We talk with lenders and AMCs every day who have invested significant time and expense in building customized software tools. Unfortunately, these projects commonly fail so it’s important to understand the risks, as well as the disadvantages of totally customized software solutions.
There’s no shortage of software developers in need of work, and they’ll offer to build anything you need. Before going that route, consider these risks:
1.) You won’t always get what you want. There’s nothing wrong with software developers, but they don’t necessarily understand your business or your workflow, and they aren’t familiar with the critical compliance requirements of our industry. Even if you are experienced at writing software product specifications, there will undoubtedly be challenges in the project that neither side of the equation took into account. Sometimes these issues will derail an entire project, or they can add significant unbudgeted expense.
2.) Updating your software will be difficult and expensive. As you need modifications or updates to solve compliance issues, your expenses can skyrocket. Depending upon how the developer built the initial application, making changes could be harder than they should be and take longer than you can afford to wait.
3.) Compliant third party oversight can be impossible. Many software development firms aren’t equipped to support your business, especially if it’s a critical software application. The OCC and CFPB have made it clear that you must oversee your third party vendors, and smaller software firms may not have the disaster recovery plans or reliability ratings those agencies mandate.
4.) You risk missing out on profits and other benefits. If you choose a software platform used by a large sector of the industry, you’re essentially crowd sourcing efficiency tools. That means you benefit from the ideas of other firms in your industry as they get added to platforms. If you aren’t sharing knowledge, you’re undoubtedly missing out on workflow tools your competitors are enjoying to save expenses and time. You can try to copy these features, but again you’ll be hit with expenses and delays.
5.) You risk serious compliance vulnerabilities. Platforms used by hundreds of lenders and AMCs include tools that streamline their compliance with regulations. Again, these firms are crowdsourcing smart solutions for consistent compliance, and if you’re going it alone you could be missing out on critical safeguards that will save your firm from penalties and reputational risk.
Using a popular platform doesn’t mean you have to sacrifice customized features tailored for your operations. Most of the larger platforms have many customization options built-in, and reputable companies will even provide customized solutions that fit inside the platform to satisfy a customer’s unique needs.
If you’ve considered a custom software solution, take a look at the platforms available first. One of the criteria for selection should be how often the platform adds features and how responsive they are to their customers’ wishes. Ask the provider how they gather customer feedback to add new features, and ask to see a schedule of updates made to the software in the past twelve months. The new regulations continuously placed upon our industry mean successful platforms have to be nimble with new features, so require updates at least quarterly.
Custom software is tempting, but our experience has shown the risks outweigh the benefits. Even on the rare occasions that custom software is actually delivered on time and on budget, that’s just (literally) the beginning. The disadvantages are real and could end up costing you far more than the project did in the first place.
About The Author
Jennifer Miller is president of Mercury Network, a web-based software platform used by more than 600 lenders and AMCs to manage compliant collateral valuation workflow. Jennifer can be reached at Jennifer@MercuryVMP.com.