Core Banking: Build vs Buy 🔨

March 14, 2024

In the past, so-called universal banks developed all the IT tools required for their operations in-house, involving large teams to create and maintain the functionalities necessary for the smooth running of their business. However, over the past few years, new players and new uses have been shaking up the codes of core banking, offering a new, cloud-oriented vision.

The growth of this model to meet new needs and the multiplication of Core Banking providers are raising questions for financial institutions, prompting them to abandon their legacy systems: should they opt for an "In-house" solution or call on an external service provider? Insights 🔦

Core Banking: where do we stand? 🤔

New players have emerged on the financial landscape to respond with agility to users' new needs. In response, financial institutions need to become more flexible, able to innovate and adapt to these new practices.

The early 2010s saw the emergence of new cloud-native Core Banking solutions that overcome many historical limitations thanks to automated scalability, rapid software development and enhanced flexibility. However, the banking sector is still lagging far behind other industries, particularly core banking. Migration is still an obstacle, while the urgency to modernize has not disappeared. We are in the early stages of this significant transition in the banking industry. The core banking market is now worth over $25 billion

This new situation raises several questions for financial players: how can they evolve to meet their objectives and increase their revenues? What approach should be adopted to guarantee an optimal user experience and generate a better return on investment?

The Build vs Buy dilemma arises in response to various challenges:

  • Closing the gap with more agile competitors: banks are losing market share. In particular, because of their legacy system, they are unable to keep up with the pace of innovation imposed by new generation players;
  • Be proactive in innovation: rather than reacting after the fact, financial institutions want to be ahead of the game by deploying innovative new products and financial services tailored to the everyday lives of their users;
  • Ensuring compliance: this is a particular concern for monolithic (legacy) core banking systems, whose architectures are difficult to modify. A banking system must adapt with agility to new, constantly evolving directives and regulations: limiting fraud, consumer rights, etc.

Build vs Buy: the ultimate match! ⛹️‍♀️

Although these arguments are diminishing in the face of the next-generation Core Banking offered by the Cloud, building an "In-house" solution brings certain advantages. It's a preferred approach to benefit from a higher degree of customization and to retain greater control over functionality, enabling the addition of fully customized services since in-house teams develop the solution without depending on a supplier.

On the other hand, building a core banking business comes with hidden costs, which are still poorly understood or too often forgotten in the equation: 

  • Long time-to-market: development from scratch implies a much longer time-to-market (up to 5 years). This delays potential revenues and is incompatible with seizing market opportunities to gain market share.
  • The recruitment of penurious profiles: the IT teams needed to design, develop, test, ensure and maintain the solution;
  • Platform obsolescence: maintenance, support, and instability require daily interventions that can be very costly (management of system architecture, hosting, etc.) to keep pace with market and regulatory changes;
  • Limited time dedicated to innovation: to stand out from the crowd, financial institutions must pay close attention to the user experience and adopt new, disruptive technologies that add value. However, developing in-house means spending a lot of time on non-differentiating technologies already familiar to everyone. In the long run, this means losing speed with the competition.

The "100% in-house" approach seems less relevant to maintaining competitiveness, complying with regulations, and innovating. Core Banking providers enable banks to free themselves from many constraints and purchase technology for faster (3 to 9 months) and, therefore, more profitable implementation. Unlike in-house construction, core banking involves a clearly defined initial investment with no hidden costs. By relying on an external service provider, organizations benefit from their own team of experts dedicated to maintenance and core applications. In this sense, the "Buy" approach avoids tedious recruitment processes and allows internal teams to focus their productivity on their own added value.

In the past, companies had no choice but to develop their entire core banking system themselves, but today, the benefits of third-party expertise can be considerable. This alternative makes it possible to purchase technology more quickly and integrate it flexibly and efficiently into the company's ecosystem.

Build + Buy: a new approach to stand out from the crowd💡

Binary thinking - choosing between a "Build" and a "Buy" approach - is a thing of the past. Over the years, Core Banking has evolved and can now provide comprehensive ecosystems to meet essential business needs. At the same time, offering specific innovative technologies remains the best way to differentiate oneself on the market. It is, therefore, crucial to combine the two approaches: continue to develop your own functionalities in conjunction with the standard modules offered by Core Banking.

Skaleet enables you to adopt this hybrid approach and co-create your own ecosystem by combining technologies built in-house and purchased. Via an API-first architecture, the platform provides access to its network of Best-of-Breed partners to benefit from the best solutions and complete your value proposition with reduced time-to-market. Skaleet Core Banking provides a solid foundation by rapidly integrating proven functionalities. So, you can focus on your core values and make life easier for your customers. In particular, you can integrate your own code into the platform to create highly specific functionalities, leaving the field open to innovation!

Thanks to Skaleet, financial institutions now have the power to decide, based on the value they place on a feature, whether to develop it in-house or rely on Core Banking to manage it. Would you like to find out more? Contact the Skaleet team.

  • #innovation

  • #fintech

  • #banques

  • #corebanking

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