We’ve talked about this before — banks can struggle to keep up with market demands when their legacy system technology is old, and holding them back.
But we haven’t got into the nitty gritty. Sure, FinTechs are allowing banks to explore new avenues of technology and keep pace with the rising tech titans. But what exactly do their solutions do that benefits the bottom line of banks immediately?
The value of outsourcing technology development can be broken down into three neat piles: Time, Money, and Agility. These are the three most important things when a bank considers outsourcing. Will the solution be more quickly deployed than if it was built in-house? Is it cheaper to do so? And is it flexible enough to dynamic consumer desires?
For a FinTech to convince a bank to take a chance on them, they have to prove they not only contribute to the improvement of one of these factors, but revolutionizes all three. Here’s how banks are saving time, saving money and increasing agility by outsourcing technology development.
Outsourcing Saves Banks Time
Let’s say you work at a bank. You’ve got an amazing idea to improve everyday banking, or perhaps something to offer loans more quickly (like artificial intelligence for instance). You take your ideas to the powers-that-be who agree your idea is great. They decide to act on it immediately, and have it implemented as soon as possible. Sounds like you’re on the right track!
Except, even in this ideal scenario (which any bank employee will tell you far too utopian) from the minute your idea is greenlit, it could take anywhere from 18 months to several years before it saw the light of day. And that’s just to do proper due diligence!
By the time your idea was ever implemented as a real solution, who knows where the market will be? Will customers have moved on, or perhaps a massive technology company has already figured out how to do it (without the red tape endemic to banks)?
That’s why shopping around for an outsourced solution is so practical and popular with banks right now. By radically decreasing time-to-market, banks are finding they can implement great ideas sooner, and with all the proper due diligence done. Rather than code everything from the ground up, employing an out-of-the-box solution from an outsourcer saves enormous amounts of time.
With all the saved time, banks can focus on what they do best, rather than enter an entirely new industry.
Outsourcing Saves Banks Money
If time is money, than it’s natural to assume that just by implementing more quickly, FinTech solutions will be cost-effective for banks. And it’s true! But there’s more to it than that.
Large financial institutions often have the capital to develop in-house tech, or at least purchase enormously expensive technology from providers. But this doesn’t extend to community banks and credit unions. When budgets are tighter, prohibitive up-front costs can prevent more modest financial institutions from accessing technology that would benefit their customers.
The on-prem solutions that large banks can afford are not only expensive to set up, they require expert personnel to maintain and upgrade. It’s not just initial costs that run high — on premise solutions prove to be inordinately expensive throughout their lifespan.
Fortunately, most outsourced FinTech is offered as “Software as a Service” (Saas). This allows billing to be more flexible, with lower upfront costs and no maintenance beyond the annual fees which are typically structured to be accessible to even smaller institutions.
While some banks can afford new tech, not all can — without outsourced technology development.
Outsourcing Keeps Banks Agile
I think it’s pretty safe to say banks are slow movers. That’s not even necessarily a bad thing — being deliberate and relying on tried-and-true methods safeguards against accidents that could cost people their livelihood.
However, it also means innovation trickles in rather slowly. Right now, tech giants like Google, Amazon and Apple are using their enormous resources (and lack of red tape) to rapidly reshape technology, including the financial kind.
They’re also reshaping customer expectations. Everyone has become accustomed to not only new tech, but personalized and flexible options. They expect to have their needs anticipated and catered to before they have to make a decision themselves.
Banks simply can’t keep up. Or, rather, they can’t keep up without help. By leveraging outsourced technology development, Banks can remain agile enough to go toe-to-toe with the giants in the industry, and respond to their customers’ ever changing desires. This will serve to keep them engaged, and reduce churn — churn which may wind up with banking customers looking to the latest Google, Amazon, or Apple financial solution.
There’s a ton of reasons banks might pursue outsourced tech. But there’s only three that really matter. If banks want to save time, save money, and increase their agility, outsourced technology development is best way.
Banks are good at banking. Technology companies make technology. By outsourcing to these companies, banks can have the best of both worlds without compromise.
Want to learn more? Get in touch today, and find out how to empower your financial institution.
Zafin (@zafin) is a leading financial technology provider that enables banks to form richer, more personalized client relationships. Built from the ground up for financial services, its platform empowers banks to enhance revenue and operational efficiency. Founded in 2002, Zafin sits among North America’s top FinTech companies, and is trusted by retail and corporate units at some of the largest banks worldwide. Headquartered in Toronto with global offices, Zafin has a proven track record with a 100 percent client retention rate as validation.
Nialah is responsible for Business Development in North America at Zafin. As a previous Product Manager she has experience in wealth management, operations and banking. At Zafin, Nialah will help to drive business by identifying strategic opportunities that will benefit from Zafin’s solutions. Follow her on Twitter @NialahSP