Talking about moving from proprietary to open, from controlled to marketplace and from internal to external focus, another key change is the very nature of technology itself. It’s quite clear that a start-up today could launch with just a few thousand dollars, Amazon Web Services and a bright idea. There is no need to build complex infrastructure and spend months with hundreds of coders creating something. That is why there are so many new start-up services for banking and payments, and it’s not just the big names you know. Having spent last week with Solaris Bank in Germany, it’s clear that with a few people, bright ideas and enthusiasm, anyone can create a new bank pretty quickly. In Europe anyway. I’ve met neobanks and newly licenced banks across Europe now and the consistent factor is that they’re using open marketplaces, APIs, apps and cloud to kickstart a new injection of change into banking, pretty fast. Some are getting licences in under a year, to illustrate that point.
This is so different from the banking markets that I’ve worked in all my life. When I started out in banking technology, we would be trying hard to justify a new system acquisition. It was a tortuous process of building a business case, reviewing the return on investment and cost-benefit analysis, talking and presenting and presenting and talking, with a huge resistance from anyone to ever say yes. Saying yes was, and still is for many, a big deal. Saying yes was committing the bank to a five, ten or even twenty year contract; it was committing the bank to hundreds of millions or even billions of dollars of investment; and it was determining the banks’ strategic direction for the long-term. That’s a big deal.
The issue is that this mentality of the Big Deal still pervades for many senior bank decision makers and yet, today, it’s no big deal. If a start-up can get a full suite of banking software up and running like Ant Financial, Solaris, Thought Machine, PrivatBank and more, then you know the answer today is all about speed and agility at low-cost. There is no Big Deal here. In fact, as alluded to in an earlier blog, if you can build a developer-driven bank where a microservices architecture allows very small teams to change little parts of the architecture continually, then you have a bank built for today. A bank that can provide updates for their apps and APIs every day or even intraday, rather than ever year or even bi-annually.
This then brings me back to my relentless cry for replacing core systems in banks, as this is the only reason why any technology change today would be a Big Deal. Today, a bank that is stuck with a complex legacy spaghetti mess would find it hard to be agile, developer-driven, open-sourced and competitive in the FinTech marketplaces because they can’t make a decision to do anything. Any decision would be committing the bank to a multi-year, multi-billion-dollar change and that’s just too hard to do. So they avoid the decision. After all, the CEO is retiring in a couple of years, is rewarded based upon shareholder return, and can get away with soft shoe shuffling in the markets with a nice app and front-end. No one will notice if the back-end stinks like crazy.
That used to be ok, but it doesn’t wash today. After all, the innovative banks, FinTech start-ups and agile new players are all dealing with a different world. Their world is one of fast cycle change. They can do the quick-step, fox-trot, tango and samba all at the same time. This is all down to the knowledge that nothing is difficult to do; nothing costs much to do; short-term technical obsolescence is built into their developments; and their journey is a continuum of technological change.
Compare that with their more traditional contemporise. The banks stuck with legacy are waltzing through the markets. Their movement is slow and laboured, and every change of step along the way causes a coughing and wheezing moan. They know that everything is difficult; everything costs; they cannot accept any obsolescence as it would hit the balance sheet, the shareholder returns and the C-suite’s bonuses; and their journey is how to add rooms onto the Castle, rather than rebuild the Castel.
I know I hark on about this a lot, but in a world where technology is disposable, developments are fast cycle and technology-based competition is viscous in an open sourced marketplace, I would be seriously worried to be leading a bank that can’t even enter that world.