Xinja is not a bank, but we have applied for a restricted banking licence and (as you can imagine) we are well underway developing our banking system with our partner SAP, whom we have selected to run forour core banking solution... So doesn’t sound like the sexiest topic, does it? More like ‘snore’ banking? But after a refreshing chat with Tomasz Kromrych, Solutions Adviser for Financial Services at SAP, and our own Greg Steel – #nerdyxinja – aka our Chief Architect, we were like. “Core!!!! Banking!!!!!”
After a refreshing chat….we were like “Core!!!! Banking!!!!!”
Banking at its core
Gartnerdefines a core banking system as a “back-end system that processes daily banking transactions and posts updates to accounts and other financial records. Core banking systems typically include deposit, loan and credit processing capabilities, with interface to general ledger systems and reporting tools.” So, in other words the “technification” of an account book; in the old days, you went into the bank and they’d pull out a notebook with your name on it. In the book was a simple list of deposits and withdrawals – with a date against each and a running balance. And, of course, it’s grown up – did you know that CORE (apart from being the centre of something and an expression of sexual admiration – or is that ‘cor’?) is an acronym? Centralised Online Real-Time Exchange. Not just a notebook then. So just how sophisticated have banking systems become? Not very actually….
…how sophisticated have banking systems become? Not very…..
Legacy systems lagging behind technology capability
The possibilities of transforming the CORE (or at least the core and what surrounds it) with the technology now available are immense (and this is EXACTLY what Xinja is doing). However,the reality of the current state of play is that many Australian banks still use coresoftware purchased 30 or more years ago, and have layered on top of it supplemental or extraneous products such as online banking and mobile banking software, creating a complex and cumbersome IT environment that is hard to manage, and almost impossible to upgrade.
The reality is that many Australian banks still use core software purchased 30 or more years ago
So why are banking systems so old hat?
To answer that we spoke to Greg ‘our man of’’ Steel (or Chief Architect) who has been around the block a few times in attempts to upgrade existing banking systems and now believes it’s probably impossible, or at least hasn’t been terribly successful in any Australian banks. During “one of those very heavily beer-infused sessions” on a project a few years ago, thinking about how to fix the banking problem, he concluded one of the principles to be applied was zero legacy. He was completely honest with the bank he was working with and – knowing he would be out of the job in the process – he told them straight, “It can’t be done. If you bring any legacy systems or legacy business, you will fail” apparently, no matter how much money you spend. You need a completely blank sheet of paper. And it makes sense rationally; how many times have you heard war-wounded home renovators say jadedly, “Oh it would have been so much cheaper to knock it down and start again,” nursing a leaking roof, sinking foundations, ill-fitting door frames and an enormous pile of debt?
“It can’t be done. If you bring any legacy systems or legacy business [with you] you will fail” Greg Steel, Xinja
But it’s about people – not just technology
Greg went on to point out, however that it’s not necessarily the architects that let the project down, but the human factor. A bank is not just a ledger. A bank is a ledger plus a whole set of products, pricing, services, organisational structures and processes, bound by strict regulations (as it should be) and segmented into silos. As Greg says, if you move something over here, you’re going to break something over there “and the innovation curve dies.” Tomasz Kromrych says that there ARE examples of large banks biting the bullet and starting again, but the benefits of the technology are not yet filtering down to customers. “Technology can provide a unified view of the customer – that’s not a problem – the biggest challenge for traditional banks are the internal silos they operate with.” You can’t just helicopter technology in and expect it to magically change the business around it – the business needs to be designed with it. Whilst it might be possible for existing banks to overhaul their tech systems, it’s much harder for them to overhaul their people and business structures.
“Technology can provide a unified view of the customer – that’s not a problem – the biggest challenge for traditional banks are the internal silos they operate with.” – Tomasz Kromych, SAP
Digital banks are not the answer
Some have tried to get around the problem by introducing new digital only offerings that run in parallel. Ubank is the classic example (run by NAB) and we are seeing – and will see – more of these formats emerging (such as ‘Up’, which is backed by Bendigo). But, as Tomasz Kromrych points out, some are “still running on the same technology….this is holding them back.” And how can they run truly in parallel without charging the same to their ‘digital only’ customers? It is hard for them to offer one interest rate in one channel, and a different one in another. And how can a digital customer be sure that the costs of the big bank behind them are not being amortised across the cheaper channel, or that they won’t run into old non-digital processes? The other day I was trying to change the name on a ‘digital only’ bank account. I had to fill out a PDF, print it out, sign it and post it! Not exactly ‘digital’.
