The millions of customers using direct-to-consumer fintech solutions have come to expect robust online and mobile experiences that help them understand, track, save, and invest in their financial goals. Without the ability to easily and cost-effectively add these types of interesting fintech-like features into existing digital channels, banks run the risk of losing deposits and customers altogether.
Big banks know that robust digital solutions are a strategic imperative that keeps them ahead of—or drafting just behind—the fintech curve. Not surprisingly, they invest significant time and resources to build these tools themselves. Because of their sheer size, big banks can afford to invest in the thousands of engineers required to develop, deliver, and support compelling digital solutions in-house.
Smaller banks and credit unions, on the other hand, have an uphill battle when it comes to offering their customers market-leading digital tools. Lacking Bloombergian levels of capital forces, these smaller banks rely entirely on outsourced technology, none of which is more important than their digital delivery solutions.
Having run one of these digital providers back in the day—mFoundry—I’m quite familiar with the challenges of delivering a flexible, beautiful, and compelling solution that can run white-labeled across hundreds of financial institutions. Saying it’s not easy is an understatement.
The Quest for Simple and Cost-Effective Extensibility
That having been said, technology and software have evolved, and it’s no longer acceptable for banks and credit unions to be using out-of-the-box, cookie cutter mobile and online banking technology. They need to be able to add and distribute independent third-party technologies inside of their online and mobile banking channels if they want to stay relevant with their customers.
It shouldn’t be news that banks want to add new features into their digital channels. This means having a digital partner with a platform that offers some level of extensibility. Unfortunately, that’s easier said than done. Some digital providers do, in fact, offer extensible platforms that can consume third-party solutions, however, it frequently comes at a premium price for ongoing API access. This can crush the bank’s ability to create a compelling business case for a much-needed feature.
Others offer extensibility only via custom development and a separate server instance, which gets expensive in a hurry because it’s basically not extensibility, but rather custom development. Again, the business case is crushed.
Still others have tried a curated approach creating a marketplace of vendors that the digital vendor deems appropriate for the bank. That’s great if the bank actually wants to work with those vendors. But, if they don’t, then the bank is likely out of luck unless they go the customer development route I noted in the prior paragraph.
And, of course, there are others who offer no extensibility at all.
Even if a banker can make the business case for purchasing and lighting up one of these emerging third-party solutions, there is still the practical challenge of getting the solution live. More than one banker lamented the challenges surrounding a successful launch of a new feature, and not all the blame fell on the digital vendor. In some cases, the inexperience of a new third-party vendor created mayhem during the project; however, I’d say that in those cases the bank and/or digital partner should have done a better job vetting the new offering.
Start by Evaluating Your Digital Provider
The best digital providers recognize that extensibility is critical to their future. I talk to many of the digital providers on a regular basis, and I can say that they all, with the exception of one, realize their life-or-death need to deliver an open platform that can readily accommodate third-party features.
But, the devil is in the details. Will a digital provider let their clients add a feature into their digital channel, or will that partner limit the third-party players to companies that aren’t threatening to the digital partner’s core business? I have chatted with digital vendors who think it’s in their best interest to only add third-party features that don’t compete with their own roadmap. That’s shortsighted. They’ll say it’s to provide a safe solution for their customers, but they really are just holding their customers hostage in my opinion.
Also, will the digital provider let these third-party solutions into their mix in a way that supports a bank’s business case as well as providing a way to ensure that the distribution tax on the third-party vendor doesn’t create an economic hardship on an emerging company? Of course digital providers should be paid an ongoing fee from the third-party vendor for enabling the SSO or SDK integrations, but those fees have to be reasonable enough to keep everyone financially viable.
In the end, banks need digital channel partners who provide clean, cost-effective platform extensibility and fast iteration on an individual bank level. If your partner can’t deliver this more modern, open approach, it’s time to find a new partner before all your deposits are siphoned off by the big banks or highly aggressive fintechs.
– Drew Sievers, CEO, Harvest Savings & Wealth Technologies
Click here to learn more about how Harvest’s platform can help you retain deposits, increase customer and advisor satisfaction, and create profitable wealth accounts of any size.
