The decision of whether to build or buy pricing software is a critical one for banks and lenders, often sparking intense debate within organisations. With the banking industry’s growing reliance on technology, the question of developing software in-house or purchasing off-the-shelf solutions from vendors has never been more pertinent. Earnix, a global provider of intelligent insurance and banking operations, explores the key considerations for financial institutions facing this dilemma.
When banks and lenders are faced with the build vs buy question, stakeholders generally fall into one of three camps.
Camp 1: Use a vendor
The first group favours purchasing software from a vendor. Supporters of this approach often have experience working with vendors and believe in the benefits of using established, ready-made solutions.
Camp 2: Build in-house
The second group advocates for developing software internally. Many banks have invested heavily in digital transformation over the past decade, leading to a preference for in-house development. This approach is seen as a way to maintain control and customise the software to meet specific needs.
Camp 3: Undecided
The third group remains undecided, weighing the pros and cons of both options. They recognise the complexities of the decision and may take longer to commit to a particular direction.
So, which approach is the right one? As Earnix explains, the answer depends on several factors, and the decision-making process requires careful consideration.
The agile approach to pricing software
As banks and lenders have shifted towards a more customer-centric focus, many have adopted an Agile mindset. This approach, often termed “hybrid” Agile, aims to blend the flexibility of Agile principles with the structured processes typical of large financial institutions. However, striking this balance can be challenging.
Earnix observes that while some organisations have successfully implemented a hybrid Agile approach, these cases are rare. Most banks operate with an Agile mindset but face constraints that limit their ability to fully embrace the methodology. This often leads to the creation of Minimum Viable Products (MVPs) that fail to evolve into more robust solutions.
A common analogy is purchasing a new Ford F-150, only to receive a skateboard instead. The dealership might explain that this is just the first iteration of your vehicle, with more improvements to come. This example highlights a frequent issue in banking software development: MVPs that are released but never fully developed, leaving banks with outdated, insufficient solutions while competitors continue to innovate.
Customer-facing vs internal software: Competing priorities
In many organisations, certain types of software receive more attention than others. Customer-facing systems, such as mobile apps, loan applications, and websites, often take priority over internal systems like loan origination systems (LOS), HR platforms, and pricing software.
This prioritisation makes sense, as improving the customer experience is crucial to a bank’s success. However, it raises important questions: What happens to the internal systems? How can they be improved to indirectly enhance the customer experience?
Earnix suggests that when internal software is neglected, organisations have two options. One is to wait for resources to become available, which can be a lengthy and uncertain process. The other is to explore off-the-shelf software solutions from vendors, which may offer quicker and more effective results.
Pros and cons: Buying vs building pricing software
The decision to build or buy pricing software involves evaluating several key factors. Earnix outlines the following pros and cons for each option:
Building in-house
- Pros: Greater control over the software, customised features tailored to the bank’s specific needs, and potential long-term cost savings.
- Cons: High initial development costs, extended timelines, and the risk of losing internal knowledge if key team members leave.
Buying from a vendor
- Pros: Faster implementation, access to vendor expertise and ongoing support, and lower upfront costs.
- Cons: Less control over software features, potential vendor lock-in, and recurring licensing fees.
Making the decision
Earnix advises that if a bank is confident in its ability to operate with true agility, provide ongoing support for software iterations, and maintain the necessary expertise, building in-house might be the best option.
However, if the cons of building start to outweigh the pros, exploring vendor-built solutions is a prudent step. A great vendor can mitigate many of the cons of buying and even transform them into pros.
Selecting the right vendor for pricing analytics software
Choosing the right vendor is crucial for success. Earnix recommends thorough market research, attending industry conferences to meet potential vendors, and engaging in conversations with industry peers for recommendations.
Request for Proposal (RFP): An RFP allows banks to compare vendors, assessing their strengths and weaknesses. Earnix suggests paying close attention to promises made during sales pitches and ensuring these are delivered upon during product demonstrations.
Proof of Concept (POC): A POC is an invaluable tool for evaluating a vendor’s product before making a commitment. Although there may be a small fee, it is a worthwhile investment to avoid costly mistakes later on.
In the evolving world of banking technology, the decision to build or buy pricing software is a complex one. Earnix encourages banks and lenders to carefully consider their options, taking into account their organisation’s unique needs and capabilities.
Whether building in-house or buying from a vendor, the goal is to develop a solution that is not only functional but also adaptable and scalable for future needs.
For more insights, read the full blog from Earnix here.
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