Get Beyond Build vs. Buy in Banking

The history of banking — like so many industries — has been a history of building and buying.

There’s nothing new about it. When a bank executive decides they need a new branch, they don’t assign their tellers or loan officers to the task. Instead, they do what they’ve more or less always done: Contract outside specialists to construct it. 

What’s changed today is that banks now have full-time internal employees who can build digital banking solutions directly. This forces banks to ask the difficult question of whether they should build or buy their way through the digital transformation.

And yet a fixation on building or buying negates a third option, which is to partner to create an ever-evolving and adaptable banking platform. 

This partner-centered approach helps banks on two fronts.

First, it saves banks from the endless headaches that inevitably follow building everything from scratch. As Forrester Consulting writes, "Development teams are often bullish when it comes to how fast they think they can complete customer-facing projects, but those expectations often do not match reality." Specifically, their research shows that 42% of development teams at banks thought they'd complete their in-house project in less than six months, while only a quarter of projects wrapped up in that time frame. They add that when it comes to in-house dev teams at banks, "the bottom line is that development teams aren’t delivering customer-facing applications and services that are quick to update."

Second, it gives banks an added measure of flexibility that can't be reached via buying solutions alone. Again, Forrester writes, "While conventional thinking dictates that internally-developed platforms deliver greater flexibility at lower costs, actual results from transformation efforts show otherwise."

In light of all of this, they write that "technology decision makers must abandon the traditional “buy versus build” mentality, and instead adopt a “buy, build, extend, and assemble” approach to creating a banking development platform that takes full advantage of the benefits of commercial components where possible.” 

Another way to think of the “buy, build, extend, and assemble” model is as a series of partnerships. This mirrors a strategy outlined by Jane Fraser, president of Citi and CEO of Global Consumer Banking, which is "a light branch footprint, seamless digital capabilities, and a network of partners that expand our reach to hundreds of millions of customers.”

Partnering in this way brings together the best aspects of building products from scratch (i.e., flexibility and control) alongside the best aspects of buying products outright (i.e., a quick rollout). The concept is captured well in this quadrant from The Framework Bank, which illustrates the advantage of choosing to partner. It also shows that anything that doesn't have high strategic priority or urgency should rightly be deprioritized.

By merging strategic priorities and urgency via bank-fintech partnerships, traditional financial institutions can more successfully move toward digital maturity. Matthew Michaelis, Chairman and CEO of Emprise Bank, describes his experience in terms of the value he's seen. "One of the things we find really valuable about a partnership — and it’s something that I think differentiates itself in a meaningful way from some other relationships — is that you have that two-way learning," he says. "There are some great examples where our partners help us use their capabilities much better than we would have otherwise, just based on their learnings and what they have seen work in other places." 

When a partnership works well, this spirit of collaboration fuels innovation across both teams. As Brandon Dewitt, CTO at MX, writes, “Financial institutions can leverage third parties for their agile approach and rapid innovation, allowing them to allocate resources more strategically, expand lines of business, and reduce errors in production. These new innovations will help your financial institution compete more effectively and gives customers better, smarter and more advanced tools to manage their financial lives.” 

In short, partnering enables the best of both worlds: flexibility + speed to market. Institutions that develop a culture that gets beyond build vs. buy reap these benefits.

For more on this topic, see how you can partner with MX via our professional services.