The view that “it just takes too long for tech to build stuff” is widely held by business leaders in the Capital Markets, and this continues to be an impediment to a firm’s innovation ambitions. Building in-house is expensive and risky which is hard to justify today where change budgets are less, and more mature off-the-shelf options offer ways to avoid reinventing the wheel. Buying vendor systems, however, is great to get started fast but falls short when firms need to differentiate with their own IP or require tighter integration to achieve operational efficiency. It is too simplistic to say that ‘Buy & Build’ is the answer. An application stack that combines the wrong mixture of ‘buy’ elements and ‘build’ elements slows uptake internally can negate any intended benefits. In this article, sponsored by Velox, GreySpark Partners discusses how the advent of full-stack application development platforms built specifically for Capital Markets, offering the right blend of buy & build, is driving a step change in the way systems are being built and finally moving the needle on developer productivity.
By GreySpark’s Rachel Lindstrom, Senior Manager
Today, virtually no one builds their own datacentre or builds a website from scratch, yet in the Capital Markets some firms are still considering building everything in-house. Drivers to build in-house do still have much sway when a ‘buy’ versus ‘build’ question is raised. If a firm chooses a vendor solution, down the line they may find their ability to extricate that vendor challenging when the vendor raises its prices. It should not be forgotten that people are creatures of habit and going in a new direction requires more effort and is a tougher sell, so the ‘non-decision’ to continue to do as before often prevails.
The shift from the traditional buy or build options to a blended buy-and-build approach is coming about due to a number of developments. The historical methods of buying and building have served the Capital Markets industry well but were most effective when the industry was growing rapidly. Independent, siloed businesses captured market share by being first to market, budgets were less constrained and technology talent flocked to the world’s premier investment banks.
Today, the picture is very different, as budgets and talent pools are much smaller and market share is acquired through specialization and differentiation. To meet changing market and client demands, businesses need technology that can help them efficiently create new unique products from their IP and operate seamlessly across legacy siloes as if it was one connected platform. There are probably very few who would argue that the speed of innovation in the Capital Markets is too slow and that this is stifling growth in revenues and market share.
Mounting technical debt, accumulated from years of growth, compression and everything in between has resulted in a seemingly insurmountable obstacle to modernization and innovation. The level of risk and necessary budget to tackle legacy debt has been a non-starter for many firms. However, a new approach is now possible to enable firms to modernize more rapidly while reducing the risk and cost of build. Low Code / No Code (LCNC) – a key enabler of the combined buy and build approach to application and platform development – is now a mature technology that provides abstractions that both simplify and accelerate the development process.
Although it is convenient to think about buying or building a solution as mutually exclusive choices, for many firms, the reality is that they have always had a blend of both. The rising adoption for Capital Markets firms of buy and build is therefore not a new concept. Rather, what is new are the choices now available for what firms can buy and what firms should build.
Figure 1: Five Measures often Shown for Firms to Consider when Choosing its Approach to a Platform Replacement
Source: GreySpark analysis
(Click on image to enlarge)
Figure 1 shows some dimensions which are typically touted as key considerations in a buy versus build decision – from the perspective of a development platform vendor. This simple view, however, bears scrutiny as the decision is often far more complex.
The Decision to Build
To ‘build’ refers to a strategy where Capital Markets firms opt to develop their software using only in-house resources, bypassing the option to purchase or licence pre-existing software from third-party vendors. This approach is driven by the desire to create highly customisable solutions that not only align precisely with the firm’s business strategies and operational processes, but also secures a competitive edge by safeguarding proprietary software, algorithms and intellectual property.
In developing entirely bespoke solutions, Capital Markets firms aim to differentiate themselves in a highly competitive landscape with distinctive services. Key advantages to building software inhouse include:
• Alignment with existing skills
Capable Capital Markets firms, in particular, prefer this method for its alignment with existing skills and the ability to leverage specific technologies or frameworks already in use at the firm, enhancing project continuity and leveraging internal expertise.
