Mobile Banking Apps: Inhouse vs white labeling
Today, most Tier 1 banks develop their mobile banking apps inhouse. For other financial institutions, the path is not so clear. Should they custom build inhouse, maintaining absolute control, or lean on the experience of an external vendor and their white-label solution?
To get some perspective on the pros and cons of each option, we interviewed Sandstone Technology’s Abhish Saha, Executive General Manager, Digital Banking & Elevate and Ranjan Kumar, Director of Product Management, Digital Banking.
According to Saha, one of the biggest reasons a smaller FI might develop their mobile banking app inhouse is to be in full control of their User Experience (UX) and in effect take control of their own destiny. Many are new to technology or new to a highly regulated industry such as banking, and the perception may be that they can simply build an app similar to a Tier 1 competitor in their market.
“We’ve seen banks which have been through the exercise of inhouse building for anywhere up to five years, before deciding the cost and degree of difficulty are too prohibitive,” Saha says. Or they might invest millions trying to do it themselves but discover they can’t find the expertise they need in market as there is increased competition for talent with deep domain knowledge.
Another reason is they want to maintain control – to partner with a financial technology provider like Sandstone means you will have to relinquish some control. But financial institutions must realise that full control comes with a lot of pitfalls, many of which are often not planned for.
According to Saha and Kumar, developing a mobile banking app requires far greater resourcing and skillsets than a UX Designer and a couple of developers: it’s at least a couple of technical squads. “And that’s the bare minimum to stay in the game,” Saha says.
That commitment is not something most tier 2 or 3 financial institutions can typically absorb easily within their budgets. And even when your squads are in place, there’s so much more to consider than just creating a great user experience. As you modify your digital banking platform and add new products, the following foundations keep moving from the position you had at day 1:
- adapting to changes in security trends and new vulnerabilities
- catering to the unending pipeline of new devices
- and let’s not forget constant changes in operating systems and browser versions
Coupling the above with regulatory compliance, card scheme changes, industry trends and the original resource profiles, the related costs start to spiral.
That’s when a white-label proposition starts to look like a much better return on investment. Your technology partner does the hard work for you, and your solution inherits the benefit of ongoing functionality and experience uplift, whilst keeping your maintenance and compliance costs down. Imagine sharing the cost of device, browser, OS, security and industry compliance with other FIs across the globe.
Before making any decisions about whether to build an app inhouse, a financial institution needs to have a defined strategy, according to Kumar. And that involves asking important questions like whether you want to focus on your core capabilities, i.e., what you’re doing today, or whether you want to achieve growth, and will your systems have the capability to support that if you bring it inhouse?
Banks must be clear about how they want to compete, and which demographics they want to target. Or as Saha puts it, “are you defending your position, are you taking a follower approach, or do you want to be at the front of the pack?”
If you do position yourself at the front, you have to consider the risks attached to that because your consumer base might not be ready for your concept. Understanding the direction you want to go is especially important in the case of tier 2 and 3 banks, whose overall architecture and design must punch above their weight as they support their strategy into the future.
Building inhouse without the right experience and support team opens up the potential for both financial loss, regulatory fines and customer attrition. Remembering that for a modern user, the mobile app is the primary front end, with internet banking becoming more of a back-up if your mobile dies.
When an app fails to provide a seamless experience and frustrates the bank's customers, this can result in poor reviews published in app stores.
Not to forget, loss of reputation from outages and the massive damage it can do, especially if it then involves compliance issues. The clients you lose in the fallout from that will never return even if you discount your products and services.
Customers don’t want to be breached, they don’t want their data out in the ether. And no financial institution wants the OFT or other regulatory fines to be coming their way.
“If you’re working with us, we’ve been through this exercise with other banks and learnt the lessons,” Saha says. “Using our platforms you get the benefit of those lessons from day one, and you don’t have to go through those painful learnings yourself.”
Outsourcing to an experienced team brings the obvious technical benefits, e.g. an ongoing focus on security and compliance, as well as compatibility across devices and operating systems. As Saha says, “Sandstone effectively becomes your technical department: there’s no need to build the expertise inhouse. We become an adviser and partner in the development of your apps, and in turn your customer experience.”
When you’re updating a mobile banking app, transforming legacy systems can be one of the hardest challenges. If you’re making changes to the front end, change management will be a key element in the migration, making sure the transition is completely transparent to the customer and doesn’t introduce new friction points. And it’s imperative your new front end integrates with your core.
There are different integration approaches that can be applied when you’re modernising or transforming a legacy system, which will also ultimately depend on what type of core system you operate and the bank’s risk appetite. These are all factors that Sandstone will ensure are part of the conversation. Not to forget that Sandstone’s Mobile app and Internet Banking solutions support each other from a user experience perspective.
As Kumar points out, because Sandstone operates across different markets – from the UK to Asia, Australia and New Zealand, we can always cross leverage the features we are developing. As an example, open banking in the UK is more mature than it is in Australia. Alternatively some of the robust mobile banking features developed for Australia can be rapidly adopted for the UK and New Zealand.
Similarly with compliance and regulatory requirements, Australia’s tier 1 banks went through major developments after the banking royal commission, and now the tier 2 financial institutions are starting to integrate those features. Meanwhile in the UK, the top tiers are just starting to investigate those needs. New Zealand will soon fast follow.
“If it’s a 10-step process to get a bank up to speed with a compliance requirement, then we can bring them in at step 6 or 7 quickly, rather than having to start from scratch,” Saha says.
Increasingly bank executives are being asked to do more with less, and Sandstone can fulfil a business advisory and consulting role to help them achieve that. We’re adept at squeezing more value out of assets by driving more customers to that digital experience, which can help control or cut overheads, at the same time creating opportunities to reshuffle staff into revenue-earning or value-based experiences.
Sandstone can also steer clients towards more cost-effective solutions. For instance, if a new client comes to Sandstone with their own bespoke solution for complying with regulations, with a view to maintaining that into their next iteration, we can advise on an easier, competitive solution that is currently in market with other banks.
“Our partnership approach, as opposed to vendor approach, has allowed our partner banks to save a lot of heartache. We are looking to get them where they want or need to be quicker.” says Saha.
Ultimately the Sandstone approach is based on a partnership relationship starting with an open, collaborative dialogue that begins before there’s any discussion of technology.
As a business, due to Sandstone Technology's size and structure, our leadership team and project managers hold regular conversations around our product development and programs of work. It doesn’t matter which market or geography our people are based in, we’re all constantly talking with each other, supporting each other, which then reflects back to the accounts we’re working on.
Sandstone Technology is a trusted digital partner to tier 1-3 banks, building societies, retailer owned banks, member community owned banks and credit unions with customers across Australia, New Zealand, Asia and the United Kingdom.
Article published May, 2022
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