Thinking of building your own risk orchestration platform?
Read this first.
The practicalities and pain points of building a risk orchestration platform, as told by those that have tried it.
So, your business has chosen to pursue risk orchestration? Firstly, congratulations. You’re joining a growing number of forward-looking businesses taking a firm grip of their customer lifecycle and data management.
We recently conducted a series of in-depth interviews with C-suite executives of major UK financial institutions. Below, we pick out some of the issues relating to cost and timescales, in addition to pain points the interviewees describe from their experiences of trying to build risk orchestration solutions in-house.
Below, we pick out some of the issues relating to cost and timescales - and pain other points the interviewees described from their experiences of trying to build risk orchestration solutions in-house.
Each experience is individual, as are the starting points. Many organisations, particularly those that have grown through acquisition, are burdened with legacy systems and technology. And as a CCO for a retail bank explained to us, this presents an immediate challenge when considering how to transform processes through new technology adoption:
"The challenge is that some of the legacy systems and third-party solutions we’ve been using for some time, they’re old fashioned. They use this ‘lock in’ approach. It’s very difficult to switch away. Switching away means that you need to rebuild parts of the bank."
Faced with the prospect of such vast operational disruption, it’s no surprise that many are tempted to kick the can down the road – especially when it will be someone else’s problem next year. The CIO of another retail bank explains that often these concerns are linked to a much wider cultural change seen since 2008:
"Automation and modernisation are a broad challenge in financial services. They weren’t on the agenda for a lot of banks a few years back. Now, post global financial crisis [banks] are just trying to manage costs – and one way of managing cost is just sweating your assets for longer"
This highlights a key issue. By tweaking around the edges rather than committing to full transformation, organisations can create more issues than they solve. And it’s not just big banks that are susceptible, as one interviewee warns,
"I think FinTechs are better positioned than mid-tier and big banks just because of the modernity of their technology, but I’m not convinced that they won’t end up in a similar position… organisations can be like magpies; they see a new tool that’s going to offer them value and they integrate it without really deprecating or retiring the equivalent or substandard version of the new tool."
The end-goal for all businesses must be –
"a simpler technology ecosystem to run and manage - and by proxy that becomes cheaper as well."
However, building a simple solution can conversely, be rather complex. Several interviewees recalled challenges in integrating multiple legacy systems and products via APIs. If the resulting ‘hub’ doesn’t synchronise workflows or risk scores, it’s not true orchestration.
The Head of Risk at a Challenger Bank talked about their experience of the pitfalls of such an approach:
"You need to ensure that all solutions are of recent vintage. Solutions that are more mature in one area and less mature in another, mean there will always be connectivity issues. There are going to be API problems, there are going to be language barriers and so on."
Legacy systems are far from the only challenge. Regulation and compliance, and the competing priorities of the teams responsible for designing the stages of the customer journey are significant factors:
"If you let the compliance team design the onboarding process it may last days, or a week, which is not sustainable. The challenge is trying to balance compliance and the commercial business."
Speed is of the essence, of course, but regulatory obligations can move rapidly and must be met. One of the benefits of a true orchestration approach is to resolve this common conflict through automation of a faster, smoother customer experience. It ticks both compliance and customer experience boxes, with the added benefit of agility. As one interviewee put it
"You really need a third-party orchestrated solution in order to be able to respond to the needs of the regulators today, and also to issues around fraud. It’s such a big requirement now."
A Retail Banking interviewee spoke to the speed of change in technology:
"We tried to build an orchestration platform in-house because our engineers are very competent, but ultimately they can’t match the might of the world’s innovation – it’s very hard to keep up, and in the end, you lose the battle."
They discussed costs too and suggested that for an organisation onboarding 100,000+ customers a year, building a solution in-house could conservatively cost upwards of £6 million, compared to a three-year run cost of around £3 million for a third-party sourced platform provider.
Managed services costs must be factored as well, and as part of a self-build route, they can be significant too. The CIO of a Retail Bank explained:
"With professional and managed services, your bills get bigger too. When you do a project and implement it, professional services do that. Then they hand it over to managed services - there’s no project which runs for a year that would cost less than £3million."
The Head of Financial Crime Compliance at a Building Society also addressed the price of essential staff:
"At my previous FinTech my data scientist was on £95,000 a year. You’re going to be paying big figures for these data scientists. They’re worth their weight in gold."
Faced with these extensive potential costs and complexities, many organisations are left with only one viable solution:
"I could never see an in-house [built] solution being a better approach. Whatever vendor you’re going to choose they’re going to need to keep their software solution up to date, in line with current regulations, in line with multiple connections, partners and so on. I can’t conceive how one could efficiently and cheaply build an in-house solution. For one thing, how do you establish all the relationships you need with the partners? Are you going to do that on a unilateral basis? In my mind there’s no conceivable way that you could do this at volume. There are some firms that only need to onboard a few, so there’s a cost-benefit decision in doing it manually. I understand that, but if you’re in the business of onboarding volumes of customers, you need some kind of orchestration platform."
Which brings us back to the question 'what kind of orchestration platform do I need?'
"Answering this can itself be quite an undertaking. Certainly, it’s vital that your chosen solution helps you achieve all your aims and resolve your challenges. Logically the first step should be to capture everything you need it to do and to fix, which means asking all the right questions. A good place to start is to ask do I want a ‘hub or platform’ performance? But that barely scratches the surface of what orchestration platforms can do. Needless to say, procuring the right orchestration platform, and the perfect implementation partner to help deliver it, can be a minefield. If your business is venturing down this path, gather as much advice and support as possible. Plan, prepare and speak to others that have already done it successfully. Our Buyers’ Guide to Risk Orchestration is packed with useful information and practical questions to set you on the right path to procuring the right risk orchestration solution for you."
