Build, Buy, or Partner: Choosing the Right Fintech Strategy for Financial Institutions

• Legacy Systems Are Costly: Financial institutions allocate up to 80% of IT budgets maintaining outdated legacy systems, creating fixed costs that limit agility and innovation

• Build vs. Buy Is No Longer Binary: Modern financial services require specialized solutions across multiple domains, making pure in-house development impractical and inefficient

• Strategic Partnerships Offer Middle Ground: Fintech partnerships provide customization and support beyond standard vendor relationships while avoiding the highest costs of internal development

• Specialization Drives Value: Access to real-time data, payment processing, compliance, and trading infrastructure requires domain expertise that generalist firms cannot match

• Platform Approach Simplifies Complexity: Fintech technology platforms consolidate vendor management, integration maintenance, and regulatory compliance across multiple specialized solutions

Legacy systems—the aging technology infrastructure that many financial institutions still rely upon—represent one of the industry's most significant challenges. These systems, often running on outdated hardware and obsolete programming languages, were once cutting-edge innovations that provided competitive advantages. Today, they've become expensive anchors limiting organizational agility.

The financial burden of maintaining legacy systems is staggering. Industry research indicates that some financial institutions allocate up to 80% of their IT budgets simply to support and maintain these aging systems. This massive allocation to fixed costs leaves minimal resources for innovation, new product development, or competitive responses to emerging fintech challengers.

Beyond direct costs, legacy systems create multiple operational challenges. Modern data security and regulatory compliance requirements often cannot be met by decades-old architecture without expensive customized integrations. The pool of developers and specialists with expertise in legacy programming languages and protocols continues to shrink as newer technologies dominate the market. Recruiting and retaining talent becomes increasingly difficult when professionals prefer working with modern technology stacks.

Key Legacy System Challenges:

• Consuming 70-80% of IT budgets for maintenance rather than innovation

• Incompatibility with modern security and compliance requirements

• Declining availability of specialized technical talent

• Inability to integrate with modern APIs and cloud services

• Slow response times that frustrate customers accustomed to digital experiences

• Risk of catastrophic failure as hardware and software reach end-of-life

• Difficulty scaling to meet growing transaction volumes

• Limited flexibility to launch new products or enter new markets

Replacing legacy systems represents a complicated and expensive undertaking, often requiring multi-year transformation programs. However, this investment must be balanced against the escalating long-term costs of maintaining outdated infrastructure. The question then becomes not whether to replace legacy systems, but how—through internal development, external procurement, or strategic partnerships.

Building proprietary technology solutions offers maximum control and customization. Financial institutions that develop systems internally can tailor every feature, workflow, and integration to their exact specifications. This approach potentially creates competitive differentiation through unique capabilities that competitors cannot easily replicate.

Internal development allows organizations to maintain complete ownership of intellectual property, avoid vendor dependencies, and retain all data within their own infrastructure. For institutions with highly specialized requirements or unique business models, custom-built solutions may be the only way to achieve necessary functionality.

However, the build approach carries significant drawbacks. Software development requires extensive internal resources including product managers, software architects, developers, quality assurance specialists, and ongoing maintenance teams. Time-to-market for internally developed solutions typically extends far longer than purchasing existing software, potentially allowing competitors to capture market opportunities first.

Build Approach Advantages:

• Complete customization to exact specifications

• Full intellectual property ownership

• No vendor dependencies or licensing fees

• Potential competitive differentiation through unique features

• Complete control over development roadmap and priorities

Build Approach Disadvantages:

• Massive upfront and ongoing investment requirements

• Extended development timelines delaying time-to-market

• Requires recruiting and retaining specialized technical talent

• Risk of creating "Legacy System 2.0" that becomes outdated

• Diverts resources from core business competencies

• Difficulty keeping pace with rapidly evolving technology standards

• Full responsibility for security, compliance, and regulatory updates

Perhaps most critically, proprietary systems risk becoming tomorrow's legacy systems. Technology evolves rapidly, and internally developed solutions require continuous investment to remain current. Organizations that built custom systems a decade ago now face the same replacement decisions they sought to avoid by building rather than buying.

Purchasing software from third-party vendors offers the opposite trade-off from internal development. Rather than building from scratch, organizations can implement proven solutions that already provide required functionality. This approach dramatically reduces both time-to-market and upfront investment compared to internal development.

Modern SaaS vendors offer sophisticated financial services software across virtually every domain—from core banking systems to trading platforms, risk management tools, customer relationship management, and regulatory reporting. Organizations now work with more than 100 SaaS applications on average, reflecting the specialization and ease of integration that characterizes today's software ecosystem.