• Path of least resistance
Continuing to use a long-established approach is an easier path and poses less career risk. The negatives of the ‘tried and tested’ approach are less visible and not always easily measurable.
• Avoiding vendor risk
Vendor on-boarding and due diligence requires a non-trivial investment of resources, and a lot of time can be spent on a solution only to find at the last minute that the vendor failed to meet the minimum requirements.
• Unlimited flexibility
There is no limit to the functionality that can be built, and firms retain control of the timeline, which can adapt to fit internal priority challenges.
Challenges and Limitations of the Build Approach
While empowering Capital Markets firms with tailored solutions and strategic autonomy, the ‘build’ approach also introduces a set of challenges that can include escalating costs, risk and integration complexities. Other specific challenges can include:
• Skillset dependent
The need for developers with the right experience and specialised skill sets drives up costs and complicates project continuity. Architecting and delivering new software takes a specific skillset; all developers want to do it, but few have successful experiences. Many large builds only happen once a decade, so this is unsurprising.
• High execution risk
Building enterprise software is always much harder and more expensive than expected. It is too easy for wishful thinking to drive initial estimates and, as a consequence, the project ends up significantly delayed and out of budget. Corners will be cut and the end-product to be forever compromised. Indeed, many legacy systems are born this way.
• Integrating vendor products
No firm builds everything itself, and there are always several off-the-shelf vendor systems in the environment performing specialised and important tasks. The restrictions around integrating with these products can erode much of the benefits build projects intend to capture.
• Ongoing investment required
Many legacy systems are perfectly good systems that were not maintained well enough over time and fell into disrepair. New technologies need to be adopted. An architect’s vision needs to be maintained though the lifespan of a system otherwise new hires will not understand it, and systems may get classed as legacy before their time.
The Decision to Buy
The other traditional option is for Capital Markets firms to buy a ready-made solution from a third-party vendor. This strategic choice to acquire a pre-built, off-the-shelf software solution enables firms to quickly implement advanced technology and avoids much of the need for in-house resources to create functionality. Rather, they can work on integrating the solution into their existing IT estate. Opting to buy a ready-made solution that can be rapidly deployed, offers a shortcut through the lengthy process of software creation and testing. Choosing to buy a ready-made solution can provide firms with a range of advantages including:
• Quick deployment
Off-the-shelf vendor products enable firms to rapidly deploy essential functionalities, significantly reducing time-to-market. Vendors can potentially offer ready-to-use software in months, if not weeks, bypassing the lengthy development process – if no custom feature is required, that is. Procurement and installation may take time, but comparatively less time than for inhouse built software, while avoiding the often-higher cost and execution risks of in-house builds.
• Regulatory compliance included
For products performing regulated functions, keeping up with constantly changing rules and regulations is vital. Especially if external connectivity is involved, this can result in a significant amount of high-risk, specialized work that can be effectively outsourced through a buy strategy.
• Operational support included
Buying software solutions provides firms with support services that can include round-the-clock, follow-the-sun technical assistance and maintenance.
Challenges and Limitations of the Buy Approach
The convenience of buying an off-the-shelf solution comes with its own set of challenges and limitations. Choosing a ready-made solution may seem advantageous where a speedy deployment is required, however, the challenges can be significant and include potential issues with configurability, tricky integration with existing systems, and a lack of ability to cater to unique business needs. Other specific challenges can include:
• Inflexible contracts
The contractual terms accompanying bought software can be restrictive, often locking firms into long-term arrangements that may not align with their evolving business needs. Firms may find themselves committed to software that becomes obsolete or inadequate for new market demands.
• Ability to change
Off-the-shelf solutions often limit the degree to which they can be configured and customised, reducing clients’ ability to adapt software to their specific needs and this can pose integration challenges. The lack of flexibility can result in software that poorly aligns with a firm’s requirements.
• Operational support
Many technology systems perform time-critical functions and involve a high-degree of complexity. Whether trying to understand how to do something or requiring help to remediate a problem, being able to immediately speak to expert support staff is vital. It can be difficult for vendors to meet this high bar consistently.
