Technology is a huge driver of change, and its influence on banking is no exception. According to Forbes Advisor, 78% of Americans prefer to bank digitally. Banks are under pressure like never before to keep pace with the rapidly changing demands of the digital age.
At the same time, banks are asked to do more with less—like remain profitable while dealing with increased regulation and competition. The digital transformation of banking has led many institutions to take a closer look at their technology options and whether they should build or buy their bank tech stack.
Open APIs Change the Tech Game for Banks
Just five to 10 years ago, buying a tech stack was not an option for banks. An in-house build was virtually the only way to have a customized solution. And, turning to core providers led to a one-size-fits-all option that failed to meet the specific needs of the financial institution.
What changed? The availability and integration of open APIs.
As banks and fintechs introduced open APIs to their businesses, they changed their ability to connect with other institutions and fintechs. This allowed for banks to create more services, solutions, and products for their consumers. Check out our previous blog post on how to modernize fintech applications with iPaaS and APIs.
Prior to open APIs, banks had to build one-off custom connections with direct VPN access. With the fintech revolution and standardized APIs, banks have multiple options including BaaS providers, integration layers, and new pathways to reach consumers.
Building vs. Buying: The Pros and Cons
Now that banks can buy customized tech stacks, is that the best route?
There are pros and cons to building vs. buying, and the decision ultimately comes down to what makes the most sense for your bank. If you have the internal resources and expertise to build a solution that meets your specific needs, then that may be the best option.
- Full control. You have complete control over the features and functionality of your tech stack. You can tailor the tech stack to your specific needs and scale the technology as demand grows.
- No licensing fees. The tech stack is your property/technology and no licensing fees are associated with your internal development.
- Implementation that fits your bank’s timeframe. You decide when and how to implement the new technology based on your resources and what makes sense for your business.
- Business continuity. You can eliminate the concerns around project derailment if the fintech you’re working with is acquired or goes bankrupt.
- Finding talent. It is challenging for banks to find a team of skilled developers who can create custom solutions. Developers are in high demand across all industries, giving banks more competition to find the right people for the job.
- Longer project timeline. It can take a long time to build a comprehensive and functional tech stack from scratch.
- Increased efficiency ratio. Adding a development team will increase the bank’s efficiency ratio. Depending on how many resources your bank needs and for how long, this can greatly impact the overall ROI of the project.
- Skillset limit. You’re limited to the skills and knowledge of your internal team, which may result in fragile, rigid, or incomplete solutions.
- You assume all the risk. When a bank builds their own tech stack, they assume all the risk, as opposed to sharing it with a provider.
If you lack the necessary internal resources or feel that it would be more efficient and cost-effective to outsource the development, then purchasing an off-the-shelf solution may be the way to go.
- Access to the latest technology. Fintechs and solutions providers offer the latest technology to their customers, so your tech stack remains relevant and up to date with growing customer expectations. All the features and functionality you need are typically included.
- Options to fit your needs. Banks can customize their tech stack based on what they need in terms of cost, revenue model, necessary features and integrations, and future functionality expectations.
- Proven solutions. Options offered are proven to help banks achieve their goals.
- Shared risk. Along with your solutions provider, your bank shares the risk of the success and security of the banking tech stack.
- Access to additional ideas. By partnering with a fintech or development company for your tech stack, you have access to other ideas and options that allow your bank to broaden the scope of the products and services it offers.
- Lack of ownership. You have less control over the features and functionality of the tech stack.
- Cookie-cutter solutions. The tech stack may not fit your specific needs, and customization is either a lengthy process or not an option.
- Slow implementation of changes. Quick turnaround for changes or improvements relies on the provider and your team. Plus, the scalability of the tech stack may be limited.
- Risk tolerance. A fintech partner might be less inclined to take on specific customizations out of fear of failure.
- Licensing and implementation fees. These fees can increase the overall project cost and maintenance.
What to Consider When Upgrading Your Bank’s Tech Stack
When you’re trying to determine the best path for your bank, there are two things you need to consider:
What is your overall strategy? Do you want to grow assets? Or, are you trying to become an attractive acquisition target? Setting your goal helps set a clear path for your bank’s digital transformation.
Understand what pieces need to fall into place to achieve your goal.
Here are some questions to help guide your plan:
Whether you’re building or buying your bank’s tech stack, does the solution solve your problems and does it solve them well?
How successful has this strategy been with other banks?
Does the solution fit every audience and various functions? (For example: Can you apply for a loan on your phone?)
How long do you expect the solution to remain relevant?
Find a Partner to Help Deliver the Bank Tech Stack You Need
There is no one-size-fits-all answer to the build vs. buy question for bank tech stacks. When it comes to technology, banks have a few options: They can build everything in-house, buy everything from a single vendor, or take a hybrid approach of building some things and buying others.
Ultimately, the best way to make a decision is to consult with experts who can help you understand all your options and make the best decision for your specific needs. Core10’s solutions can help you achieve your goals with room to customize and scale as you grow. We’re not just people selling a solution. We’re partners who can meet you where you are on your technical journey. Check out the amazing work we’ve done through open APIs with our partner Encore Bank.
If you’re uncertain of whether your bank needs to build vs. buy your tech stack, let’s talk. Core10 is primed to help you with this decision. Book a free consultation, and we’ll help you determine the best path for your growth plan.