11 August 2022 |

Build vs Buy? How To Pick The Right Fintech Vendor


We have an exciting FTT Expert post today: picking the right vendor for your fintech infrastructure needs is becoming an increasingly complicated question. With so many different areas to cover and so many companies in the space, the choice is getting harder; not just that, but some companies are debating whether to build these services internally. 

Dhiraj Bhat is a Product manager at Unit21, a Tiger Global-backed company providing data monitoring, case management and a variety of other solutions for neobanks, crypto companies and a plethora of fintechs. Prior to Unit21, Dhiraj spent two years working in crypto, developing solutions on the consumer side of fintech. He studied Engineering Management at Duke University, and is currently focused on building and launching the Fintech Fraud DAO.

Think about a world pre-AWS (or, more accurately a world before servers and storage went SaaS). Now, in this world, imagine that you wanted to build out an app — a restaurant review service (Welp). Over and above all the regular steps such as idea validation, acquiring funding and clientele, design and development, you also had to set up servers to host all the data, be it application data, logs or end user data….. a significant undertaking, especially bundled with the aforementioned checklist.

Fast forward to today, and all you need for about thirty percent of these tasks is some startup capital. Even non-developers can easily formulate, validate and iterate on ideas with little to no engineering resourcing, thanks to the emergence of a myriad of no-code solutions for visual and graphic design, website development, mailing lists, documentation, communication and project management. Above all, server and infra set-up can now be done in a matter of minutes.

How did such a critical task become a no-brainer?

Because Amazon (and many others around it) eliminated the build vs buy conundrum.

What is the ‘Build vs Buy’ conundrum?

A debate that originates from the world of traditional finance, build v buy i.e., insource v outsource is an investment decision that has been used in enterprise resource planning for decades, (even before the act itself was acronymized (ERP) and automated using software services)

The pace of innovation all around us leaves fast-moving companies making these decisions on an almost daily basis in the following ways, and more:

  • Adding supplemental or value added services to a core product
  • Making trade-offs in resource allocation
  • Ramping up on non-core competencies

For most fintechs, risk and compliance is one such debatable area, and here’s why:

  • Significant day-zero legal expenditure to be compliant
  • Heavy fines, reputational and regulatory consequences
  • Investment of resources into non-mission critical tasks

Making the case for Fraud/AML (frAML) investment

Compliance officers (among others) in the world of finance often categorize themselves as risk averse. With this in mind, presenting a coherent case for a vendor purchase is paramount.Typically, the below factors are considered when making an investment decision:

Factor #1 : Speed up time to market for your core services

Factor #2: Reduce false positives and manage risk efficiently

Factor #3: Eliminate dependency on expensive internal resources

Factor 4: Maintenance and upgrades

The true cost of your bets

The most critical component of the build vs buy decision is the cost to the company (CTC), also referred to in this context as the True Cost of Ownership(TCO). There are many variants of this, and we’d recommend consulting with relevant internal stakeholders to calculate your TCO. Here, we break it down into expense types:

  1. Storage and infrastructure for in house risk software: Varies, depending on your size and scale.

A survey run and managed by SherWeb estimated the average cost (monthly) of a cloud SaaS server at $314, 4.7x lower than a traditional on-premise version (about $1480). Additionally, storage solutions for sensitive data need to be PCI and/or SOC2 compliant

2. Human/ resource capital: Variable but significant

Say you hire 3 engineers to build and manage your transactional rules and risk infrastructure, which takes between 6 and 12 months depending on size, scale and complexity. In 2022’s ultra-competitive market, that would amount to an annual cost of up to $600,000.

3. Ramp-up cost : Intangible

Training employees to use the internally-built risk management tools would likely be a one-time investment that varies based on team size

4. Unquantified opportunity and maintenance costs

Of course, owning your own infra has its benefits:

  1. Full control over risk thresholds: Build your own compliance program according to your unique business cases
  2. No dependency: Ability to move fast as long as parameters don’t change (although, in AML and Fraud they always seem to)
A sample True Cost Of Ownership calculation

In other words, a huge investment of time, money and resources.

PS: The only good thing is that most vendors out in the market come with their own TCO calculator!

Optimize your core product, and leave the messy FrAML concerns to the experts

Unit21 is a fully customizable no-code platform for risk and compliance operations. We seamlessly integrate three products: identity verification, transaction and data monitoring, and case management.‍

Unit21’s customers include some of the most significant payment and digital banking platforms. With Unit21, risk and compliance teams — the domain experts — can create and iterate their own transaction monitoring rules and models on the fly without having to send them off to engineers. See how some of our customers are using our platform.

The case for Buy has never been simpler

The above is a quote from Intuit’s Rob DeCampos, a happy Unit21 customer that has left the risk and compliance to its experts. 

We hope this gives you a good framework to make the Build vs Buy decision. If you want to be deeply involved in your risk and compliance process, consider building internally. If that is not the case, most logic points towards buying.