to market for new products or services.

  • Create distinct experiences for different segments of customers: entrepreneurs, traders, older people, investors, young students and other affinity groups.

  • Increase availability by delivering services across multiple devices.

  • Create efficiency in the use of resources.

  • Replace legacy and outdated technologies that are difficult to maintain, have performance and security problems and use obsolete technologies.

In this context, banks face a choice when it comes to technology: buy or build. Top-tier banks, with economies of sufficient scale, access to human capital and time, often opt to build their own technology solutions. Small- and medium-sized banks often choose to purchase packaged solutions or outsource their technology management to a third party.

There are advantages and disadvantages to both approaches.

Advantages of Building

Banks that choose to build their own technology solutions have several advantages, including:

  • Design customized experiences for the bank and its clients

  • Ownership of the technological assets

  • Greater control of the development process

  • Less reliance on third parties

Disadvantages of Building

Banks that choose to build their own also face potential obstacles:

  • Longer time to market, with the need to implement, test and launch new services

  • The need for human capital with very different specialized skills: user experience, iPhone app development, Android app development, website development and design, API design, integration with back-end systems, financial functionality and application security

  • Construction risk

Advantages of Buying

Banks that choose to outsource their technology investment see their own benefits, such as:

  • Lower time to market

  • Immediate access to new functions offered by the vendor

  • Lower total cost of ownership

  • Proven solutions

Disadvantages of Buying

The risks to using an outside vendor or partner include:

  • The difficulty of differentiation from competitors

  • Vendor dependency

  • Vendor reliability and risk

Platforms: The Best of Both Worlds

About three years ago, a new solution emerged: digital banking platforms.

These platforms allow you to develop and control custom digital experiences across multiple devices and offer open APIs to interact with customers, business partners or even other platforms. These solutions also allow your bank to define and document business processes in record time by making use of ready-made components that are tested, secure and scalable. The digital world is “platforming” and the financial industry is not the exception.

As Gartner highlights in its report, Market Guide for Open Unified Digital Banking Platforms, “Emerging digital banking platform technologies are key to the success of banks’ business-critical digital initiatives. Open unified solutions make it possible to deliver new digital products and services, and create a multidimensional customer experience across all digital channels.”

Through this approach, the bank in question realizes the benefits of both built and bought strategies. A bank can build a customized experience within the digital banking platform. The bank controls the development cycle, remains independent of third-party vendors, especially on open platforms released by the vendor. Most importantly, the bank can incorporate new functions, new technologies, new standards and new device support. The platforms will have up-to-date security protection and standard interfaces to third-party connectors to different data sources and legacy systems. The bank can incorporate complementary products such as chat, digital assistants, payment processing, business intelligence and customer relationship management.

The Decision Is Strategic

Choosing the right approach to technology is one of a bank’s most important decisions today. It will shape the bank’s competitiveness for the next 5 to 10 years, one in which new disruptive competitors are leaping into banking.

According to Gartner’s Stessa B. Cohen in CIO: How to Choose the Right Approach to Digital Banking, “Bank CIOs planning to replace online or mobile banking solutions must understand the key drivers for the initiative before they choose vendors to evaluate. CIOs must align strategic goals and readiness with digital banking technology to build the appropriate foundation for digital business. Bank CIOs seeking to acquire a new digital banking solution must address a fundamental decision between two often conflicting priorities for the bank: IT cost optimization and business transformation. Bank CIOs cannot rely on traditional parameters they used in the past for previous channel application initiatives for identifying and evaluating vendors for online and mobile banking or even branch solutions. To succeed, bank CIOs must choose a digital banking approach that supports the bank’s key priority as well as the ability to be sensitive to customer needs, goals and other requirements.”

Modern digital banking platforms leverage digital transformation dramatically, allowing banks to differentiate themselves and reduce the time to market.

Building a winning digital experience from scratch is possible if you have the time and talent you need. However, both are very scarce in the current state of the industry. Choosing a platform is the best of both worlds.

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