When Kilmarnock, Virginia-based Chesapeake Financial Shares wanted a product that didn’t exist, executives opted to create it from scratch.
Its payment division worked with a vendor to customize a real-time payment origination solution for factoring customers, says DJ Seeterlin, chief innovation and strategy officer at Chesapeake Bank, its $1.6 billion subsidiary. He says the arrangement was a true partnership; the vendor has since made the custom code a standard offering available to other institutions.
At Chesapeake, the “customize versus configure” conversation happens during project decisioning, where executives assess whether they should pursue a project that could require purchasing a new system or software, Seeterlin says. If the bank believes it has a strategic, competitive and differentiated advantage over its peers in a certain area, it will explore customizing a product. Otherwise, it will opt for an “out of the box” approach, he says.
Executives are increasingly weighing whether to customize or configure new tech. As they examine their options, they should keep in mind how configuration could simplify processes and vendor relationships and focus on customizing areas where their institution excels.
Before middleware and application programming interfaces, or APIs, made it easier to integrate with external vendors, much of the products and services financial institutions purchased had to be offered by the core, says Colton Pond, chief marketing officer at the lending platform LoanPro. If the financial institution wanted to change the product, the core provider would often need to change the underlying code, resulting in a custom application.
Pond says that’s changed with the advent of configurable platforms designed for API connections and flexible design. Configuration allows users to change prebuilt fields and applications in a software program but doesn’t require additional coding or programming. Institutions can increasingly configure the platforms themselves during implementation, leveraging in-house technology and product staff.
Community banks have started hiring software engineers, Pond says. “That has enabled them to not have to rely on their vendors for everything.”
But, institutions that buy configured software need to understand these platforms so they can get a return on their investment. Chris Nichols, director of capital markets at Winter Haven, Florida-based SouthState Bank, the subsidiary of $46 billion SouthState Corp., recommends executives create a technology road map that plots out what they want to accomplish. That map will help executives identify a singular platform or system with multiple applications that can address the institution’s needs. Ideally, he says, there would be one customer relationship management system, one data warehouse, one payment platform and one loan underwriting system, instead of multiple applications across an institution.
Nichols calls this approach “simple but difficult.” It streamlines data structure, workflow and the user interface and minimizes the number of vendors a bank or credit union ultimately uses. But it also requires a lot of discipline and decision-making up front, as well as a vision of the bank’s future.
“Most bankers are only looking out a year: What product do we need?” he says. “But by doing more work up front and thinking about a long-term horizon, like five to 10 years, they would arrive at much better decisions.”
Nichols has some experience with picking configurable platforms with the future in mind. Once, SouthState was considering different vendors for account opening. One had a great application but didn’t align with its longer-range vision of building on top of its Salesforce infrastructure, which it uses to manage customer relationships. Executives selected a different vendor that did; the integration allows the bank to now handle account maintenance, saving them from needing to add a third vendor.
Pond advises executives to not “bite off more than you can chew” when considering use cases for different platforms. “Find an area that’s a huge problem to you,” he says. “Start there, and try to drive a shift with a configuration approach — then grow and expand as you see it working.”
Because they tend to be less complex, small institutions may have an advantage when it comes to following this decision-making approach, Nichols says. But, it requires leadership teams to have a long-term mindset that considers customer experience, data and talent.
Over the long run, Pond says institutions may want to empower employees who are power users of these platforms to take greater ownership of them and increase their expertise. These individuals can help the organization maximize the platform’s use and think about other applications for it.
On the other hand, customizations entail additional conversations and planning to create a work order, along with a build-out that can take several quarters and cost hundreds of thousands of dollars. Pond points out that a configured product has been designed and tested so it can be deployed by hundreds of institutions, whereas a customized product may go through a different design process and carry additional risk.
Seeterlin says an institution may need to dedicate staff to maintenance and training; standard training or patch updates may not address a custom system. But this work and cost may be worth it if it addresses an aspect of the bank’s business strategy — it just depends on what that strategy is.
“It’s all about strategy,” Seeterlin says. “The strategy is not to install software. The strategy is understanding a bank’s business differentiation.”
The hardest part for executives isn’t deciding whether to customize versus configure, he adds. It’s knowing what’s a differentiated advantage for an institution and what’s not.
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