When digitisation no longer means differentiation: the great buy vs build debate

Technology has become a king maker in financial markets. Reducing latency, increasing automation and introducing advanced analytics to expand and deepen market participants’ offerings have become essential components to compete in a crowded marketplace. If the rapid pace of innovation and the shift in how we work has made technology key, the flipside is that with more firms embracing technological solutions, digitisation has become ubiquitous and is no longer enough to differentiate.

The next stage in the evolution of technology in financial markets therefore requires a change in mindset and a paradigm shift towards ‘technological intensity’ – a reversal of the trend of the past decade which saw institutions rely almost exclusively on vendors, moving towards building their own technology instead. Since Adaptive was founded 10 years ago, we have seen firms increasingly looking beyond ‘off the peg’ solutions as they realise that an amalgamation of universally available vendor technology alone is no longer enough to set them apart. We are now at a turning point.

Despite modern markets necessitating a new approach to technology, the importance of vendor products over the past decade should not be diminished. These products have played an important role in modernising companies with previously few technological credentials. While building presents significant benefits, it is not a one-size-fits all solution as in some cases, from a cost perspective, a simple API may make the most sense. However, with large banks, hedge funds and asset managers opening their technology war chests to prepare for the next wave of innovation, it is important for firms to carefully plan which elements of their technology they want to own in the long-term.

Cost is clearly a vital factor in this decision-making process as deciding to build substantial elements of your technology stack is a significant investment decision. We are however finding that firms, regardless of size, are more willing to invest in technology to future-proof their businesses. A long-term view is now essential, as acquiring vendor products often means being beholden to the pace of innovation set by vendors – which could slow the adoption of new technologies or the rollout of new products or services. There are three key considerations for firms deciding whether to buy or build:

• • Start with the problem, not the tool: Building a solution to fix a specific problem rather than building a solution around what an existing tool can do will always be most effective in enhancing a firm’s technology. Taking time to understand the problem and using expert consultants to advise on the best solution is important – whether hiring a firm to build bespoke technology to solve a problem, if the technology can be built in-house, or whether the technology can be bought.

• • Invest wisely: Investment must be made where it matters. To truly differentiate in an increasingly competitive market, firms should think carefully about their value proposition and competition to identify exactly which elements of their technology it makes sense to own and which to buy.

• • Take a long-term view: The financial markets landscape is very different to when we started just ten years ago. How will it look in ten years’ time? It is hard to say, but there are certainly technologies that can help firms to adapt and control the pace of their innovation. Understanding where change is likely to come and ensuring your technology gives you the flexibility to evolve to allow clients to capitalise on new opportunities is vitally important in staying relevant.

The build vs buy debate has changed as technology has become ubiquitous. It is time to understand that there is a cost to the technology choices that firms make. Short-termism and lack of flexibility may end up costing more in the longer-term, not just in terms of price, but in terms of competitiveness and long-term viability.