Digital Build vs. Buy

A common question that I have helped banks struggle with over the years is “build vs. buy”.  For digital banking channels, banks are wondering if they should build a bespoke banking multi/omni/channel offing or buy a packaged product/platform.

The arguments for both sides are compelling:

• Building a bespoke solution offers the hope of creating a sustainable competitive advantage through a leading software development capability and innovative user experiences that are difficult for competitors to rapidly duplicate.
• Acquiring a packaged product (or leveraging a platform) allows the bank to benefit from a product road-map and offers the hope of a minimal cost market-parity guarantee.  Minimal cost because product vendors amortize the cost of developing new features over many banks.  All the bank must do is install new versions of the product.

The former is important for differentiating and the latter is important for reducing the cost of maintaining “hygiene factor” features that keep competitors from poaching customers with better channels.

The largest banks can afford to build commodity features themselves although this is in theory a waste of money.  I say “in theory” because it can be tricky to build bespoke differentiating features AND acquire commodity features from a vendor.  This ability must be engineered into the channels architecture somehow.  You need to be able to do one or both of the following:

• Plug vendor features into a bespoke solution (plug-able components).  The development of which can be facilitated by industry standards and platforms.
• Plug bespoke features into a vendor solution or platform (extension points).  The development of which are facilitated by the vendor solution/platform’s extensible architecture.

Complicating the digital channels architecture further is the notion of infrastructure.  See my series on strategic technologies.  This is generally a “buy” no-brainer.  No banks should be building their own infrastructure unless they have spotted a technology white space and a way to create a competitive advantage by filling it. Vendors are watching for this, I warn.  At least I am.  I see this as an opportunity to build a new product to sell or platform to run in the cloud.  You see banks attempting to manage this to their advantage by incubating start-ups.  The idea is to get to market first with something that is differentiating, maximize the duration of competitive advantage, and then spin it off once it becomes a commodity to spread the cost of maintaining the technology and keeping its features at market parity.

This is an area of interest for me and you can imagine that I have a lot more to say about it, which is why I am starting this series.