The vendor approach allows financial institutions to leverage specialized expertise. A company focused exclusively on payment processing, for example, will likely deliver superior functionality compared to a generalist financial institution building payment capabilities as one component of a broader system. Vendors also spread development costs across many customers, making sophisticated software accessible at price points far below internal development costs.

Buy Approach Advantages:

• Rapid implementation and faster time-to-market

• Lower upfront costs compared to internal development

• Access to specialized expertise and best practices

• Continuous updates and improvements from vendor

• Reduced internal technical resource requirements

• Proven functionality with established user bases

• Vendor assumes responsibility for security and compliance updates

Buy Approach Disadvantages:

• Limited customization to organization-specific needs

• Vendor dependency and potential lock-in

• Ongoing licensing and subscription costs

• Less competitive differentiation using common platforms

• Integration challenges with existing systems

• Vendor viability and continuity risks

• Data security concerns with external hosting

• Potential feature gaps requiring workarounds

The challenge with the buy approach lies in finding vendors that meet all requirements for functionality, integration, security, and compliance. Vetting external vendors requires significant due diligence, and making apples-to-apples comparisons across complex software platforms proves difficult. Additionally, purchased software rarely provides the exact functionality desired, requiring organizations to adapt processes to software capabilities rather than the reverse.

In practice, the build-versus-buy decision is rarely binary. Most financial institutions follow hybrid approaches, purchasing software where suitable solutions exist while building proprietary systems for areas requiring unique capabilities or providing competitive differentiation.

This hybrid model reflects a fundamental reality of modern software development: specialization has advanced to the point where no generalist organization can compete across all domains. Why would a bank build internal messaging tools when Slack, Microsoft Teams, or dozens of competitors offer superior functionality at minimal cost? Why develop proprietary video conferencing when Zoom provides enterprise-grade capabilities?

The same logic applies to financial services technology. Real-time market data, payment processing, trade settlement, regulatory reporting, and risk analytics all represent specialized domains with dedicated vendors offering deep expertise. Building these capabilities internally would require recruiting specialized talent, understanding complex regulatory requirements, and maintaining systems as standards evolve—all while competing with vendors focused exclusively on these domains.

Common Hybrid Approach Elements:

• Core banking or trading platforms purchased from established vendors

• Proprietary customer-facing applications for differentiation

• Third-party data feeds and market information services

• Custom integration layers connecting multiple systems

• Vendor solutions for compliance and regulatory reporting

• Internal development for unique business logic and workflows

• Cloud infrastructure from major providers (AWS, Azure, Google Cloud)

• Specialized fintech solutions for payments, lending, or wealth management

The hybrid approach introduces new challenges around integration, data consistency, and vendor management. Organizations must maintain expertise in multiple platforms, manage numerous vendor relationships, and ensure seamless data flow across systems. This complexity has given rise to a third option that goes beyond simple vendor relationships: strategic partnerships.

Strategic partnerships represent a middle ground between vendor relationships and internal development. Rather than simply purchasing software and receiving standard support, partnership models offer deeper collaboration, greater customization, and shared responsibility for success.

Fintech partnerships typically provide more extensive implementation support, customization capabilities, and ongoing collaboration than standard vendor relationships. Partners work closely with financial institutions to understand unique requirements, adapt solutions to specific needs, and provide strategic guidance on technology roadmaps. This approach avoids the highest costs of internal development while delivering more tailored solutions than off-the-shelf software.

For financial institutions building comprehensive fintech ecosystems, strategic partnerships become increasingly valuable. Rather than managing dozens of individual vendor relationships, institutions can work with fintech platforms that consolidate multiple specialized solutions, handle integration complexity, and provide unified support across the technology stack.

According to United Fintech, fintech technology platforms can assume responsibilities including identifying and contracting with multiple vendors, maintaining necessary integrations, supporting onboarding, and ensuring ongoing regulatory compliance—essentially acting as both technology provider and strategic consultant.

Strategic Partnership Advantages:

• Greater customization than standard vendor relationships

• Shared responsibility for implementation success

• Access to multiple specialized solutions through single relationship

• Consolidated integration and vendor management

• Strategic guidance on technology roadmap and industry trends

• Faster implementation than internal development

• Lower total cost than building proprietary systems

• Ongoing innovation as partners enhance platforms

Partnership Model Considerations:

• Requires finding partners with aligned strategic vision

• Still involves some vendor dependency

• May cost more than basic vendor relationships

• Requires investment in relationship management

• Partner viability and long-term stability important

The partnership model proves particularly valuable for mid-sized financial institutions that lack the resources of global banks but require more sophisticated solutions than basic vendor offerings provide. By leveraging partner expertise and consolidated platforms, these organizations can access enterprise-grade capabilities without enterprise-scale IT departments.

