Today's mid- and regional banks find themselves in a unique spot: big enough to require competing with larger banks on digital customer products, but too small to absorb the consequences of strategic technology blunders when it comes to investing in them. The situation has only been exacerbated by the influx of FinTech investment during the pandemic, offering niche digital experiences and the widespread rapid adoption of digital banking.
Led by cyber security, mobile banking and ever-increasing customer experience improvements, technology innovation in banking will continue to be robust for mid-size and regional banks the stakes of the industry's digital transformation are high: 1 in 5 adults have switched their primary bank in the last two years, and over half of millennials would now switch banks simply for a better mobile app. The ever-changing technology landscape poses an existential threat to those institutions which are unable to adapt. But there's also significant opportunity. According to one estimate, for every $100 billion in assets that a bank has, personalizing its customer interactions can lead to as much as $300 million in revenue growth.
Consequently, mid-sized banks must make difficult choices and trade-offs as they decide where to invest. The most pressing question they face is: do we Buy, Build, or Partner for the technology solutions and products needed to orchestrate a seamless end-to-end digital customer experience and drive new revenue opportunities?
The answer will vary not only bank-by-bank but across products, experiences, and services offered within a bank. Given these complexities, organizations that leverage a clear strategy in mapping their own unique constellation of FinTech and digital solutions will be best positioned to offer differentiated digital customer experiences.
Eight Questions for Choosing the Right Path
In some cases, it may make the most sense for banks to Buy technology solutions that are pre-built and can be configured to meet their needs. When banks are looking to innovate or need unique technology solutions, they can invest in the resources and skill sets required to successfully Build and maintain custom technology solutions to enable their business needs. Finally, other banks may opt to Partner with software companies or FinTechs to leverage their industry experience with a partner's product development capabilities to enter competitive markets or expand niche business lines.
When assessing whether to buy, build, or partner, ask yourself the following questions:
- How important is differentiation to achieving value from technology investment? – Understanding the impact differentiation will have on the targeted outcomes will help avoid being late to market or implementing solutions that do not satisfy their intended purpose or create unique opportunities.
- Do we have the resources internally to achieve the expected outcomes? Without the proper resources and skills in place, future enhancements, ongoing maintenance and proper system administration and end user support will be jeopardized.
- Will an out-of-the box solution solve our needs? Customizing an out-of-the-box solution can address specific needs, but adds additional risks related to ongoing maintenance and enhancements.
- How will the solution be enhanced and maintained? To get maximum value from a software solution, it must be enhanced to meet evolving business needs while being updated at regular intervals to address bugs and add new features. Organizations that cannot perform handle these tasks will not be able to leverage all the value the technology solution has to offer.
- Is the solution native to the bank specifically or is does it address a common need? Understanding the software options available to solve niche or specialized needs is important as there is significant risk in customization of a managed or SaaS software solution.
- Can we sustain our culture while emphasizing innovation? There are organizational and cultural impacts to being innovative that require proper infrastructure and governance to be successful otherwise banks risk investing in technology solutions that are not sustainable or effective.
- How much risk is the bank willing to take on to find the perfect solution? The amount of acceptable risk should be carefully evaluated to avoid excess costs and delays in ROI realization.
- What is the Financial Impact of the software application and what are the opportunity costs of making the wrong decision? The effect of making the wrong technology decision can cost a bank significant sum of money in capital outlay, but also affect the businesses capacity to generate revenue which ultimately exacerbates making the wrong choice of technology solution.
With the right decision framework, mid-market banks can make their digital experiences a reality—allowing them to bring products to market faster, nimbly adapt to market changes, and make technology investments to maximize organizational value and power their success in this new era of banking.