A 2020 Lloyds Bank survey found that 88% of senior leaders within financial institutions say that tech investment will be a top strategic priority for the next 12 months, and that 62% plan to increase investment in technology and core systems.
Organisations across the payments industry are facing unparalleled pressure to digitally evolve. For incumbents this is a result of everchanging customer expectations and demand for digital. These factors cause financial institutions (FIs) to look to the crowded market of technology vendors to help future-proof their business.
Vendors trying to differentiate themselves in this crowded market often use convoluted tech-spin to try and attract new clients. This can make it difficult for FIs to identify which vendor, platform or service is best suited to their needs and may end up being led in the wrong direction.
Traditionally, a combination of five standard considerations have driven financial organisations’ decisions toward deploying a new platform or tech solution. These include capability to differentiate, time to market, vendor independence, cost, and the strength of the FI’s own technical team.
These factors are particularly important for players across the payments industry as competition is fierce and FIs are acutely aware that as financial services continue to open up, historically secure market-share is being targeted and strong margins are no longer guaranteed. There is much less room for error.
These five pressures have generated three typical models for how the technological solution can be deployed:
1. To outsource:
This model is known for keeping financial organisations highly vendor dependent, with their solution usually deployed on a multi-tenanted system, and FIs having to pay to assert their position in the front of the queue. On top of this, even if an FI can circumvent the queue or break free of multi-tenanted infrastructure with a PaaS model, they are still limited to the technological capabilities of the vendor and the vendor’s platform. In the handful of cases where the platform can meet your exact requirements, there is still one final hurdle, it their requirements may not make commercial sense.
2. To license:
FIs also have the option of purchasing a license to increase control (or gain independence from a processor), avoid crowding by other tenants, and improve financial product time to market. These FIs inevitably discover that they are still vendor dependent and are again required to pay in order to assert their position and ensure their voice is heard in the vendor’s office. At this stage FIs will still find themselves at the mercy of the vendor’s capabilities, priorities, and roadmap.
3. To build in-house, buy the source code or acquire the company with the know-how:
Organisations may take the leap into building their own system, either from scratch or by bringing the source code in-house from a vendor or through an acquisition. This may provide FIs with the belief that they can more effectively control costs and customise the solution to their business’ specific preferences and needs.
Unfortunately, these financial organisations quickly realise this approach is time consuming with non-business components, such as compliance and system performance, which increase complexity several-fold overnight. Whether you are acquiring, buying the source code and having the vendor support an entirely separate version, or building your own, this approach is extremely costly and a successful deployment is entirely at the mercy of the FI’s technical team size, experience, skill and ability to adapt to new challenges.
These models may have served FIs in the past, but today, financial organisations are increasingly dissatisfied with their limitations and demand for a more evolved version of these models is rapidly building.
The ideal vendor will have experience across multiple deployment models, generations of payments platforms, and types of products and solutions across different market players, from national payment networks to brand new, quick-to-market, unique neobanks.