• Integration issues
Integrating off-the-shelf solutions with existing legacy systems can introduce significant technical challenges and cost, especially when there are incompatibilities in technology or data formats. This often leads to operational inefficiencies and the necessity for expensive, custom-built interfaces.
• Lack of differentiation
Reliance on standardised products can stifle a firm’s ability to stand out in the competitive capital markets. This is particularly problematic when a competitive edge is traditionally carved out using proprietary technologies or offering unique services that incorporate bespoke algorithms and processes.
Buy and Build: The Anatomy of a Successful Development Platform
While both the traditional buy and build paths carry their own set of advantages and disadvantages, neither approach addresses how to fully meet the comprehensive needs and business demands of Capital Markets firms. Development platforms are a compelling synthesis of the benefits of both traditional buy and build approaches and more attuned to dealing with the business challenges of today.
A development platform is a set of integrated technologies – or building blocks – that enable teams to build software applications. Unlike traditional technology vendors which provide solutions to technical problems, a development platform can provide solutions to business problems.
Development platforms provide solutions to tough engineering challenges and the building blocks are provided in an application container with the ability to rapidly connect and modify them to solve the business problem at hand.
For a development platform to be successful it needs to maximize the number of relevant engineering challenges it solves without limiting flexibility. This means always providing the developer with a clean way to build required functionality even if it falls outside of the use-cases for which the platform was originally conceived. If the bought technology is not commoditized enough and still leaves complex non-functional infrastructure to be built, then the cost of the build is not reduced, and benefits are not realized. Further enhancing the appeal of development platforms is the ability to amplify the skills and abilities of existing internal development teams. By abstracting complex processes and providing a comprehensive suite of tools and frameworks, these platforms reduce the necessity for specialised knowledge through low-code / no-code technology, thereby allowing broader development talent to create their own sophisticated solutions. This is particularly crucial in the capital markets sector, where time-to-market can dictate the success of financial products and services. Additionally, some development platforms alleviate the significant burden of software maintenance, taking on the responsibility for version updates, security patches and helping to ease the pain of regulatory change, freeing firms to focus their efforts on innovation and custom solution development. With a successful buy and build solution, developers should be spending the majority of their time writing differentiating business logic.
Challenges and Remediations
Adopting a development platform is not without its challenges. As with any new technology, there is a learning curve that needs to be considered and with vendor supplied technology there is the added consideration of the level of vendor lock-in.
Successfully adopting new approaches always requires overcoming any resistance to change and developer adoption of a new software engineering approach is no exception and highlights the importance of strategic planning and ongoing engagement with the development teams to ensure successful implementation.
Despite these hurdles, the demonstrated success of these platforms in accelerating innovation makes them an indispensable tool in modern firms have several ways to gain access to buy and build solutions. One such approach is to buy a vendor product which also offers a software development kit (SDK). Many vendors are now looking to do this, but the degree of success they achieve is as yet unknown.
Development platforms themselves are also a viable contender – there are cross-industry development platforms or specialized platforms for capital markets. Specialized platforms are engineered to tackle the type of problems and requirements clients have in the capital markets. Any one of these options will give firms varying degrees of the benefits mentioned earlier: ease of integration, speed of development, capital markets-geared solutions, lower learning curve.
The advent of development platforms presents a compelling option that marries the best of both worlds, offering a strategic advantage in today’s data and technology-driven economy. By embracing development platforms, Capital Markets firms are better positioned to deliver positive business change, ensuring they remain competitive and agile in a rapidly evolving financial landscape.
Velox Financial Technology is enabling software development teams in Capital Markets to build high-performance user-facing systems up to 10x faster. The Velox full-stack application development platform (vCore) provides professional developers with tools that amplify their expertise in Java and Web programming, allowing them to focus on building differentiating business functionality. vCore channels the founders’ decades of experience building Equities, FX, and Fixed Income electronic trading platforms at top-tier investment banks, to put developers in the sweet-spot of maximum acceleration with minimum limitation.
