In this article we explore the key criteria to look at when choosing your digitalisation partner.

Your core banking system is the beating heart of your company’s technology. Aside from making it easier for you to manage your accounts, it acts as the foundation upon which you can rapidly launch new products, channels and services to your clients. The top core banking systems make it easy for you to innovate in the market, and are the first step in your digitalisation journey. 

However, many MFIs are stuck using legacy core banking systems. A recent report from the Belgium Development Finance Initiative (BIO), argues that “MFIs are held back by legacy IT systems and a lack of expertise, and insufficient funding to address these issues.” This makes it much harder for MFIs to digitalise and stay competitive. 

Changing your core banking system can be a daunting exercise. Identifying the right digitalisation partner, managing the data migration and training end users is a lot of work. At Musoni we have helped over 100 financial organisations to upgrade their CBS in the last seven years. In this article we share what we see at the top four criteria any MFI should look for when choosing their digitalisation partner. 

Simplifying the vendor selection process: 4 criteria you need to consider

In discussions with customers, four vendor selection themes keep coming up: 

• Does the vendor’s approach fit in with my company’s digitialisation goals?
• Trust – is this the right long term partner for me?
• Price – is it affordable?
• Unique Capabilities – what makes this vendor stand out?

These are necessary criteria to evaluate Musoni and other digitalisation partners that you may be considering. Let’s explore each selection criterion and then explain where to go from here.

1) Does the vendor’s approach fit with my company’s goals?

Your core banking platform should help you to enable your goals. For example, you may set a goal to provide more reliable digital banking services to all of your customers. Or to make it easier to capture data remotely in the field.

If you continue using outdated technology, you will find it difficult to reach this goal. For example, customers tend to feel better when they can check their account balance whenever they want. If customers are forced to come to the branch or call in to check, they are going to be frustrated with that service. Therefore, you might set a goal to offer robust online banking features like showing a balance on a customer’s phone or improving communication with automated SMS updates. To compete and stay relevant to your customers, you need technology that stays current with customer demand.

Beyond digital goals, measure your vendor’s ability to help you meet other objectives such as:

• Improving Efficiency and Cutting Costs. Older technology systems require expensive maintenance efforts. These legacy maintenance efforts cut into the bottom line. If you want to meet your return on equity goals without taking on more risk, improving efficiency is an important goal. Over the past decade, microfinance organizations have seen an increase in the “cost per borrower, from an average of $68.4 in 2009 to $106.7 in 2018 (+56%)” according to the Microfinance Barometer. These increasing costs put pressure on profitability and the long-term success of microfinance companies. One way of improving efficiency is by using a more efficient core banking platform.
• Reaching More Customers and Growth. Many banks are aggressively competing for customers. In certain regions, there are still large numbers of customers not yet served by microfinance. As of 2018, only 30% of rural customers in Myanmar were active borrowers with microfinance companies. The opportunity is not limited to Myanmar –  KPMG estimated that “only 27 percent of those living in Southeast Asia have a bank account.” That means that there is still potential to acquire millions of additional customers. To keep up with this demand, you need the flexibility to make fast changes. For example, launching new products should be quick and easy. Choosing the right core banking platform makes this type of agility easier.

2) Trust – is this the right long term digitalisation partner for me?

Choosing the right core banking solution will impact how you do business for many years to come. It’s important therefore not to think of the supplier as a vendor, but instead as your long-term digitalisation partner. 

From a distance, this is a challenge to assess. However, there are a few marks of trust to keep in mind.

• Customer References. There’s nothing like a referral, especially for banking technology. Check the company’s website for a list of current customers and ask to speak with at least three existing customers. If possible, try to visit other organisations using the software. Alternatively, read case studies to find out if the vendor has worked with companies like you. For example, read about how Microloan Foundation, used Musoni to grow to over 85k clients across three countries.
• Industry Recognition. Search for examples of awards won by the vendor in terms of technology or other areas. For example, look at both microfinance specific organisations (e.g., the Microfinance Centre), technology awards (e.g.Inclusive Fintech 50), and regional recognition (e.g., the European Microfinance Award). As a general rule, emphasize recent awards in the past two to three years as more significant. Read about the awards Musoni has won here: Musoni Awards.
• Customer Support Quality. No technology works perfectly, and your company may need custom assistance. That’s why we suggest looking for vendors with a local support team, or those that already support other organisations in your market. Local support is significant because it means you do not need to worry about time zone or language barriers to get the help you need. Musoni has support teams in the Netherlands, Kenya, Myanmar and Senegal. 
• Industry Focus. Banks and microfinance have unique requirements. Some vendors are more experienced than others in meeting banking requirements. What type of organisations does the vendor currently support? Are they similar to you, or what you’d like to become? At Musoni, we are proud to focus specifically on the microfinance sector.

These factors should not always receive equal weight. For instance, if your company is rapidly growing, you may choose to emphasize local customer support as a critical factor.

3) Does the vendor’s pricing model work for your business?

High-quality banking software is an investment. Within the industry there are a number of different pricing models to consider. For example, some vendors will require you to pay a large upfront license fee and then charge annual service fees, as well as additional fees for each extra module. Others, such as Musoni, work with a SaaS subscription model where the pricing each year is tailored to the size of your organisation and all functionality is included as standard. When it comes to evaluating a bank software vendor in terms of pricing, there are two other dimensions to consider.

Cloud vs Hosted Systems.

Using a cloud based system enables your organisation to avoid many additional costs such as buying your own servers, monitoring performance, and recruiting IT specialists to manage the infrastructure. Moving to the cloud frees up your resources to focus on growth and operations, rather than worrying about IT. Learn more about the benefits of cloud here. 

Increasingly regulators are supportive of cloud based systems. These rules vary country by country and therefore you should look at what systems are being used by other organisations and if necessary speak to the regulators themselves. 

Flexibility

Rather than paying a large upfront fee that locks you in for many years, increasingly vendors offer flexible pricing models based on the size of your organisation. The best vendors for microfinance let you start small and expand when you need it. It’s also important to make sure that you are not locked into one vendor for a long period of time – check the termination clauses in your contract carefully.

4) What makes the vendor stand out? 

Choosing a core banking platform is a significant business decision. You will probably be with that vendor for years. That’s why exclusively focusing on features and price is misleading. You also need a company that will help you as needed. Determining a vendor’s unique capabilities is not an exact science. It only tends to become apparent after you read a vendor’s materials, experience a demo, and talk with their customers.

With Musoni, our personal approach makes us different. Unlike other software companies, our leaders have personally set up a financial institution in the past. We understand credit risk, liquidity, and the operational complexities that come with banking. That experience, combined with our local support teams, means you get a highly personal experience.

From Vendor Selection Criteria To Shortlist: What To Do Next

Using these four vendor selection criteria, create a shortlist of three to five vendors. Review their customer references and materials. If you think the services they offer are aligned with your business goals, continue the process. Share a few of your pains and goals with the vendors on your shortlist and ask them to present to you. Remember your looking for a long term digitalisation partner.

If you like what you see in an initial demo, take the next step and request a demo environment. This means you will have a few weeks to experiment with the technology and see how it performs. For example, check how long it takes to access financial information, display customer balances and complete reports. Musoni offers free demo environments so that you can see for yourself how our platform delivers value. Based on that information, you will be well informed to make a better choice.