Should regional banks buy or build their innovations?

In a study published by McKinsey, it showed banking to be one of the Middle East’s most digitised industries. The means of brand interaction among banking customers was 87 per cent digital in the UAE.

Put plainly, this proportion of customers reported that their engagement was either fully digital or involved remote assistance. This proportion was even higher in Saudi Arabia (92 per cent), a country that anticipates that 70 per cent of its payment transactions will be digital by 2030. The McKinsey study also showed Egypt’s banking sector to have 82 per cent digital interaction.

The GCC has always been out in front of regional peers with the digitisation of the FSI sector.

Dubai’s Mashreq launched the appropriately named Neo, the first digital bank in the Middle East. And Kuwait Finance House developed KFH-Go, the region’s first e-branch — an unstaffed business unit capable of providing more than 30 services. Each of these innovative project teams faced a common question in their journey to “pioneerhood”: build or buy?

Read: Mashreq NEO to become UAE’s first digital bank to use facial recognition for account opening

Today’s consumers wait for nothing and no one. If you drag your feet for too long, you miss the boat. One of your competitors will have done it first.

In the early years of the digital era, building was the only option, but today the region is strewn with fintechs. Their offerings are often API-first, which makes them highly customisable.

However, if we consider the strides taken in cloud technology and software-development methodologies that make inhouse rapid deployment possible, we are back to the quandary: build or buy?

Let us look at each in turn.

Buying for regional banks: a no-brainer… with headaches

There is a comfort to be had from procuring a tool or platform that just fits. CIOs are spared nail-biting months of business analysis and user workshops.

All that need be done is integrate a solution that has been rigorously tested, albeit in isolation of one’s own business model.

In a cloud-native environment, this is even easier. Even if the bank runs core systems on premises, software-as-a-service (SaaS) solutions still end up being easier to bolt in and bed down. The cloud also adds a welcome element of predictability, not only for project management, but for upfront and ongoing costs.

Already, the “buy” option seems preferable. In a region with technology skills gaps, buying a ready-made solution — one that may be used by dozens if not hundreds of similar businesses across the region — is a great way of avoiding lengthy recruitment drives. But buying is not without its downsides.

Try as they might, vendors of commercial off-the-shelf solutions (COTS) design their products for a broad operational model and may not be a perfect fit. Even where the requisite amount of customisation is possible, it may come with a list of unacceptable side-effects, including a hefty price tag. COTS scaling is also challenging, as is its user-acceptance testing, maintenance, and upgrades, given the reliance on an external team.

Of course, I could write a whole separate article on the implications for cybersecurity of having a third party in the technology mix. And that is before we have even begun to discuss the impact of multiple vendors and fintechs — which may be necessary to bring the organisation’s digital vision to life.

The bank would need to employ someone full time to liaise with these business partners, negotiate and oversee SLAs, and police the fine line between these activities and regulatory compliance.

Building: a dream for the control-conscious, but where’s the talent?

What CIO doesn’t relish the prospect of complete control over the IT stack? Building their own systems gives them that.

Development and integration are theirs to command, and use cases can fully govern implementation, rather than the twist and bend that IT has to go through to accommodate even a 90 per cent requirements-fit with a COTS purchase. Stakeholders can join the dots from aspiration to value for each business unit.

CIOs and their teams know the business inside and out and can pivot from the needs of customers and customer-facing employees to cybersecurity and risk management and consider one while developing solutions for another — something COTS vendors cannot do to the same extent.

And then, there is deployment. It tends to be less invasive and more straightforward when its planners are those that oversee the same production environment every day. DevOps and the CI/CD pipeline also allow the modern style of rapid development that helps meet market needs in time to reap the rewards.

Building its own solutions also allows the organisation to build its IP portfolio, giving it an edge in the market.

The caveats, then? There needs to be a rich in-house talent pool including IT leaders and analysts who can scope large projects and price them accurately before a single line of code is written.

Remember, one of the attractions of COTS solutions is the predictability of their costing models compared with the all-too-common tendency of self-builds’ costs to spiral out of control. It is always possible to bring in third-party expertise to plug these talent gaps.

Failing this, the organisation’s HR team will need to go on a fastidious recruitment drive before any planning can occur. Low-code platforms and citizen developers may seem like fine options but without the proper governance, this is a highway to nowhere.

Each to their own

In the end, the program needs will help to make the build-or-buy decision. Building, despite the control it offers, may still not be right for standard use cases such as CRM and HR, which can be appropriately served by an off-the-shelf solution.

On the other hand, if the organisation has a differentiating vision, then almost by definition, COTS tools will fall short. The decision maker must be as fluid as the decision and consider the benefits and drawbacks of each approach in the context of the specific use case they are looking to implement.

Nick Curran is the head of Endava – MENA

Read: Digital transformation: What are the key challenges that regional banks continue to face?