A relentless change agenda has led to an increased need for global banking and financial institutions to seek third-party support – no one bank can conquer it all by themselves. In response, many service providers are touting their partnership capabilities. It’s been a prevalent buzzword on this year’s conference circuit, both in panels focused on choosing providers and throughout the booths in exhibit halls. But what exactly is the difference between partnership and outsourcing?

As a new era emerges in how banks manage their core systems - one marked by deeper partnership, knowledge sharing, and faster speed of delivery - I sat with several of BBH’s banking experts to discuss this paradigm shift.

Adrian Whelan (AW): A regular refrain from financial institutions is that we are now experiencing “unprecedented” changes. Is this true or has it always been this way?

Sinead McIntosh (SMcI): While “unprecedented” probably is an overworked catchphrase, it certainly applies here. Financial institutions have always faced regulatory change, demands for innovation, and resource limitations. The difference today is the pace of change.

The potential impact of technologies such as AI, quantum computing, and Distributed Ledger Technology (DLT) could wholly disrupt business models, client expectations, and regulatory scrutiny to a degree and at a pace we have never seen before.

Enhancement and automation have historically centered on iterative internal system upgrades. Interoperability with others became a factor but speed to deploy was never a top priority – avoiding issue and risk came first. These days you don’t often choose your own timeframe, the market demand increasingly dictates speed of deployment.

With market opportunities evolving faster, institutions are feeling more tension between available resources and the need to scale and quickly add new products or markets to their mix. All of these factors are driving the nature of engagement to change. We’re having to think beyond the “buy, build, outsource” solutions.

AW: Derek, how are banks managing their core systems in this environment?

Derek Coyle (DC): Bluntly, it’s often survival mode. We see them focused on enhancements that are mandated, not chosen. Whether it’s tax related revisions, shifts to accelerated settlements like US and now Europe T+1, or global standards such as ISO20022 – these are non-negotiable deliverables.

Under-investing in regulatory mandated projects is not an option, but it makes getting to growth projects more challenging.

However, demand for the new doesn’t go away. To seek growth opportunities, banks must look toward more agile technology solutions that make them nimbler. The world is moving quickly – digital assets, stable coin, new products and asset types – and legacy systems aren’t built for that. You need your core to master what it’s currently tasked with and pivot to the new, all while maintaining a cohesive client experience.

In some ways we have the chance to start from scratch. It’s time to focus on areas like automated operating models and access to data.

Core platform transformation is the imperative.

AW: As a bank ourselves, we face many of these same challenges. How does that shape how we work with clients?

DC: Understanding how to balance those priorities is key – to create scalability and integration in your existing system – while also exploring new areas like emerging technology is a tricky intersection.

We intuitively understand how large scale regulatory and technology change projects are assessed, budgeted for, and ultimately delivered at banks – we live it too – we like to share our perspectives in constructive consultative dialogue.

We know firsthand how hard it can be to maintain and transform, but we also know this does not have to be a solo journey. We work with our clients to share opportunities for mutualization of cost and create a joint roadmap to support their growth agenda and our own, within a risk-managed framework. Our strategy is to move beyond traditional vendor relationships to a cohesive partnership ecosystem.

AW: It sounds like we’re moving beyond a typical custodian role. Cate, how is the “nature of engagement” changing?

Cate Dawson (CD): We are seeing a more urgent need for what we call bank-to-bank partnerships. These relationships are more bi-directional and collaborative in nature. Most importantly, they are mutually beneficial, bringing value to both parties.

In this dynamic, a bank leverages a strategic partners’ proven technology capability and expertise in your own infrastructure to help reduce risk, cost, and time to market. These partnerships go beyond the realms of the traditional service provider approach.

We understand that there is also a human challenge here beyond the underlying technological challenges. It’s a classic innovators dilemma – continue iterative improvements to your own systems or take the leap of faith and leverage someone else’s solution already visibly successful in the market. An organizational mindset shift is required to embrace a strategic, phased transformation roadmap.

AW: Can you drill into more detail on this dynamic and some examples of it in practice?

CD: It’s a real shift towards strategic partnerships such as shared infrastructure solutions.

A bank may look to outsource specific functions—like ETFs or private market funds—due to limited in-house capabilities or available investment spend. Traditionally, there was a binary decision to be made: building or buying the capabilities. The emerging pathway I mentioned is leveraging the infrastructure of another bank that is willing to deploy their proprietary technology with the goal of mutual growth and strategic collaboration. One such example would be where a bank has client demand to support ETFs but the business case on day 1 simply doesn’t add up for the bank to build or buy the technology and onboard the SME. Instead they can partner with a longstanding provider in the ETF space, allowing them to come to market with a robust and premium service within six months and not six years.

AW: Who should look to this type of partnership structure as a viable option?

CD: All banks. The speed with which we’re contending with change makes it nearly impossible for a bank to do it all by themselves. We’re all trying to solve the same problems, so why not find mutually beneficial paths to get there?

Our shared infrastructure offering is targeted at asset servicing banks, extending beyond traditional custody to provide partners with our technology for their own asset servicing businesses.

This strategic partnership typically supports two key bank functions: Global Custody and Fund Servicing. The arrangement may involve full business process outsourcing or deployment of specific modules from our platform leveraging our technology and expertise to meet market demands.

AW: I sense a theme of urgency from everyone here – it seems like banking really is at an inflection point when it comes to implementing technology innovation? Is that fair?

SMcI: Banks and financial institutions have been slower to embrace sharing competencies with one another for reasons ranging from regulations to protection of their intellectual property. However, necessity is the mother of invention, and we are seeing more firms consider mutually beneficial alliances.

Strategic partnerships can fast forward delivery of services, reduce both the risks and costs of building from scratch, and futureproof mutually beneficial revenue streams with the trusted partner.

AW: What is particularly novel about bank-to-bank strategic partnerships distinct from more general outsourcing and systems solutions offerings?

CD: There’s assurance in working with a partner who lives and breathes the same business as you do. We allow other banks to access our people, technology, and infrastructure and to benefit directly from our knowledge, experience, and investments to stay at the forefront of asset servicing globally. We have walked in your shoes for many years.

It may sound cliché, but serving financial institutions remains a relationship-driven business. It’s a new way of thinking about the business model but it is of increasing interest and importance as we sit down with prospective partners.

The future of modernization lies in working together—leveraging shared expertise and infrastructure to move forward, faster.

Should you wish to discuss any of the themes covered in more detail please reach out to any of the listed authors or your usual BBH relationship excellence contact to discuss further.