Build, partner or acquire your fintech ?

May 09, 2024

Every advance in technology creates new opportunities to innovate and drive growth. But as you watch emerging technology unfold and decide that you need to add new products, capabilities or features to keep ahead of your competitors, how do you assess whether you should build your own solution, partner with a provider or acquire a business that has what you need?

Building requires heavy investment in cost, team mindshare and time

Building new technology in-house is investment-heavy. You must have a product strategy and think about product management, engineers, and your go-to-market plan. There’s also the operational management of the product and long-term upkeep. And you need to keep on the leading edge. It’s a big commitment.

Whether you’re a fintech, bank or any other organization, you’re focused on what drives revenue for your business, and technology is often not directly related to driving revenue: It’s more a means to an end. You need an IT group to keep your operating systems and networks secure, but do you really want to create another IT group to build software when you could buy it for much cheaper? Ultimately, when you’re looking to build, you need to ask yourself, “Do I have the team, expertise and bandwidth to build it? Or are there plenty of other priorities right now?”

Understanding the customer landscape

Customers must be at the heart of your decisions. Most of the time, you won’t have a full view of the customer and what they really want. You usually just have an analyst telling you what to build, which is not the best situation. You need someone who has talked to 10-20 potential customers, understands all the problems, and has prioritized what features customers truly want.

What’s your strategic focus?

There are strategic considerations, such as risk and compliance, in a heavily regulated industry, as well as headcount and what it would take to bring a specific functionality in house. And you must think about how you’re going to scale and adapt to new technologies coming in. Do you have the right set up to ensure you can face anything new? If you’re looking at the three-to-five-year horizon and want to build to that, but then decide it's not within your strategic focus, that’s when you need to look for a partnership or acquire a fintech that has built what you are looking for.

There is no perfect partner

First consider whether there’s a company in the market that has already built what you want at a price point that makes sense and where you can still realize a return on your investment. What if you’ve chosen a vendor that has a product, but it doesn’t have all the features you want? Every company has a set of features that it really wants, and if it finds a product with those features, then great. If the product doesn't have all the features, sometimes the company decides to build it, but that’s not always the best plan. You must prioritize those gaps and understand from the vendor if and when those features might be built.

Choosing to partner with a vendor to integrate its solutions is multifaceted. You need to consider risk, including how long your partner has been in the market, the strength of its solutions, as well as how extensive its understanding is of customers. If you’re going to work with five different vendors, that’s five times the amount of risk and five relationships you must build or maintain. So, breadth of offerings should be a key consideration when choosing a partner. Also, how else can this partnership work for you? For example, if you have a partner in the fintech world, you don’t need to take on some of the compliance overheads. Sometimes, the technology partner even offers managed services.

Acquire to mitigate risk

There are risks with vendors. They can raise prices, and they can be bought by your competitor, which could be a motivator to acquire a company that provides the functionality you need. It’s a competitive market, and when you’re considering acquiring a vendor, the key points you need to consider include the product features it offers, pricing, your ability to work with the vendor, and understanding who its customers are and the synergies between your businesses.

Avoid analysis paralysis

Given all these scenarios, it’s easy to suffer “analysis paralysis.” Know that chasing the perfect solution doesn’t work: There are always trade-offs. You must balance those and determine what makes sense based on what you’re trying to accomplish. Don’t think that partnership or acquisition are quick wins; they can sometimes take months. Through building the contact and relationship, planning integration, it can become complicated. Above all, whether you look to acquire, build or partner, you must envision the life cycle of what you’re trying to achieve, your company’s strategic goals and your prioritization to meet these. It’s only then that you’ll be able to make the right decision.

About the Authors
Mickey Lynch, Vice President, Platform Business Development, FIS
Mickey LynchVice President, Platform Business Development, FIS

Azriel Chelst, Head of Ventures, FIS
Azriel ChelstHead of Ventures, FIS

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