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Building your own software – a step through the looking glass?

25 June 2019

Why in-house development of banking systems often carries a substantial risk and increases total cost of ownership

“Should we DIY or should we buy?” it’s a question that we, as consumers, regularly ask ourselves.  Do the costs of doing it ourselves – financial, physical and opportunity – outweigh the benefits of purchasing a purpose-built product or service?  Financial Institutions (FIs) face the same dilemma when tackling projects, whether a large-scale transformational project, the delivery of a point solution or tool to enable and accelerate the business.

FIs are attracted to building systems in-house for many reasons: “our needs are utterly unique”, “I run a great tech team, we are able to deliver these complex requirements”, “only we understand the internal political/project delivery landscape”.  Not to mention the ego boost of (eventually) successful launching a self-built system!

But wait, not so fast…

Banking technology is not just for Day One….

The greatest strength of building in-house is also its greatest weakness.  Day One go live is exciting and vindicating.  Day Two is almost as good; but how does the system wear two years down the road, or three, or ten? System maintenance and upgrades fall victim to the fact that the tech team that built it will move on to other projects.

Technology and market needs evolve, specialists leave and subject matter experts get absorbed into other teams.  Ongoing protection of the in-house development investment isn’t always prioritized by the bank.  Additionally, we all know that getting ongoing attention (i.e. budget) for the project is difficult over an extended time period.

What is the true business of the bank?

As the digitization agenda permeates the business, successful banks are keeping their focus on the client experience, on driving revenues and on the mammoth task of regulatory compliance and reporting.  Rather than building systems, banks need to put the emphasis on their optimization and efficiency as the true priority.

While some FIs may look to extending existing infrastructure as a first step, legacy systems and stacks are often inefficient and outdated.  In many cases, in-house builds can inherit the bad as well as the good qualities of the infrastructure currently in place.  New builds should represent a technology re-fresh that prioritizes operational efficiency, usability and robustness.  A third party vendor delivering best-in-class software will ultimately make far fewer internal demands than an infrastructure extension.

In-house development also runs the risk that the solution reflects today’s requirements and a single bank view, rather than tapping into the subject matter expertise offered by the Vendor.  The in-house system is likely to be narrow in focus, not necessarily future-proofed or reflecting the broader external view.

Are you prepared for the Scalability Factor?  – how total cost of ownership climbs with internal build

In-house systems hold value in terms of being specifically designed for the purpose at hand.  They come with an ongoing dependency on expensive internal resources, pushing up Total Cost of Ownership of the project over time.  The reality in the bank is, business colleagues are not analysts and the IT groups don’t always know the business.  Building these skills internally for a specialized area can be extremely difficult and certainly hard to maintain.  Limited scalability also means that internal the IT team grows as you grow; customization requirements deepen this dependency further.

An FI’s leverage over a vendor’s resources is much greater than over the internal technology team.  As a project inevitably hits functionality and delivery crunches, it is much easier to ‘force’ a vendor to accelerate by applying additional resources than to try to find additional resources inside the FI.  Cost over-runs which would have to be borne by the FI can be handled within a third party contract.

My bank is unique, our requirements are very distinct

Banks often consider their internal system complexity and project delivery landscape so complex that only internal resources will have the understanding and scope to successfully deliver a project.  Nonetheless, the best requirements gathering exercises are a combination of internal business people combined with external market experts.  External experts bring a broader view of the market place.  This model is much more time-efficient for the FI; as the externally-driven project develops, the FI time requirement significantly reduces.

Many banks will consider that their internal IT folks are best-placed to undertake system integrations.  Since integration is often such a significant part of the project and, having gone that far, the bank may as well complete the project as a whole.  System integration is now such an industry standard practice, however, that the best integrators are actually more likely to be third party vendors whose core business is the implementation of best practice integration methodologies.

Minimize TCO – maximize project success

Selecting a vendor dedicated to the subject matter and with an established track record will deliver value for the team and the bank:

·        Rapid time to go-live and time-to-value

·        Fewer internal resources needed

·        Lower risk of cost and time over-runs

·        Annual licensing model reduces up-front costs

·        Upgrades and support built in – no hidden or unexpected extras

·        Vendor are expected to regularly re-invest 20% – 30% of revenues into R&D

·        Regulatory changes / InfoSec demands accommodated

·        Broader industry trends & requirements reflected in the product

·        Collective customer base will continuously influence and inform the roadmap

·        Limited ongoing support required

As banks seek to evolve and distinguish themselves from the pack, the delivery of a truly digital experience is emerging as the real differentiator. In-house software builds can lead you on a trip through the looking glass, where things are not as expected and logical assumptions are turned upside down. Tapping into the subject matter expertise of a specialist vendor, the wisdom of their client base and the continuous updating of a purpose-built product is the most efficient way to deliver a truly digital experience in the face of costly regulatory pressures.

How can we can help?

Rockall offers automated collateral management solutions for wealth lending and the banking book.  Our systems manage the complexity of the credit landscape and enable substantial loan operations and capital savings.  As a vendor with dedicated subject matter experts and a twenty-year track record, we offer rapid go-live for state of the art collateral management.

To learn how Rockall can deliver a lower cost of ownership for your collateral management requirements, please contact us, or visit rockall.com

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