We need new banks (aka ‘neobanks’)
The history of digital banking is one of old banking systems and ideas being forced clumsily through digital channels. AsDavid Brear of 11FS in London said, “Digital banking is only 1% done: [we’ve gone from] a passbook, turned into a statement, turned into a web page, and eventually a view on an app. We’ve got digitized banking, but we haven’t seen digital banking yet.” In other words, just think what we could do if rather than just digitising banking, we redesigned it? This is what neobanks (or aspiring neobanks like Xinja) are about.Brett King – arguably the granddaddy of neobanks who foundedMoven (the first neobank to enable full account opening in an app) – stresses that we need to redesign banking from first principles. In his latest book –Banking 4.0 (not available in Australia yet but I can lend you my copy….for an exorbitant fee ;-)) he says ‘Iterating on the branch isn’t going to be enough.’
‘Iterating on the branch isn’t going to be enough.’ – Brett King
What does our core banking solution look like?
Greg Steel points out that Xinja partly chose SAP’s lean core banking solution because it was just that – lean and core; it allows Xinja the flexibility to “build everything around it to be the way we want it – not the way that the …banking industry expects it to be.” Core banking is by its nature ‘account centric’ (not ‘customer centric’). “Where most other banking systems have gone wrong is allowing that account centric nature to define how they are delivering services,” he says.
Core banking is by its nature ‘account centric’ (not ‘customer centric’
What’s key is the ease with which the platform lets Xinja integrate – its APIs and notifications, which give us the access to customer data that we need. Whilst SAP is not the only supplier doing lean core banking – there were other ‘born in the cloud’ solutions that provided a similar level of configurability that Xinja considered – SAP has the enterprise expertise and infrastructural support to let us deploy and operate in a manner that gives us a very high degree of confidence in security and performance, whilst not compromising our vision.
However, thanks to the fact that it has taken its heritage applications and “re-platformed the infrastructure they are on to be cloud-like” we get the best of both worlds. SAP can scale down to a Xinja – and scale up as we go.
So what’s SAP’s secret sauce?
…Or possibly not so secret, it’sSAP HANA – its revolutionary application that uses in-memory database technologythat allows the processing of massive amounts of real-time data in a short time.This is key to its ability to scale down from enterprise level to provide an affordable solution to a start-up like Xinja. As Tomasz Kromrych outlines, SAP HANA was very significant for SAP. Created by its founder and chair,Hasso Plattner, it is a “big enabler [and] a very fast in-memory database engine that allows you to read, aggregate, calculate almost everything on the fly [with] almost zero latency.”
As Greg Steel commented, data is everything and there are just two aspects to data burning a hole in the mind of any technology company these days: data security and data volume. SAP’s solution has both aspects covered – data security of core banking is managed with the robustness of its data centre, and data volumes are managed quickly and adeptly through SAP HANA.
There are just two aspects to data burning a hole in the mind of any technology company these days: data security and data volume. SAP’s solution has both aspects covered.
Of course we need core banking! But what of the future of banking technology?
There will always be a basic ledger, but both Greg and Tomasz are agreed that this needs to be lean and Tomasz thinks the balance will shift even further away from the core banking solution in the future, and be more about the customer ‘magic’ that can be created in the layers around it.
He also stressed that following the introduction of open banking , we’ll see a revolution in customer choice and one of the biggest milestones we will witness will be the advance in AI virtual assistants. He also said that whilst blockchain is a hot topic in the industry, the deployment of blockchain in the future of banking is still unclear.
So Greg and Tomasz and the teams are striding forward with gusto. Greg has finally got that clean canvas to work on, so he’s like the cat who’s got the cream. As for Tomasz, he’s super excited, “We’re so happy we’re working with Xinja”. The energy in the team is palpable, so go for it guys! If you’ve got questions for Greg or other members of the team, do join in the conversation on our community forum.