Build vs Buy a Loyalty Platform: A BFSI Decision Guide

Banks do not compete on products alone. They compete on engagement, retention, and lifetime value. A well designed loyalty platform directly influences customer stickiness, cross sell penetration, and digital adoption.

The core question for leadership teams is simple:

Should a bank build its own loyalty platform or buy a proven solution?

This guide provides a structured comparison, highlights cost and regulatory implications, and offers a practical decision framework tailored for BFSI institutions.

‍

What Does a Loyalty Platform Mean for Banks?

A loyalty platform in banking is not just a points engine. It typically includes:

• Points accrual and burn logic across products
  
• Partner marketplace integration
  
• Real time transaction tracking
  
• Campaign management and segmentation
  
• Compliance and audit reporting
  
• Customer dashboards and redemption journeys
  
• Fraud detection and risk controls
  
  

For banks, loyalty touches payments, cards, savings, lending, digital banking, and merchant ecosystems. It is therefore both a technology and regulatory decision.

‍

Build vs Buy: The Strategic Question

The decision is rarely about technology alone. It is about:

• Speed to market
  
• Capital allocation
  
• Regulatory exposure
  
• Control over customer experience
  
• Long term scalability
  
  

Let us evaluate both approaches.

‍

Option 1: Building a Loyalty Platform In House

When Banks Choose to Build

Banks usually build when:

• They have a large in house technology team
  
• They operate across multiple geographies with unique regulatory frameworks
  
• Loyalty is positioned as a strategic differentiator
  
• They want deep integration into core banking and data lakes
  
  

Advantages of Building

1. Full Customisation
   Every rule, journey, and redemption flow is built around internal systems.
   
2. Complete Data Ownership
   Data architecture can be designed to match internal governance frameworks.
   
3. Long Term Control
   No dependency on vendor roadmaps.
   
4. Potential IP Creation
   Some banks view loyalty as proprietary infrastructure.
   
   

Challenges of Building

1. High Upfront Investment
   Development, testing, integration, and infrastructure costs are significant.
   
2. Longer Time to Market
   Large BFSI builds can take 12 to 24 months.
   
3. Regulatory Risk Exposure
   The bank carries full responsibility for compliance architecture.
   
4. Ongoing Maintenance Burden
   Feature upgrades, partner integrations, and marketplace management require constant investment.
   
   

Option 2: Buying a Loyalty Platform

When Banks Choose to Buy

Banks often buy when:

• Speed to market is critical
  
• Internal technology bandwidth is constrained
  
• Loyalty is part of a larger digital transformation
  
• They want access to established partner ecosystems
  
  

Advantages of Buying

1. Rapid Deployment
   Mature platforms can be implemented in 3 to 6 months.
   
2. Lower Initial Capital Outlay
   Costs are distributed across licensing or performance models.
   
3. Built In Partner Network
   Access to redemption brands and merchant ecosystems.
   
4. Compliance Ready Architecture
   Established vendors operate with audited controls.
   
5. Continuous Innovation
   Vendors upgrade features across clients.
   
   

Challenges of Buying

1. Customisation Limits
   Deep custom rules may require additional configuration.
   
2. Vendor Dependency
   Roadmap control is partially external.
   
3. Integration Complexity
   Core banking systems still require technical alignment.
   
   

Cost Comparison: Build vs Buy

Key Insight: Build appears strategic but often becomes a long term cost centre unless the bank has scale above 5 million active customers.

‍

Regulatory and Risk Considerations in BFSI

Loyalty in banking is not retail marketing. It intersects with:

• Data protection regulations
  
• Payment settlement rules
  
• Anti money laundering monitoring
  
• Audit trails and reporting
  
• Tax treatment of rewards
  
  

When building in house, the compliance architecture must be engineered from scratch. When buying, banks must evaluate:

• Vendor certifications
  
• Data hosting standards
  
• Regulatory alignment across geographies
  
• Audit documentation availability
  
  

The risk profile is different. It is not lower or higher by default. It depends on vendor maturity versus internal capability.

‍

Industry Decision Patterns

Across BFSI, three clear patterns emerge:

1. Large Tier 1 Banks

Often build core infrastructure but buy marketplace and burn layers.

2. Mid Tier Banks

Prefer buying end to end platforms for speed and cost efficiency.

3. Digital First Banks and Fintechs

Almost always buy or partner, focusing resources on user experience and acquisition.

Hybrid models are increasingly common. Banks build the customer interface but integrate third party loyalty engines underneath.

‍

A Structured Evaluation Framework for Banks

To make a rational decision, leadership teams should evaluate five pillars:

1. Strategic Importance

• Is loyalty a competitive differentiator or a hygiene factor?
  
• Does it directly influence revenue targets?
  

2. Financial Modelling

• 5 year total cost of ownership
  
• Opportunity cost of delayed launch
  
• Internal talent allocation impact
  

3. Regulatory Readiness

• Internal compliance capacity
  
• Vendor audit history
  
• Multi jurisdiction complexity
  

4. Technology Architecture

• Core banking integration capability
  
• API maturity
  
• Cloud readiness
  
• Scalability for transaction volumes
  
  

5. Ecosystem Access

• Partner network depth
  
• Redemption catalogue diversity
  
• Global versus local brand coverage
  
  

Decision Rule

If speed, ecosystem access, and cost predictability are top priorities, buying is typically optimal.

If loyalty is central to long term strategic differentiation and internal capability is strong, building may justify the investment.

‍

The Hidden Factor: Customer Expectation

Customers compare banking rewards to airline, retail, and lifestyle ecosystems. Expectations are shaped by real time redemption, digital wallets, and instant gratification.

A delayed or poorly integrated loyalty experience damages trust.

Time to market therefore directly affects competitive positioning.

‍

Final Recommendation

There is no universal answer. However, in most modern BFSI environments:

• Buying accelerates growth
  
• Hybrid models reduce risk
  
• Building requires scale, capital, and long term commitment
  
  

The decision should not be emotional or technology driven. It must be strategic, financial, and regulatory informed.

Banks that treat loyalty as infrastructure rather than a campaign tool are the ones that convert engagement into measurable revenue growth.

‍