By Wayne Scott, GRC Solutions Lead at Escode
The market is underestimating a growing risk: that operational contagion from fragile software suppliers could quickly turn into full-scale financial contagion. As geopolitical and macroeconomic volatility continue, the resilience of core third-party technologies is becoming a blind spot. These dependencies run deep across regulated processes, customer interfaces and compliance systems, and yet continuity planning rarely reflects the scale of exposure. In today’s environment, it’s no longer a question of if a supplier fails, but when, and more importantly – what that failure might cost across the financial system.
Banks, insurers and investment firms are bound together by a web of third-party technologies, with these platforms enabling everything from core banking transactions and anti-fraud operations to client onboarding and regulatory reporting. But they don’t just operate alone. Most are supported by smaller, agile tech vendors, which are highly specialised firms providing the software that underpins these systems. The size of these organisations allows agility and innovation – but some of these companies can lack the long-term financial resilience of larger tech companies – and it’d only take one geopolitical storm to cause financial hardship, especially in the current economy.
That’s not to say the concept of ‘the smaller the vendor, the higher the risk’ is fair. Quite the opposite, in fact – as size isn’t always a safeguard. The failure of a large, widely relied-upon supplier can cause financial contagion far more quickly – a reality increasingly recognised in global regulatory frameworks through the concept of concentration risk.
The risk here isn’t theoretical either. While some disruptions begin with incidents like cyberattacks or ransomware, these events can themselves trigger financial instability – particularly if the vendor lacks the resources to recover. In other cases, breakdowns arise from vendors quietly going out of business, losing key developers, or withdrawing support without warning. What starts with a missed update or a delayed integration can end with a total breakdown in functionality.
We’ve also got to remember that, for regulated firms, the implications aren’t just technical. They are a real risk to an organisation’s reputation, which can cost the business millions – especially in financial services, where regulations like DORA are pushing firms to take continuity planning more seriously.
What are the causes of collapse?
Very rarely does vendor failure stem from a single dramatic event. More often, it’s a compound series of seemingly unconnected issues that accumulate over time – with one major final incident becoming the straw that breaks the camel’s back. One major factor is economic instability. As capital becomes harder to access, particularly for early-stage or venture-backed tech firms, there’s a worry that once-promising providers have no choice but to downsize – or disappear altogether. As I’ve already alluded to, while smaller suppliers may be more obviously exposed, larger and even global tech providers are not immune. Their failure, whether due to mismanagement, overreach, or external pressures, can create cascading risks across entire markets
The knock-on effects are even more acutely felt in financial services, where a minor supplier withdrawal can break critical processes up and down the supply chain – and across the economic world.
Another common issue is over-reliance on key personnel. This isn’t unique to smaller firms, because all organisations face this risk. It’s especially acute during acquisitions, where the true value of ‘legacy’ staff can be overlooked. These individuals are sometimes viewed as a cost, rather than an asset, and so are often earmarked for ‘right sizing’. The result can be the quiet exodus of knowledge, with critical expertise lost and continuity eroded at precisely the moment when it’s needed most.
Product lifecycles can also pose a risk. It’s increasingly common for software providers to make abrupt “end-of-life” decisions, withdrawing support or development without offering an adequate replacement. This leaves financial institutions scrambling to fill the gap, often with little warning.
What’s important to understand is that these risks rarely exist in isolation. It’s often the combination of different factors that pushes a vendor past the point of recovery. Once that line’s crossed, the damage to dependent institutions can be swift and severe.
Why software escrow is the unsung hero in financial tech
Software escrow is one of the most effective yet under-discussed tools for managing vendor risk. While it was once viewed as little more than a legal backstop – a contractual clause to provide peace of mind – modern escrow services have evolved far beyond simple protection. Modern arrangements go further than simply storing source code, documentation and build instructions with a trusted third party – they also include ongoing technical validation.
Advanced escrow providers now offer real-time demonstrations that verify the deposited code can actually be rebuilt and deployed, simulating what would happen in a real failure scenario. This proactive testing ensures that, should the worst occur, the financial institution isn’t left with unusable code, but with a working version of the application ready to restore and run.
A final thought: don’t wait for silence
Supplier collapse rarely happens overnight. More often, it’s a slow and steady decline – missed updates, unanswered emails, delays in support – these are all things that build quietly until it’s too late. The organisations that fare best in these moments tend to be the ones that plan ahead, with safeguards already in place. Ultimately, resilience isn’t about how big or well-known your supplier is – it’s about whether you’ve planned for what happens if they fail.
In an environment of deep digital interdependence, software resilience must go beyond uptime and cybersecurity. It’s about establishing real control – putting mechanisms in place that limit the damage when critical suppliers run into trouble. These risks can’t always be prevented, but they can be planned for and managed. By anticipating the quieter, less visible forms of disruption, finance leaders can strengthen their position, safeguard client trust, and ensure business as usual – even in unusual circumstances.
