An over-reliance by financials on technology solutions developed in-house and their reluctance to update to leading edge offerings regularly is costing them dear and undermines their competitiveness, says a study.
Many financial firms still rely on technology solutions developed in-house and despite the availability of more leading edge, externally sourced solutions, rely on them until they become resolutely out of date – an approach that can be costly and leave them lagging behind competitors.
According to a survey of 50 UK and 50 US financial services firms by data quality solutions provider Asset Control, more than half (52%) of senior decision-makers look to wait to update or replace in-house technology until it is very obviously out of date. Nearly half of the respondents say they are forced to schedule changes by ‘the increase in digitalisation within the business’ while 48% action changes because of ‘the need to keep pace with the competition’. More than half the sample overall (54%) cited having to adapt the solution to meet changing regulations or business requirements as key triggers for updates.
Yet the strategy of developing and implementing solutions in-house to cope with these demands appears flawed, with 94% of respondents saying they expect to encounter challenges of some sort whenever they choose to build a solution in-house.
These challenges often lead, directly or indirectly, to greater costs. Skills and resources are seen by 62% of respondents as the biggest challenge to overcome when building a solution in-house. Pressure to stay within budget, referenced by 60%, is another big drag.
“The gradual accumulation of additional costs is one of the biggest problems with the in-house approach to technology development in financial services,” says Martijn Groot, VP Marketing and Strategy, Asset Control. “Internal solutions are often approached as a project, a one-off cost, and not regarded, and consequently budgeted, as an ongoing concern. This is unrealistic in a fast-changing financial services landscape.”
For many financial services organisations, the costs of internal solutions can ramp up. Nearly three-quarters of respondents to the Asset Control survey (73%) reported that they had ‘experienced additional costs after implementing an internal solution’. The most common additional cost was ‘hiring new developers because of previous developers leaving the business. This was referenced by 60% of respondents in total.
“The one-off approach, if executed well, may look attractive given that the firm is best placed to cater to its own specific requirements,” Groot added. “However, the subsequent maintenance costs to keep the lights on, and evolve the feature set to cope with emerging requirements, are large. Change is a given and any project scope is always shooting at a moving target. If their ROI horizon is only until go-live, the result will be a continuous ‘project mode’.”
He further points out that with costing often done as a project, some operational costs tend to be hidden until an organisation wants to change something: “That can be a challenge, particularly if the original developers have moved on, the platform is technologically outdated or does not lend itself well to cloud deployment. Unfortunately, the true costs and constraints of an internally-developed solution often only become clear when firms need to change things.”
The costly implications of clunky technology and systems for corporates is further highlighted by a global survey of 1,100 C-suite executives and finance professionals commissioned by Nasdaq listed BlackLine, a leading provider of financial controls and automation software. The survey by independent global research firm Censuswide reveals that over half (55%) of respondents are not completely confident they can identify financial errors before reporting results. Nearly seven in ten respondents believe that their organisation has made significant business decisions based on inaccurate data. Many identified this as a hidden problem, with over a quarter (26%) stating concern over errors that they know must exist, but of which they have no visibility.
“It is concerning that so many organisations are not confident in their ability to identify errors and ensure accurate reporting,” says Mario Spanicciati, Chief Strategy Officer at BlackLine. “The high-profile misreporting scandals we see in the news could be just the tip of a larger financial inaccuracy iceberg. It seems clear that not only are reporting errors prevalent, but that many of these inaccuracies remain hidden below the surface. There is no longer any excuse for not having full visibility into accurate numbers from which to report and drive business forward.”
He adds: “Unless there is recognition that this is an unacceptable and unnecessary level of risk, we can expect to see an increase in large-scale financial misreporting. Business leaders have a responsibility to ensure that the processes and technology are in place to enable continuous visibility and accuracy of financial data. At a time when advanced tools to help automate controls and ensure accuracy are available and proven, there’s really no excuse.”