How banks can turn into tech companies – and why build vs. buy isn’t just about money
Banks are stepping up their tech spending to improve existing operations and to keep up with various Fintech challengers. This statement seems so obvious that it hardly needs to be substantiated anymore, but for evidence look no further than JPMorgans recent decision to increase its tech budget by 30% to $12bn a year to support 50,000 technologists.
With this sort of spending, there will be an avalanche of tech projects coming to every JPM banker near you, with all business lines involved in initiatives to improve existing processes and leverage technology for their customers. Other banks are not far behind and there is a general theme now about banks becoming Fintechs themselves.
The biggest challenge though will be to turn all that money into productive technology that adds value for staff and clients.
Projects are the enemy
The typical process for any major software build at a bank involves a detailed assessment of the business case, followed by development, an implementation period, capped by a (hopefully) successful completion.
From then on, the focus is on keeping maintenance costs as low as possible and squeezing the most out of the new system. After some years (or even decades) the system becomes outdated and it’s time for a new project.
Unfortunately that new project usually only materialises when the existing system is on the verge of collapse or hopelessly behind the competition, leading to a permanent feeling of playing catch-up. Just ask any banker how much they enjoy their internal software.
It’s easy to see how huge organisations with annual budget cycles and lots of departments competing for scarce resources end up in this pattern. Banks recognise this too and are now working hard to break down the traditional silos between what was once the revenue-generating front office and the technology support function.
From tech projects to a product-led approach
This unified approach between front office bankers and technology is where the magic happens.
At Bots, our engineering team is at the centre of the company, working together with the business team on a single-minded mission: to deliver the best product for our customers. There are no tech projects and our product is never finished. We spend all day, every day iterating on what we already have and making it better.
To us, the idea that a bank’s in-house solution would be able to compete with our offering over the years seems ludicrous.
And this is not because banks are incapable or aren’t smart enough. It’s because developing workflow and analytics software isn’t their focus or core business.
I’ve yet to see details on what proportion of JPM’s $12bn budget will be spent on 3rd party vendors vs. in-house development. But if predictions about banks becoming tech companies are to turn true, it won’t be good enough to simply allocate more money to build more and more software.
The build vs. buy decision
There are only so many products you can unite your company (or department) around. To be like a tech company, you pick those that are at the core of your value proposition, unite engineering and front office around those - and buy the relevant software-as-a-service solutions for the rest.
Look at any of the new Fintech behemoths. The reason they’re able to scale their businesses at pace is that they ruthlessly focus their tech development on their core proposition and optimise all surrounding business processes and functions through third party software.
To bring this back to Bots and our offering for DCM and Syndicate, ask yourself if building an internal operating platform for your staff and workflows is part of your core value proposition.
Do you have the necessary development, project management and ongoing maintenance resources? Do you have the stomach for the internal development timeline and most importantly: is it something you’d like your bankers to spend time on designing, building, testing and maintaining?
If the answer is no, take comfort from the fact that you can get a better solution, quicker, and at a lower cost from an external vendor. Talk to us to find out more.