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As the nights draw in and 2023 winds down, banks and other organisations are reviewing their technology platforms and architectures, with a view to planning and budgeting for 2024. In many cases, this review will identify the need to upgrade or replace legacy technology that is old fashioned, unwieldy or no longer fit for purpose in the modern financial services environment.

By GreySpark’s Jennie Brotherston, Senior Specialist and Rachel Lindstrom, Senior Manager

Of course, this process is not a new phenomenon. It is to be expected that systems and technology have a finite lifespan, and upgrades and replacements will inevitably form part of the technology ‘cycle’ of a firm. In such an innovative industry, it perhaps comes as no surprise that capital markets firms sit rather closer to the ‘cutting edge’ of technological advancement than organisations in other industries, which means that the technology cycle is typically shorter, as financial services firms are forced to move quickly when new business, technology and processes evolve and supersede the old. Larger, more established financial firms often struggle, however, to modernise their technology as quickly as the younger, more technically agile firms, which nip at their heels.

The Buy or Build Question

Technology replacement initiatives require many decisions to be made, and an important one that should be asked early in the review process is the question of whether to buy a solution from a third-party vendor or to build one in-house. Often, this is not a straightforward question to address, and answers may vary from firm to firm, and even project to project, as there are many variables to consider, and it may not always be a strictly binary choice.

In general, there are a number of benefits and drawbacks to either approach. It tends to be quicker, cheaper, and easier to buy an off-the-shelf vendor solution. Implementing an out-of-the-box solution, however, can result in unexpected costs that were not included in initial vendor quotations. This risk is harder to anticipate and mitigate than it is for in-house development projects. Although it is not always the case, a software build can lessen costs after the initial implementation compared to licencing a vendor product, which may entail contractual costs in perpetuity, as well as other potentially unfavourable or non-negotiable conditions.

While the support costs are higher for a bought solution, the consequential reduction in resources to support the platform can be particularly appealing for smaller firms, providing them with a more reliable service. This approach can also be more practical in that it reduces the potential dependence on specific employees and, if a cloud-based or SaaS vendor solution is chosen, the firm will benefit from significantly reduced infrastructure to operate the platform as well.

Vendors of more specialised ‘off the shelf’ software tend to have in-depth expertise of the relevant business and market as well as the technology, which means that a buyer is likely to benefit from their experience, as well as indirectly leverage the knowledge and requirements of other users. The flip side of this can be a punitive reliance on the third-party vendor and the lack of a functional competitive edge.

The obvious benefit of building a software solution in-house is that it will be entirely bespoke and address every single business requirement, which is rarely true when a firm opts to buy a solution. As a consequence, manual or offline workarounds – or shadow tech – will be more or less eliminated, reducing risk as well as being more efficient.

Another advantage to choosing to build a solution inhouse is that there is no dependence on a third-party solution provider, which can often result in slow changes or less than ideal upgrade schedules – especially if the financial firm is one of many customers of the vendor. GreySpark believes that this can be mitigated by a careful review of a vendor’s Service Level Agreement. Tough negotiation before signing the contract can save a world of pain later.

Alternative Approaches

Of course, reality is rarely black and white, and there are a range of alternatives that sit outside the ‘buy vs build’ dichotomy. Firstly, a firm may find that it can leverage the functionality of two separate vendor offerings to meet the full list of functional requirements. Although, this does have the disadvantage of requiring the management of two vendors on an ongoing basis.

The plethora of add-ons, workarounds and end user-developed applications that can be found in most organisations can be risky if not managed properly. With the right environment and governance, however, they can be an effective strategy for enhancing or upgrading off-the-shelf solutions. Indeed, there are vendors offering standardised contained environments in which to develop and store such financial services-specific applications, which come with built in controls to help mitigate the risks.

Blurring the boundaries at the other end of the spectrum, many ‘off the shelf’ vendor offerings are becoming increasingly customisable and configurable on a spectrum ranging from simple parameterisation through to modular solutions where specified segments of functionality can be assembled according to need. Low- or even no-code technologies are becoming increasingly popular in the capital markets. These accelerated development platforms allow a buyer to create their own platform quickly and effectively, utilising the controls, experience and ‘building-blocks’ of the third party, while avoiding many of the burdens of a pure in-house development project. In this way, the financial firm can capture many of the benefits of both ‘buy’ and ‘build’ approaches, while simultaneously mitigating the risks.

Decision Time

While many project teams are accustomed to making this kind of ‘buy vs build’ decision, and some are even governed by strict policies setting out exactly whether or how such choices should be made, it is not always a straightforward task for every project, team or institution. Although more prescriptive approaches can have merit, there are perhaps benefits to be gained from addressing the question as part of every initiative, in order to ensure optimal outcomes.

There are likely to be a large number of factors to consider, including the precise functionality required, organisational infrastructure, rules and policies, existing technical architecture and strategy, commercial and contractual considerations, as well as market, competitor and vendor landscapes among a range of other apropos factors. Assessing them all can be a complex and overwhelming task but often one which can yield significant benefit. As well as informing the buy / build decision, the collection and analysis of this data has the potential to add extra value through use in the development of business and technology strategy for the organisation. It can be useful to engage external advice when addressing questions of this nature, with a firm that has extensive experience assisting clients in making such decisions.

GreySpark Partners, a capital markets business, management and technology consultancy that specialises in mission-critical areas of the industry, can be a valuable ally. We assist our clients across business and project lifecycles, from inception to completion, offering services in:

  • Business strategy and operations
  • Project and programme delivery
  • Technology reviews and assessments
  • Vendor selections and RFPs

GreySpark consultants have hands-on experience in bringing improvements to capital markets firms and have close relationships with capital markets decision-makers and industry subject matter experts. As a consequence, GreySpark maintains an overarching perspective of important changes influencing the industry, enriched by a strong track record of successful consulting work.

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