The build vs. buy decision is the prevailing dilemma of any CTO. While the internet is littered with ‘how to’s’ in the build vs. buy decision, for experienced tech teams looking to introduce a loan management platform, the reality of this decision-making process is not as linear as such articles may lead us to believe.
Therefore, in this article I want to present an alternate middle ground – to build and buy.
The build vs. buy decision is a critical one for most finance start-ups, who often choose to build. Typically, the decision to build comes from a desire to maintain full control over the system’s features and maintain Intellectual Property (IP) ownership. In the world of lending, maintaining IP is crucial. By incorporating proprietary IP such as a seamless origination process, outstanding user experience, or unique data integrations, a simple lending book can be transformed into a thriving loan business.
When you start a project from that perspective, it’s understandable that you would be more inclined to build the entire system yourself to maximise IP and protect value – particularly if you are a CTO with the knowledge to undertake the project and keen to rise to the challenge.
The challenges with build rather than buy
There are several factors to consider when deciding whether to build your own loan management platform, and it can come with many potential problems.
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The ‘build vs. buy’ decision can stretch your resources, almost certainly requiring you to recruit additional people. Yet as the industry faces an increasing talent shortfall, it’s harder to get skilled developers on board – not to mention more expensive. The reality is that self-build almost always takes longer and costs more than expected, with various pitfalls lurking along the way.
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There is also the issue of scale. A self-built software platform may work for a few years for a start-up, but as the business grows (and both the market and regulation evolve), there’s often a growing awareness of a need to migrate to a platform that’s fully fit for changing circumstances. With every year that goes by, that process can become more complicated – which is why some companies end up running the book down on their old platform while originating fresh loans on a new one. It gets messy.
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However, in our experience, the most important consideration when choosing whether to build your own platform comes down to core competencies. There will be certain elements of an end-to-end loan management system that you will be the better at designing and building to suit and adapt to your needs than any out-of-the-box solution will. Nevertheless, is that true of all aspects of a full-service solution that you need both now and as you adapt to evolving needs?
The challenges with buy rather than build
At the other end of the spectrum is the ‘buy’ option. There you have it – a shiny new platform, tried and tested, off the shelf. The attraction here is clearly convenience. The downside, however, is being stuck with what you have, rather than being able to tailor the platform to your specific needs and support your own IP as a lender. As a result, it’s naturally not an immensely popular option.
The ‘build and buy’ hybrid
There is an alternative – the Formula One approach, as we’ll term it.
In F1, teams develop IP through the design and build of their teams’ car. However, teams won’t build everything from the top down – there are parts they buy and parts they build. Teams recognise that there is little commercial value to building the engine, but there is significant value and competitive edge to be gained from designing bespoke aerodynamics.
We are now working with a number of clients to deliver a blend of ‘build and buy’ that gives them the toolkit of features and distinctiveness they need to build their aerodynamics (e.g. data to feed lending models, unique origination journeys, intelligence gathering, or digital engagement through self-serve), while providing them with the robust, compliant, scalable engine (the platform).
This approach allows us to collaborate closely with you, identifying where your team’s strengths lie and where our expertise can fill in the gaps, ensuring that all components work seamlessly together.
Consequently, you as the lender maintain full control over the presentation, management, flexibility, and monitoring of your lending services. While the foundations of the platform are built by Lenvi’s team of experts in technology, the market and compliance.
This is technology that is tried and tested in a way that self-build struggles to compete with and will not lead to significant ROI – particularly given the level of regulation in the industry, and our knowledge of building that compliance into a scalable platform.
Importantly, choosing this type of build and buy over a build vs. buy decision, creates considerable elasticity within your platform. Something that’s difficult to do from scratch. So, when a huge surge of loan applications appears around key events in the year e.g., new registration plate launches, Black Friday, and religious holidays, you don’t need to worry whether the system can cope.
Conclusion
The build vs. buy decision for your loan management platform is complex and multifaceted.
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While building offers the allure of complete control and ownership of IP, it comes with resource constraints, longer timelines, and potential scalability issues.
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Conversely, buying a ready-made solution provides convenience but lacks the customisation that you need to maintain a competitive edge.
The hybrid approach of 'build and buy' emerges as an attractive middle ground, offering the best of both worlds.
Through integrating bespoke features and tailored functionalities on top of a robust, pre-built platform, you can achieve the desired level of control and differentiation without the drawbacks of a full self-build. Maximising your teams’ time and capability in the process. This method ensures that you can focus on your unique value proposition while relying on tried and tested technology for the foundational aspects of your platform.
By partnering with experts like Lenvi, lenders can not only streamline operations and have peace of mind that the platform is flexible and robust enough to respond to change quickly, but we also allow you to concentrate on accelerating innovation and growth.
Ready to explore how a 'build and buy' approach can transform your loan management platform? Contact our team today to discuss your needs and discover how we can help you create a solution that combines the best of both worlds.
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