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Credit Risk Software:
Build vs. Buy Options
(Complete Guide)

Allison Karavos
January 19, 2023

12 factors to consider when evaluating build vs buy options for credit risk software.

I loved Lego when I was a kid, ok, ok, I’m going to be totally honest, I still love Lego (PSA: other brands of building blocks are available). The pirate theme was a favorite, but Santa must have lost my pirate ship box set somewhere over the Atlantic. So, my pirate Lego supply was limited to a mini boat, Lego characters wearing pirate costumes, and treasure chests filled with pieces of eight. So, here I have my menacing pirates setting off on elaborate plundering adventures in… a tiny ‘wooden dinghy’. Let’s face it, no self-respecting pirate would be taking that dinghy anywhere, even to pop down to the grocery store to stock up on grog.

But what does Lego have to do with deciding whether to build or buy credit risk software?

Building a credit decisioning solution for your business is like creating a Lego model. Your solution – whether it’s a loan origination system, merchant onboarding tool, or payment platform – is not a self-contained Lego brick that can act as a user interface, store data, process applications, manage integrations, maintain KYC compliance, host risk models, use machine learning algorithms, and provide a credit decision. Similar to Lego, it is a set of building blocks joined together to create the right decisioning solution for your business.

Build Vs. Buy—More Options Than Ever

The build vs. buy debate has been going on for years, and much of the discussion falls around simple options: you buy, or you build. But with technology getting more advanced every day there’s now other options such as: buying the building blocks or selecting a strategic partner. So, for the purpose of this guide we’re going to compare four options:

– Build

This is the from scratch, internal approach. If this were a Lego project it would include creating the plans for your blocks, developing the blocks internally, and building them into your finished solution. This is often the first option explored by tech savvy companies, especially if they have a wealth of tech talent available to take on the project.

– Build, but not from Scratch

This is the Lego kit solution for credit risk software. You buy the kit—so you don’t need to handle building the blocks/ components—and combine them into the solution that best fits your needs. The flexibility in finished design will vary by vendor solution. For example, some solutions may give you the option to build anything from a paddle board to a cruise liner. Others may only let you build a sailboat.

– Buy

Another common choice is the buy approach, in this situation you’re buying your pirate boat fully built, you might be able to change a few of the decorations, but the design stays pretty standard. Ongoing maintenance and upgrade options will vary by vendor. If you spring a leak you may need to depend on the vendor to fix the hole.

– Partner

Someone else owns the Lego and has already built the ship, you use it. This may sound like the perfect solution, but you could be very limited on the design. In other words, you’ll need to adjust your needs to fit their ship design.

12 Factors to Consider When Evaluating Your Build Vs. Buy Options

Are you facing challenges in managing credit risks within your business? Maybe you’re struggling to keep up with your competitors, experiencing limitations in business growth, or dealing with a poor user experience. One way to address these challenges is by using credit risk software. However, before selecting a solution, it’s important to consider several factors:

  1. Your Pain Points What’s your pain point? – Is there an issue causing you to lag behind your competitors, impacting your user experience, or limiting business growth? What do you need to do to fix it? Is it increasing your decisioning speed? Reducing the time it takes your team to deploy new risk models? Make integration to internal or external data sources easier? Improve the accuracy of your decisioning? Automate the decisioning process? Defining the project scope and listing solution requirements is an essential step in fully evaluating your options. Without knowing your need list and your wish list you could end up with a risk decisioning river boat when what you really needed was a jet ski
  2. Fit – Perhaps the most important question: would the implemented solution meet all of your decisioning needs?  Or would you need to bring in other solutions to make up for any shortcomings? It’s also important to look at how the solution will fit in with your existing technology stack and how easy integrating the systems would be. For example, will the tech stack together like Lego blocks, or will it will it be more like trying to attach a Lego block to a house brick.
  3. Flexibility – The thing that makes Lego so incredible is the huge amount of designs you can make with just a small set of blocks. My Lego house could absolutely transform into a pirate ship when needed! So, which of the solutions will give you the flexibility you need to create the right system for your business needs?
  4. Time – Instant launch or long development process? How will each option impact your time to market? Long delays can be expensive, extend product launch times, limit business agility, and expose the business to increased risk, especially where credit origination and KYC processes are involved.
  5. Costs – The cost of each option is an obvious consideration, but it’s important to look at both initial costs and ongoing costs. Things to consider include the cost of ongoing maintenance, changes, and upgrades, whether they’re completed internally or externally. If your solution will be inadequate in a few years, what will be the cost to replace it or make it fit new business needs?
  6. Resources – What resources will you need to complete the project, and do you currently have that talent in your team? If not, what training or recruitment will need to be completed and what will be the cost to bring the required resources in house?
  7. Focus – New development projects can be all consuming—using resources, effort, and focus that could be utilized elsewhere to drive the business towards its goals. If you decide to focus your resources on an internal build, what opportunities will you miss elsewhere and is the delay to these other projects a problem?
  8. Usability – Usability can make a huge difference to your business in both the short and long-term, so it’s important to ask how usable the finished solution will be? Will you need specially trained team members? If it’s an externally built solution how much will it cost to train your team to use the system? In Lego terms, are you getting a simple kit with a few pages of instructions, or a 2000-block pack with a 500-page manual?
  9. Control – While the ability to change settings and adjust processes may seem like a nice to have option, the delays caused by waiting for vendors or your tech team to implement change requests from your risk team can have a long-term impact. Each time you have to wait for a new data source to be integrated, a score card to be changed, or a risk model to be deployed you’re falling behind your competitors. When evaluating solutions make sure to ask how much control will you have over the software. Will you be able to easily make changes and adjust settings, or will you be reliant on a third party such as the vendor?
  10. Competitive Advantage – In some situations, one solution will give you an advantage over the competition. For example, if you can build a Lego ship that has a unique design that makes it faster, smarter, and more efficient than other ships, then creating your own Intellectual Property makes sense. However, if an industry leading solution is available to buy, what competitive advantages would you gain by building internally?
  11. Business Agility – Will the selected option impact your business agility? For example, could you quickly pivot direction and make quick decisions? Or would you need long lead times to adjust your decisioning processes, make updates, or completely switch direction?
  12. Scalability – While it may be easier to shop for or build a solution that fits your needs now, looking ahead can help you avoid needing to replace your solution in a few years. So, when evaluating options ask: will your solution be able to easily grow and develop with your business, or will the decisioning solution be obsolete in a few years?

The decision to build or buy credit risk software is a critical one for financial institutions. While building an in-house solution may provide greater control and customization, it comes with a higher cost and longer development time. Buying a pre-built solution can offer faster implementation, cost savings, and access to advanced features and technology. Ultimately, the decision should be based on a thorough evaluation of the organization’s specific needs and capabilities. Working with a trusted partner can help organizations navigate the complex process of selecting and implementing the right credit risk software solution for their business.

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