The difference between a bank's product vs service

Many banks across the Asia Pacific (APAC) geography are implementing Core Banking products. These banks expect that a modern Core Banking product would give them a competitive edge, the ability to launch new products faster, lower operational costs and improve customer service. Unlike Europe or America, which are large with fairly standard banking offerings, the APAC geography is actually characterized by much more variety in its range of offerings.

Now, there is a theory that off-the-shelf products are more suited when the offerings are standard and that variety inherently implies customization. The hand tailored suit always fits better and is more elegant, right? Does this mean that the Asian Banking and Finance market is deploying heavily customized versions of standard products?

Well, a customized solution or a service would give banks the benefit of differentiation, the right to the source code, the ability to customize the solution later on easily and to offer features to their end customers that others cannot do. It also enables banks to respond much more faster to regulatory compliance changes compared to their competitors. If a bank had a product from a Core Banking vendor X, they would have to wait for the next release to get that feature or to meet that regulatory deadline or worse do manual work outside the system or in satellite systems while waiting for their Core Banking vendor to come out with release 15.X! As your Core Banking vendor may not be worried about you, but may be about many banks and markets his next release would only accommodate limited features!

The above assumption does have some merit – but only some. Getting a service or customized solution also comes with its share of downsides – the cost of maintenance is high, you may not benefit from features being built for other markets or banks, etc. Going in for a standard product would give bankers the confidence that they are dealing with a specialist in the banking domain as opposed to a generic software developer and therefore, the amount of time they would spend on explaining their needs would be lesser.
The important points to assess while selecting a Core Banking product, therefore, is how flexible it is, how rule driven it is and how robust is its product factory. As long as these elements are good two banks could use the same product or solution and still offer differentiated services to their clients. However, the solution should not come with hardwired business logic and business workflows and should allow bankers to define and tweak these at will – much like playing with a set of Lego blocks.

As far as regulatory compliance needs are concerned or the business need to launch a new feature by a given date, CIOs must learn the art of negotiating with product vendors to get their features added in a fix pack or better still this should be the rule rather than the exception. I would say that banking products should accommodate 90% of future business needs such as regulatory changes, and so on, and should be configurable, much like Lego blocks, by the CIO and his team themselves rather than drive them to approach the vendor for a software change!

My other advice to CIOs selecting Core Banking products would be not to follow the crowd. If 10 banks in your country selected Vendor X’s product, why should you not look at Vendor B? That itself may give you a competitive edge! During a recent visit to Dublin, I was shaken to hear about the Ulster bank problem¹²³. Just imagine if all banks in Ireland were running the same solution from the same vendor and the same bug occurred everywhere. That is a scary thought indeed!

So the bottom line:

1. Services or customized solutions are good, but expensive in the long run.
2. Products, if chosen correctly, will still allow your bank to offer differentiation.
3. You do not have to choose the same product that five other neighboring banks are using.  

¹ https://en.wikipedia.org/wiki/2012_RBS_computer_system_problems 
² https://www.rte.ie/news/2012/0703/ulster-bank-technology.html
³ https://www.rte.ie/news/2012/0704/finance-committee-to-meet-on-ulster-bank-it-issue.html