Home Business NewsBusinessBanking Buying fintech? Here’s what banks must consider

Buying fintech? Here’s what banks must consider

by Ammar Akhtar, CEO, Yobota
16th Nov 20 8:23 am

Almost every business faces the same choice when it comes to technology – build or buy? Countless hours can be put into discussing the relative merits of investing resources to develop technology in-house, or the possibly easier (and cheaper) option to source whatever is needed externally.

As we roll through 2020 and look ahead to the coming decade, most predict a future of remote working and an acceleration of digital interaction between businesses and their customers. This is a particularly important trend in the financial services space, where the long-term economic uncertainty that has arisen this year is creating a new set of demands from consumers and businesses alike.

It makes the ‘build or buy’ question a pressing one. And the correct answer can only be determined on a case-by-case basis; the resources, capabilities and needs of a business will shape the approach it takes.

Yet it is likely that the pandemic will result in more companies choosing “buy” rather than “build”.  This decision is not just to do with “legacy architecture” or achieving greater nimbleness (a recent McKinsey report compares fintechs with incumbents). On a pure cost basis there is good reason to look for reliable, forward-thinking vendors and products that will be able to serve future demands.

For those that do decide to buy financial technology, there is a great deal at stake; let’s not forget that financial services providers operate in a highly regulated space. Investing in technology – and the related operational changes that are required – that “fails”, for whatever reason, not only wastes time and money, but can cause vast reputational damage and create regulatory issues. 

While there’s clearly a growing interest in working with newer providers, a considered approach is needed to increase the chances of long-term success.

Establishing the business objectives

Any buyer must be extremely clear on what they want to achieve. They might want to provide near-instant online quotes for prospective mortgage customers, or have a search engine for employees to find documents relating to the underlying property for a mortgage. The success criteria would be very different for these projects.

Whatever the objective, they must be able to explain it clearly in the context of their business and how it will make a difference. This clarity will be crucial when searching for, assessing and working with vendors.

Assessing the vendors

Finding the right product or vendor requires a further set of considerations. Most notably, strong assessment criteria for establishing the capabilities that would be provided.

What are the boxes the technology must tick? What functionality must it have? What level of customisation is required from a branding and business perspective? What is an acceptable price bracket for the product? This list has to be exhaustive yet finite so that a sharp assessment process can be run.

Additionally, companies can help foster a healthy relationship with prospective vendors by being transparent about procurement processes including transparency on the due diligence requirements, contractual red-lines or payment practices, which are best raised early on.

Getting a cultural fit

The business-to-business relationship, particularly at a senior level, is also important. There must be a mutual understanding of what the overall vision is and how it will be achieved, including the practical implementation, timeline and costs.

Likewise, the ‘cultural fit’ between end-customers and vendors should not be overlooked. Any company should work with vendors who have a similar operational mindset to them and a shared belief in the levels of quality required.

This cultural fit can prove problematic in the financial services space, where larger institutions sometimes clash with smaller fintechs in terms of their outlook, pace of work and organisational values. Such problems become amplified as projects progress, so paying attention to the on-going relationship and building cross-team rapport is worthwhile.

Procuring not outsourcing

Many finance companies will be going through this process at present. It is one that could have a significant impact on the future of their business and its broader digital transformation, which for most firms is a matter of constant evolution.

Vendors that produce technology products are, in general, experts in their areas and look to solve specific challenges that many businesses and consumers face; for example, payments or core banking – not both. It is for the bank or finance firm to see the bigger picture of how technologies can fit together to create a faultless experience, product or service for its customers.

When buying technology from a third party, a bank is procuring a solution that will serve its business, perhaps right at its core. As such, the mindset of ‘outsourcing’ can be problematic – leading to a feeling of both relinquishing control and being unable to take responsibility due to not understanding the inner workings of the purchased product.

This is something modern technologies solve very well. Many major solutions offer the flexibility to be customised through data configuration, rather than custom development; and modern API boundaries – the way software systems can interact with each other – typically enable clean interfaces onto end-user apps and data feeds to existing systems. Keeping that in mind should allow companies to select the best placed vendors.

Ammar Akhtar is the co-founder and CEO of Yobota, a London-based technology company. Founded in 2016, Yobota has built a fast, flexible, cloud-native core banking platform, which allows clients to create and run innovative financial products.

 

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