Pros and Cons of Outsourcing
While using a hosted mobile system has many benefits for banks, Mercator's O'Brien notes that there also can be some drawbacks. For one, a bank that outsources its mobile offering can't completely customize it the same way it would if the app were built in-house, since it's using a vendor's product that isn't tailored to a particular bank, although O'Brien concedes that many smaller banks won't be overly concerned with this.
"True customization can be very costly," he says. "With most of [the vendor products] you can tailor it somewhat -- the user interface can be adjusted to fit the branding and colors of each individual bank. But it's not completely customizable. But if you can live with something that's 80% to 90% tailored, you can still have a robust product. It may not be as robust as what the larger banks have, but it's something you can offer to customers now."
Dilemma For Midsize Banks
O'Brien also notes that it's more difficult for midsize financial institutions to make a determination on whether to pursue a vendor's mobile technology as opposed to creating their own, whereas the decision to outsource is generally an easy one for community banks.
"A regional bank has more resources to build it than a community bank" but lacks the resources of the largest multinational banks, O'Brien notes. This puts midsize banks in a difficult position, he says, adding that he has noticed a shift toward more midsize banks using hosted offerings or looking to third parties to integrate additional functionalities to an existing in-house mobile app.
Fundtech's Ramamoorthy agrees that medium- to large-size banks have a tough decision to make regarding whether to look to a vendor partner for a mobile product or create their own. Ultimately, he believes it depends on the structure of the bank's IT organization.
"It is a strategy decision, and you have to examine what the cost will be of keeping up with the technology," he says. "If you have a strong IT group and the ability to build it in-house, there is a bit of an edge because you can customize it more."
Another factor in the trend toward banks outsourcing mobile capabilities is the increasing presence of corporate mobile banking, says Ramamoorthy. While mobile banking on the retail side has been gaining popularity for several years, mobile banking for corporate customers has lagged behind, but is now something businesses are starting to ask for, he says.
"Initially, it didn't really take off," he says of corporate mobile banking. "Banks were focusing on getting the retail side up and running."
Over the past year, however, banks have been looking to roll out mobile apps for business customers, Ramamoorthy says, adding that many have looked to vendor products to do so. Fundtech, for example, offers a corporate mobile product, called Mobile Accessplus, that is an extension of the Fundtech Services Platform, a service-oriented architecture platform for transactional banking.
Ramamoorthy believes that as more financial institutions look to add mobile business banking capabilities, they will turn to vendors that specialize in that service.
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"One of the fundamental reasons they are looking to outsource is they are looking for vendors who understand corporate banking," he notes. "There's a lot of vendors who do retail mobile banking, but they don't understand the corporate side."
A Fast Way to Innovate
However, while the corporate mobile banking space is still in the nascent stages of becoming the "next big thing," many smaller banks such as Generations are simply looking to play catch-up, in a sense, to give their retail customers what larger banks already offer.
Generation's Dyson says his bank's partnership with Banno in outsourcing mobile capabilities is part of an overall strategy to "pursue a lot of new technology" and reach a younger demographic. In addition to its new mobile banking app, this initiative also includes "tech-centric" products such as interactive ATMs.
"We are pursuing many new technologies that are a convenience to our customers, especially younger customers," he says. Outsourcing certain functions, he notes, "is a cost-effective way to do that."
3 Things To Consider When Outsourcing Mobile Apps
1. Size and structure of IT department: If a bank's IT staff is large and nimble enough to take on a mobile app project, there are benefits to doing so, such as being able to create a more customized app. For banks with smaller IT departments, it may be easier to outsource, even if that means going with a more generic mobile banking interface.
2. Cost: Not only does the cost of creating the app need to be considered, but also the future expenses of keeping up with mobile technology. The Android and iOS platforms are constantly evolving, and no one can predict what new mobile technology will dominate consumer mindshare in the future. Four years ago, few people would have envisioned they'd do banking business on a tablet.
3. Time to market: While going with a vendor's mobile banking product may mean sacrificing some customization, it also provides a speedier time to market than if it's being built in-house. For a smaller financial institution whose customers are anxious for mobile banking, this could be a big reason to go with a third party.