Choosing between build, buy, and partner approaches requires systematic evaluation of multiple factors. No single answer applies to all situations—the optimal strategy depends on organizational capabilities, competitive positioning, resource availability, and strategic priorities.

Decision Framework Considerations:

Strategic Importance and Differentiation

• Does this capability provide competitive advantage?

• Is this a core competency or supporting function?

• Can differentiation be achieved through purchased software?

• How quickly are competitors moving in this area?

Resource Availability and Expertise

• Do we have necessary technical talent internally?

• Can we recruit and retain required specialists?

• What is our capacity for managing additional complexity?

• How much budget can we allocate to this initiative?

Time Sensitivity and Market Dynamics

• How quickly must we deliver this capability?

• What is the cost of delayed implementation?

• Are market conditions changing rapidly?

• Will first-mover advantage provide lasting benefits?

Vendor Landscape and Maturity

• Do mature solutions exist in this domain?

• How many viable vendors or partners are available?

• What is the quality and functionality of existing solutions?

• Are standards and best practices well-established?

Integration and Ecosystem Complexity

• How many systems require integration?

• What is the complexity of data flows?

• Do we have existing vendor relationships to leverage?

• Would a platform approach simplify management?

Organizations should also consider portfolio approaches, building in areas of true competitive differentiation while buying or partnering for supporting capabilities. A retail bank might build proprietary mobile banking experiences while partnering for payment processing, market data, and regulatory reporting.

As financial institutions work with increasingly complex technology ecosystems, fintech platforms have emerged to simplify vendor management, integration, and compliance. Rather than contracting with dozens of individual vendors, institutions can access multiple specialized solutions through unified platforms.

These platforms handle the technical complexity of integrations, maintain relationships with underlying technology providers, and ensure solutions remain current with regulatory requirements. For financial institutions, this approach reduces the overhead of managing numerous vendor relationships while providing access to best-of-breed solutions across multiple domains.

Platform providers like United Fintech offer centralized access to innovative digital technologies including real-time data, trading charts, financial news, and specialized fintech products. By partnering with engineering-led fintech companies with proven capital markets products, platforms enable banks and financial institutions to rapidly deploy sophisticated capabilities without building internal expertise in every domain.

When should financial institutions choose to build rather than buy or partner?

Build proprietary solutions when capabilities provide true competitive differentiation, no suitable vendor solutions exist, requirements are highly unique to your business model, or you have exceptional internal technical talent. Building makes sense for customer-facing applications that define your brand experience or core business logic that represents intellectual property. However, avoid building commodity capabilities like payment processing, market data, or regulatory reporting where specialized vendors offer superior solutions.

How can organizations evaluate whether legacy system replacement is urgent?

Assess urgency based on several factors: percentage of IT budget consumed by maintenance (over 70% indicates high urgency), frequency of system failures or performance issues, inability to meet regulatory requirements, difficulty recruiting talent with legacy system expertise, and competitive disadvantage from inability to launch new products. If legacy systems prevent strategic initiatives or create significant operational risk, replacement should be prioritized regardless of cost and complexity.

What are the biggest risks of vendor dependency in financial services?

Primary risks include vendor business failure leaving you with unsupported software, vendor acquisition by competitors creating conflicts, significant price increases after lock-in, vendor roadmap diverging from your needs, data portability challenges if switching vendors, and security breaches at vendor affecting your data. Mitigate these risks through thorough vendor due diligence, contractual protections, data backup strategies, and maintaining expertise to switch vendors if necessary.

How do fintech platforms differ from traditional software vendors?

Fintech platforms aggregate multiple specialized solutions into unified offerings, handling integration complexity that would otherwise require internal resources. Traditional vendors provide specific software requiring you to manage integrations, vendor relationships, and ecosystem complexity. Platforms act as strategic partners providing consolidated support, regulatory compliance across solutions, and simplified vendor management. This approach works well for institutions needing multiple specialized capabilities without resources to manage numerous individual vendor relationships.

What percentage of technology should be built versus bought in modern financial institutions?

Industry best practices suggest 80-90% of technology should be purchased or partnered, with only 10-20% built internally for true competitive differentiation. Focus internal development on customer-facing experiences, unique business logic, and capabilities that define your competitive position. Purchase or partner for infrastructure, data services, compliance tools, and supporting capabilities where vendors offer mature solutions. This ratio allows you to concentrate resources on areas providing strategic value rather than rebuilding commodity capabilities.

This article provides general information about fintech strategy and technology decision-making for financial institutions and should not be considered technology consulting, investment advice, or legal guidance. Regulatory requirements vary by jurisdiction and change frequently. Vendor capabilities, pricing, and market conditions evolve continuously—conduct current due diligence before making technology investment decisions. The author and publisher assume no liability for decisions made based on this information.