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Build or Buy or Build and Die?

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I was having a chat with a banking buddy who was expressing his frustration with the fact that their PSD2 developments were not going the way he wanted.  He had found a nice little FinTech start-up with a really neat Open API capability which could be used by the bank in days.  But the Head Office retentive told him that they didn’t want to work with a third party and would have to develop it themselves instead.

This is the mentality of a lot of banks.  They don’t trust third parties to develop capabilities because they have always done it themselves.   A lot of this is down to the complexity of their systems, they say.  That the bank cannot risk third parties getting it wrong, they say.  That regulators would not allow the bank to outsource such critical processing capabilities, they say.

I say it’s just that they’re control freaks, stuck in the last century and not able see their way out into an open sourced world of apps, APIs and analytics.  My banking buddy agreed, although I was of course pandering to his frustrations.

The way I see it is that this Build or Buy discussion is more like Build and Die.  It is already obvious that 1,000 FinTech start-ups are focusing on doing one thing really well.  Then they develop and code that one thing well to hell and back, and continually update and add capability to remain relevant.

A bank does 1,000 things averagely, much of it fragmented by ageing systems and limited use of today’s technologies or capabilities.  Why would I want to work with an organisation that does 1,000 things averagely when I can work with 1,000 companies doing one thing well?

The answer to that today is time.  I don’t have time to work with 1,000 companies.  I want one company to rule them all and, in the ideal world, that one company should be a bank with a bank licence, as that then insures my money in a trusted value store.  But there are banks waking up to this open marketplace opportunity and they see their future role of being a curator of 1,000 apps and APIs.  Their data is cleansed in an Enterprise Data Architecture, analysed in the cloud by machines that learn and have intelligence about the data to proactively, predictively and cognitively service that data into their 1,000 curated apps and APIs.  This is the semantic bank that I’ve been talking about in recent presentations.

It’s funny because we were having a wider conversation with a group of banking folks over lunch later.  The lunch talked about research that found banks believe they are two-thirds through their digitalisation path, whilst the research team felt they weren’t even a quarter into the journey.  The difference, as one banker pointed out, is that many banks think their digitalisation path is rolling out a decent mobile app; they don’t see the wider picture of changing the organisation.

This was described as Digital 1.0 versus Digital 2.0.  1.0 is the accessorisation of the bank with apps and APIs, but no core change to the foundation of the bank.  2.0 is the digitalisation of the bank across the whole enterprise, with core change of structure and people.  Few banks have started 2.0, but many are well into 1.0.

Someone then asked if we would ever know if it was finished: the digital transformation.  I replied that my view of the end-game is an open sourced structure of front office apps, middle office APIs and back office analytics that allow you to select services from a marketplace of 1,000s of technology companies doing one thing well, curated by the bank to give the best and most differentiated customer experience.  This bank curates components, integrates them through APIs and provides the aggregated customer delivery at the front end.

The issue with most banks is that they think by having an app and a Chief Digital Officer, it’s all sorted out.  I meet many Chief Digital Officers in many banks, and there are often more than one of them.  There’s a Chief Digital Officer for payments and another one for retail and another one for corporate banking and another one for wealth management and another one, and another one, and another one.  Banks structured this way are accessorising their products with digital, but not changing the bank or its thinking one jot.  This is obvious as the bank is just adding digital to products and functions, but without changing the bank structure at all.

No.  A bank that is truly into their digital journey would never build anything, but would curate everything.  There are very few of them out there, but they are starting to appear.  Give it five to ten years, and all banks will play that way ... or disappear somewhere along the way.


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Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog,, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...

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