With the continuous rise of the technology landscape, banks are on a constant digital transformation journey to improve both their customer experience and financial performance. While neobanks are leveraging on their digital-first channel approach, traditional banks on the other hand are re-engineering their operational model with a special focus on their IT architecture and system, including their front, middle, and back end as well as their API layer. As technology forms the heart of digital banks, it is, therefore, vital to design a modern and well-functioning technology stack. The technology requirements are derived from the value proposition and key processes. Typically, the main requirements for digital banks are to accommodate real-time and 24/7 on-demand availability of services, flexibility, and scalability of infrastructure, a 360-degree customer view on their profiles through leveraging data from various touchpoints, and efficient omnichannel stage management.
IT Vendors and digital solution providers have experienced a growing spur during Covid-19 bringing with them various options and driving countless new banking technology solutions for all sizes of players in the market. Along with the growing number of IT providers, banks now have a large pool of solutions to choose from. However, making the right choices is a key factor for the future of the bank and can ultimately determine the success or failure of the organization. Whether you are building a new venture or aiming to transform your current business, thoroughly assessing all the available options and making an informed decision when selecting your third-party IT Vendor is a critical step in the journey.
But how does one select the most suitable solution for a bank and ensure that the choice is made in an objective and targeted manner? Based on a large amount of experience with successful core banking selection and implementation projects, we have put together the major steps that you should consider when choosing an IT Vendor for your digital bank.
Phase 0: Requirements
Before diving head-first into the process of selecting a suitable IT System provider for your bank, it is crucial to firstly have a thorough understanding of the overall requirements. These requirements can be derived from the standing business plan for the digital bank and should therefore not only include a high-level idea of the final IT Architecture but also comprehend the broader business context and regulatory environment. To do so, one needs to have a precise understanding of the company’s business background and should have a clear perception of its future strategy, target market, current capabilities and business architecture.
Questions that will be raised are for instance:
- Do we have the necessary IT expertise and knowledge in-house to make a deliberate choice?
- How quickly do we want to launch on the market?
- What products and services need to be developed within the future roadmap?
All these questions among others, are necessary to be answered well in advance to ensure finding the best match when it comes to the IT System.
Phase 1: Preparation
After gathering all the requirements, we officially commence with the preparation phase in which the company ought to define the relevant selection and evaluation criteria for providers. These serve for the future assessment of the different vendors and mark a critical step within the preparation phase. Based on the business background and the defined requirements, a bank can not only choose whether to build or buy technology but also choose between several different types of vendors. After all, the IT Architecture of a bank is not only limited to the core banking platform but involves several components. While some providers only offer the core-banking system itself or certain functions in the value chain, others provide full-stack banking solutions as a one-stop-shop, including product solutions, white-label licensing, access to payment and card schemes and even cloud infrastructure all-in-one.
As a general point of reference, some key aspects to consider when defining the selection criteria are:
- Functionality: Scope and future business priorities of the bank
- Technology: Required technology offering for defined IT Architecture
- Implementation: Local, international, inhouse and via partners
- Company: Expertise and recognition within financial services
- Financial: quotedprice vs on-going budget along with the price range
In the end, the preparation phase will be finalized with an initial market scan on several types of banking technology providers that gives insights on the latest offerings and helps to identify the first list of potential IT providers that best meet the bank’s requirements and future strategy.
Phase 2: Selection
Once the preparation phase has been completed, we move on to the vendor engagement and selection of the IT Vendor. The selection phase firstly focuses on defining a long- and shortlist of suitable IT Vendors based on the work in the previous phase as well as the drafting of the RFI questionnaire. With the short-list of providers and RFI questionnaire, we are now entering into the first vendor engagements along with the initial RFIs. From here, we subsequently narrow down the list of suitable vendors based on the selection criteria and input from providers to a more focused list of providers to move on to the RFP process that follows the same structure. A key factor when managing the RFP process is to ensure that all your prepared information is provided to all vendors to allow for a transparent and objective selection process. After having obtained all the required information and commercial offers, it is advisable to run several Proofs-of-Concept with a small selection of the most relevant vendors and enter into the final negotiations. If executed correctly, the bank now should have a clear idea of which IT solution provider is the best fit for its future ambitions.[BK1]
How Fincog can help
Choosing an IT provider for your bank can be both exciting and challenging and you are likely to need help along the way. Fincog brings a vast amount of experience in managing RFP’s, vendor selection processes and end-to-end migration of banking and payment services. Additionally, we build upon our proprietary databases of +100 banking technology providers from across the globe to learn from the best practices internationally and help you to select the right vendor.
With our global experts in technology strategy, core-banking solutions and IT architecture, we assist our clients end-to-end in selecting and engaging with the most suitable IT vendors. For this we deploy a structured approach in which we define together the selection criteria and vendor requirements, facilitate meetings, issue the RFIs and RFPs, run proof of concepts with preferred suppliers and select one or more vendors for final negotiations and contracting.
Fincog is a leading strategy consultancy specialising in fintech and banking. We enable our clients with end-to-end consulting support in designing, building and scaling digital banks as well as transforming legacy organizations