Patrick Sanders
Patrick Sanders Aug 10, 2018

Answering fintech’s multiple-choice question: Build, buy or partner?

If your head is spinning from the rapid growth of fintech and how it’s overhauling the financial services industry from the inside out, you’re not alone. But in case you think it’s time to take a breather, guess again: The changes are just getting started.

Fintech investment in the financial services industry is projected to reach $100 billion by 2021, if not sooner, as financial institutions sprint full-speed to incorporate artificial intelligence, machine learning and robotic process automation into their businesses. It’s mostly meant to offer customers a smooth digital experience; perfect secure, speedy payment systems; crunch data; offer personalized self-service banking options—and hopefully figure out what to do with blockchain besides talk about it.

But while everyone from boardrooms to the front line tries to figure out the best way to incorporate fintech, financial institutions also have another decision. They must determine whether it makes more sense to build out their own systems, buy a service, or partner with a company already developing the hottest emerging technology. Hence the industry buzzphrase du jour: “Buy, build or partner?”

To learn more about what smart banks need to know—and how to act on it—we spoke with three speakers to be featured at BAI Beacon, taking place Oct. 9-11 in Orlando, Florida: John Epperson, Purva Sule and Sahil Arora. At the conference, Epperson will speak on the topic: “Who Will Regulate Fintech?” and Sule and Arora will take part in the discussion: “Build, Buy or Partner … What's Best When it Comes to Fintech.”

The three-headed question everyone asks

So who’s interested in build, buy or partner? “Just about every one of my financial institution clients, and those range from global financial institutions all the way down to community-sized banking organizations,” says Epperson, a principal at Crowe LLP in Chicago. “All are asking, ‘How do I take advantage of the transformation and the technology that’s accelerating in the financial services area?’”

Indeed, a very good question. Once you’ve identified a need and have settled on a fintech solution, then there are plenty of variables to weigh before an institution picks one of those three paths. But as you might’ve guessed, there is no cookie-cutter solution (not one that you could build, buy or partner anyway).

“We assess build, buy and partner on parameters such as total cost of ownership, time to execute and quality of customer experience,” says Sule, director and senior relationship manager at BMO Financial Group.

And while the biggest names in the sector are more prone to build or buy their own fintech solutions—simply because they have more capital and cash flow for research and development—many financial institutions of all sizes either consider one-on-one partnerships or participate in a consortium of organizations to offer fintech solutions for their customers.

“Partnerships can result in a ‘better together’ solution for both the fintech and the financial institution,” Sule says. “The fintech brings cutting-edge customer experience, speed to market and an agile approach to keep up with changing customer needs. The bank brings the brand, customer base, balance sheet and regulatory framework.”

But choosing the right partner can be tricky.

“There are a lot of tenants to successful partnerships, but among the handful that we see as critical, or mission critical even in a partnership, is an alignment of culture,” Epperson says. So even if the fintech has an impressive track record, banks must ask whether friction will result when forces team.

“We know that in this partnership there’s a wide spectrum of risk,” Epperson points out. “On one side of that spectrum we have bankers who are typically wary of risk. And on the other side you have fintech companies that are very accustomed to taking risk. I think there’s a requirement for the movement of both sides.”

If the fintech and financial institution have common values and would make similar decisions in unknown situations, a partnership has a greater chance of success, Epperson says. Once you’ve entered into that arrangement, both sides must understand what constitutes success, and what acceptable failure and risk look like.

Milestones, standards and better beta

“It’s important to begin discussing with your financial institution clients what specific milestones they hope to achieve during that beta or POC period,” says Arora, senior ventures associate of fintech and insurtech for Plug and Play, a New York-based innovation platform. “That’s probably where the most focused eye is in tracking progress during that testing period—and really before the testing period begins. It’s important to spend some time talking about what it means to be successful.”

Keeping the institution’s standards are important, even in a beta testing environment, Sule says.

“The performance of these partnerships is evaluated exactly the same as with other investments: hard metrics on cost, growth, revenues, customer experience or other outcomes the team was supposed to achieve,” she says. “There is no free pass for innovation or partnerships: Without accountability for results, it will be hard for the partnership’s strategy to earn credibility within the organization.”

Whether you build, buy or partner, a successful project will be greatly appreciated by customers. But if the project doesn’t work, Epperson says it’s important to know when to pull the plug.

“With an investment in a fintech or a technology, a lot of times we’ll see that we’re spinning our wheels for the better part of several years and haven’t achieved our objectives—yet we have such a big investment that we continue to pour our money and dollars into that,” Epperson says. “So beyond defined outcomes and what you want to accomplish, there’s thinking about when and how you’re going to exit.”

He adds: “There will be failures with all of the things that are new and as much as defining the success factors and outcomes are important, so is defining what an exit strategy is and where we’re going to move on to something new and different.”

Of course, “something different” can come at the start, too, when the build, buy or partner question heralds a bank’s new, unprecedented high-tech journey. Remember as you go that success may not lie in a singular answer, and could hinge not so much on the choice you make as the way you execute it. Build, buy or partner? That hinges on yet one more introductory question: Are you really, truly ready?


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Based in Maryland, Patrick Sanders is an assistant managing editor for U.S. News & World Report and formerly worked as an editor for The Associated Press and at newspapers in West Virginia, Connecticut, Pennsylvania and Indiana.

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