The ‘build or buy?’ tech debate might create some disruption – but it will never improve services for the end customer, writes MQube's Emma Hollingworth.
‘Build or buy?’ is a question that any business seeking to develop or exploit innovative technologies needs to answer at some stage. Should the company develop its own solutions in-house (build), or should it buy off-the-shelf technologies, if available, or commission a fintech to create a new solution (buy)?
The pros and cons of both approaches are familiar to most businesses. On the ‘build’ side of the argument, the potential benefits of a tailor-made solution are balanced against the risks and costs associated with starting from scratch and relying on internal expertise. With a ‘buy’ approach, convenience and cost-effectiveness are weighed against the risks of incompatibility with existing IT solutions, business processes and/or corporate cultures.
A choice between build or buy will also be shaped by practical considerations including budgetary or resource constraints and the speed at which the business needs to bring the new solution to market.
But such a choice should also be made in the context of the business’s broader long-term strategy – and this is one important reason why setting up a choice between build or buy may be the wrong starting point. In many cases, it is likely to result in a less productive, less cost-effective and ultimately less successful solution than a more sophisticated blend that combines both build and buy.
The either/or argument also creates or exacerbates conflict within industry sectors, by dividing businesses into incumbents and newer players – the “challengers” or “disruptors” perceived to be trying to disrupt the industry. It is tempting to view the industry this way, as a perpetual battle between wily old competitors with scale and strength, versus upstart, more agile, risk-taking and innovative challengers.
But those descriptions are almost always misleading and unfair to both groups: there are usually plenty of businesses that don’t really fit into either category.
Real or perceived conflict of this kind is also unlikely to be very helpful for any business in the sector, or for their clients or end customers. It may discourage collaboration, while the existence or perception of this conflict can even lead to incumbent companies digging their heels in and following strategies that ignore or seek to negate the potential value that new technologies could offer.
Not build or buy, but build and buy
Instead, the most important question should really be, how can any financial services company improve the services receive by the end customer? The aim should be to develop, and/or buy or support the development of technology that improves processes and services, making life easier for users and end customers. That is, after all, what all users want: expectations of fast, reliable, effective, user-friendly digital solutions continue to grow every year.
Businesses should use an approach that encompasses both buy and build, based on a mindset that accepts the need for change and recognises the potential benefits offered by new technologies. Exploiting those benefits must be based in part on a ‘build’ element: developing some solutions in-house, to address specific needs driven by business strategy and by user demand.
But it is unlikely that a company will be able to fulfil all of its operational and strategic technology requirements without a ‘buy’ element, which may include external support from fintechs developing innovative solutions that can address its requirements.
The ultimate aim must be to ensure that the solutions created will match those requirements and will improve processes, to benefit the end customer and perhaps also create new commercial opportunities for the business.
While a technology solution may encompass multiple tools – in our case machine learning, document recognition, data extraction and real-time analytics – it will be most effective for the end-user business, and most beneficial to consumers, when used alongside other technologies that deliver the other processes required in the market, such as, for mortgage lenders, credit scoring.
The overall aim has to be to enable end-users to offer the best possible proposition to serve the needs of the market.
A fintech may move fast, but it does not have to break things. Instead, it can enhance processes and outcomes, helping to stimulate market activity and opportunities. It can be a facilitator and a catalyst for productive change, rather than a destructive disrupter. The fintech builds, the end-users buy and then use its technology within solutions that may include other built or bought components.
By avoiding the old binary choices fintechs and incumbents can help users to create new solutions that change the way their part of the financial sector works; and are more likely to enjoy long-term, sustainable success.
Emma Hollingworth is the Distribution Director for MQube. The views and opinions expressed are not necessarily those of AltFi.