Why Traditional Banking Software Projects Go Over Budget (And How to Prevent It)

The comfort and predictability of fixed scope projects put founders and investors at ease. But let’s be honest: this approach just isn’t fit for the modern banking environment. Why? Because the regulatory sands of change are constantly shifting.

To succeed in banking software development these days, you have to be open to change, adept, and agile. If you’re not, the costs of change orders, rework, and escalating scopes may derail your platform before it really gets going.

Here at DigiNeat, we’ve seen banking software projects blow their budgets more times than we care to remember. Here are the reasons why, along with a few tips to avoid the same fate.

Fixed-Scope Projects Increase Financial Risk in Banking Application Development

A fixed scope gives everyone a degree of certainty. At least at first. Requirements, timelines, and costs are locked in. That sounds great to investors. But to a banking software engineer, it’s like having a ball and chain around their ankles.

You see, the two things don’t go together. Banking is a volatile sector. Regulations and compliance requirements change all the time. And if you’re providing services across multiple jurisdictions, things get even more complicated.

Imagine you’ve started a fixed-scope banking app development project. You were over the moon with the initial scope, and you happily signed up to a rigid timeline and a fixed price. But a week in the banking sector is an eternity.

Since you agreed to the fixed-scope proposal, a number of new regulations have emerged. What’s more, the market demand for the services you’re offering has altered. All of a sudden, you’ve spent a considerable chunk of your budget on a platform that’s out of date, out of touch, and unfit for purpose.

Having developed countless banking applications over the years, take it from us when we say that it’s almost impossible to define the perfect platform at the beginning of a long development process. This is particularly true in fintech and banking.

Over time, the contract becomes detached from the reality in the market. You have to request expensive change orders. Large, complex, and expensive reworks are needed. And you have to start making compromises simply to get the project over the line.

There’s a simple lesson here. Fixed-scope banking application development just isn’t fit for the 21st century. Leave it behind. Embrace the outcome-based approach to banking application development instead.

Priority Clashes in Banking Software Development Can

The typical banking application development team meeting — particularly at the start of a project — involves developers, founders, specialists, and a selection of stakeholders.

Imagine you’re a fly on the wall in this meeting. The compliance experts want to focus on regulatory issues. Investors are battling to keep development costs as low as possible. UX designers want to prioritize usability. Founders want to keep going back to users for feedback. How do all of these very different priorities come together to facilitate a successful project?

There has to be a shared visibility… shared accountability. And that’s pretty close to impossible with a fixed-scope approach. Vendors want compliance at the expense of adaptive solutions. Investors want to be first to the market at the lowest possible price. Fintech software engineers are putting their reputation on the line, but they also want to be paid.

When all of this occurs against the backdrop of the banking and fintech sector, the potential for blown budgets and overruns is huge. Nearly half of organizations report that more than 30% of their tech projects suffer from blown budgets and delays due to a lack of consensus between stakeholders.

Strong governance and adaptability are the keys to success. And they can only come with an outcome-focused approach to software development in banking. Tie progress and payments to milestones. Demonstrate value before you move on to the next phase. And always be ready to change course when circumstances change.

Why Outcome-Focused Banking Software Development Is the Safer Option

Stop thinking in terms of deliverables. What made sense in January may be irrelevant in June. That’s the nature of the banking sector, and even the most talented banking software engineer is powerless to do anything about it.

Think in terms of what each step, milestone, or feature gives back in terms of value. When you break it down, every stakeholder priority can add value. Compliance reduces regulatory risk and boosts trust. Usability enhances retention and engagement. Acting on user feedback opens up the market.

Let’s go back to that table of stakeholders. What everyone can agree on is the need for value and a return. There’s your shared vision. And if you take a milestone-focused approach, you can agree from the outset to share accountability when things go wrong. But don’t forget that you can share the plaudits when things go right!

The outcome-based approach to banking application development allows you to adapt when new insights emerge. It leaves you more able to deal with regulatory shifts. And it makes shared accountability that much easier. Surprises become less likely and much less frequent. While you may spend a little extra time and money making changes along the way, these will be mere inconveniences when compared to the huge costs of retrospective reworks.

Embrace Uncertainty in Banking Application Development and Reap the Rewards

No sector involves more uncertainty than banking and fintech. That’s why a rigid approach to banking app development just isn’t fit for purpose anymore.

Fixed-scope, fixed-price development models are actually a risk. Evolving regulations, the realities of legacy banking systems , and the misalignment of stakeholder priorities all have the potential to send costs spiralling.

For an outcome-based approach that focuses on delivering value in stages — and taking an iterative approach to delivering banking platforms, reach out to DigiNeat today to arrange an initial strategy session. We won’t act as a vendor. We’ll become your strategic partner, fully invested in the long-term viability of your product.