You’ve probably heard the phrase “Don’t put all your eggs in one basket.” In financial services, diversifying can be a practical risk management strategy.
But when it comes to your IT infrastructure, vendor diversification can have unintended, and potentially dangerous, consequences. While using multiple third parties may appear to reduce dependency on any single provider, it can actually introduce significant operational and cybersecurity risks while reducing effectiveness. Though the reasons for engaging multiple providers in areas such as telecommunications can be valid, each additional vendor adds complexity to your IT stack.
Here are five reasons to reconsider diversification and its risks when it comes to your technology strategy:
- Increased Complexity
Complexity increases the likelihood of integration issues, misconfigurations, and operational inefficiencies.
Financial institutions that adopt a “best of breed” approach often find themselves managing a patchwork of systems for online banking, mobile banking, authentication, account opening, and more. Each solution must be integrated, which can raise initial implementation costs and drive up ongoing maintenance expenses.
The more moving parts, the greater the chance of failure.
- Expanded Attack Surface
Every additional vendor represents a new potential point of entry for cyber threats.
Malicious actors often target the weakest link in a network, and a sprawling vendor ecosystem provides more opportunities for exploitation.
To illustrate the risk: if each of five vendors has a 5% chance of being breached, the probability that at least one breach occurs is approximately 22.7%. Doubling the number of vendors to 10 increases that probability to 40.1%.
While these figures are illustrative, they underscore a critical point: more vendors mean more risk.
- Reduced Security Visibility
Security Information and Event Management (SIEM) tools can help monitor and analyze data feeds across your internal network, helping to identify potential issues within your environment.
However, these tools typically do not extend into your vendors’ security stacks, creating visibility gaps that can obscure potential threats. Moreover, each vendor only sees a fragment of the overall system, limiting their ability to detect and respond to threats effectively.
The result: a fragmented security posture that leaves your financial institution more vulnerable to attacks.
- Diminished Accountability
When multiple vendors are involved in delivering a service, determining responsibility during an incident inevitably becomes more difficult.
Who is responsible? Who should have caught the security flaw? Who owns the outcome and will ultimately pay if you’re unable to serve your accountholders and lose business?
Consider what you might do if you have an ATM system failure.
There are likely numerous parties involved: the ATM vendor, telecommunications provider, security vendor that manages your firewall, core provider, server-hosting provider, network manager, and others.
If you’re lucky, you can get everyone on a call to troubleshoot and narrow down the problem. More often than not, key resources may be unavailable, resulting in delayed resolution and negative accountholder experiences.
- Decreased Operational Effectiveness
Troubleshooting performance issues in a multivendor environment can be a complex and resource-intensive process.
For example, diagnosing a slow application may require coordination among application vendors, network providers, firewall managers, and integration specialists. In contrast, a unified technology provider with end-to-end visibility can streamline diagnostics and resolution.
To combat these issues, many banks and credit unions are now adopting private cloud environments with Virtual Desktop Infrastructure (VDI) and managed Network-as-a-Service (NaaS) solutions.
These models enhance both security and operational efficiency by consolidating control and visibility.
Regardless of where you’re at in your journey, understanding the inherent trade-offs between vendor diversification and technology risk management will help you make more informed decisions when determining what’s best for your financial institution.
Nick Shirk is National Director of Sales for Information, Security, and Technology at Jack Henry.
