The In-House Revolution: FIs Reclaim Technology

What if your greatest asset is the one you’ve been renting? Financial institutions are beginning to understand that this is the case with technology, and they are bringing tech back in-house. 

This isn’t a trend that Kunai is fighting. Instead, it’s one we champion. 

For decades, financial institutions (‘FIs’) treated technology as a peripheral activity, rather than a core capability. Most large banks have leveraged third-party software for core banking functions for decades, and contractor-to-employee ratios in technology at the largest FIs in the world can be as high as 4 to 1. The result should have been easily predictable, as most large FIs continue to struggle1 with technology modernization - cloud migration, data, and customer experience on their digital platforms. 

Mindsets have changed over the past few years. According to a 2022 BCG study, 46% of U.S. financial institutions were building proprietary software, especially for customer-facing digital platforms, data analytics, and fraud detection. This is up from 38% in 2019, indicating a clear shift toward insourcing. Investment in in-house technology teams has increased by 20% over the past few years, and banks are hiring technology leaders away from places like Google, Meta, and Microsoft in large numbers. 

Why would this be a trend that Kunai champions?  The reason is simple: it represents a business opportunity for a specific type of consultancy. 

Most FIs will take a decade or longer to reclaim technology as a core capability, and they will need help along the way. Consultancies with the right type of talent and engagement model can help FIs in ways that avoid long-term dependencies, raise the talent bar, and strengthen internal infrastructure.  

For too long, consultancies have pushed engagement models that prevent technical independence. They have designed relationships that keep clients dependent on third-party teams, and they have prioritized staffing additional bodies over achieving business outcomes. 

So, how do you build an upstart consulting organization that actually helps its clients become more self-sufficient? Here are the guiding principles Kunai has adopted to do just that: 

1. Raise the talent bar. Most RFP processes are a race to the bottom. Consultancies compete on price relentlessly, and when they “win”, they often need to cut corners and staff less experienced talent in order to profit. Kunai has no junior engineers. Our goal is to raise the average talent level for our FI clients. 

2. Make contract-to-hire the default.  CTOs care about building in-house capabilities.  By refusing to convert talent, consultancies gain revenue in the short term at the expense of building long-term trust with their clients. A funny thing happened when Kunai began allowing conversions back in 2018: our business grew. Converting talent is not a selfless act. CTOs began to trust that we were not trying to force dependency. By increasing trust, we became the first choice for future projects, and our former employees became our biggest advocates. 

3. Transfer software back to your clients. There is only one way to prove that this model works:  hand software back to in-house teams. In 2020, Kunai began hosting and operating customer-facing software on behalf of our clients. This put us in a rare category - few consultancies are given permission to host and operate software for their clients - but it’s even rarer for the consultancy to successfully migrate the software back and hand the reins to in-house teams. Provide a valuable service without building long-term dependency, and you will earn the trust of your clients for life. 

4. Be honest about the impact of developer productivity and AI. There is no doubt that software is getting easier to develop. In the modern era, a team of five can often achieve what used to take a team of twenty. Model this for your clients, and they will begin to expect more from their in-house teams. 

5. Set up nearshore centers of excellence. Sophisticated work requires collaboration, and collaboration is difficult when there is a 12-hour time difference. At Kunai, we’ve focused on building teams in Mexico, a country with a large financial services industry. Time zones are synched, flights are relatively short, and the talent pool is deep. 

6. Build a niche focus.  Kunai made a tough decision five years ago. We stopped working with clients in other industries and decided to focus exclusively on financial services. This was one of the hardest- and best -  decisions we’ve ever made as a company. Over the past five years, we sent a clear signal to the market and were rewarded with a team that is passionate about fintech.  Our brand reputation has grown as a result. 

The shift towards bringing technology in-house represents a pivotal moment for financial institutions. As they prioritize the central role of technology in their operations, FIs are positioning themselves to better control their technological destiny and deliver superior experiences to their customers. This transition, while challenging, is essential for long-term competitiveness and innovation in the financial sector.

However, this evolution doesn't spell the end for consultancies in the financial technology space. Rather, it presents an opportunity for forward-thinking firms to redefine their role and value proposition. By embracing models that prioritize client self-sufficiency, consultancies can forge deeper, trust-based relationships with FIs. This not only aids in the immediate technological transformation but also establishes consultancies as invaluable partners in the ongoing journey of innovation and adaptation.

The strategies utilized by Kunai - from contract-to-hire models to industry specialization - offer a roadmap for consultancies to thrive in this new landscape. By aligning their success with their clients' ability to internalize and elevate their technological capabilities, consultancies can drive meaningful change in the industry. By sharing our model transparently, we are hoping to create dialog around these strategies in the hopes that more consultancies will adopt them, which will be good for the industry as a whole. 

This paradigm shift promises a future where financial services are more agile, innovative, and responsive to customer needs - a future that benefits not just the institutions themselves, but the broader ecosystem of consumers and businesses they serve.