1002. Insights: The digital transformation race: big banks vs neobanks.

0:14Welcome back to Fintech Insider by 11FS. I'm Benjamin Ensor and today we're exploring how modern systems are a prerequisite for serving customers in a digital first world. It's not so much a battle between traditional banks and digital banks. The real question is, who's best equipped to meet rising customer expectations, navigate regulatory complexity, and scale with speed and resilience? Are any of the established banking giants catching up or even pulling ahead by investing in modernizing their core systems? Or are digital banks still setting the pace with agility and innovation? Because success in digital requires far more than just technology.

0:54It's about building trust, about having the infrastructure, and about who can deliver secure, trusted, fast, and scalable services to customers in real time. This episode is brought to you in partnership with Infuse, a firm that knows a thing or two about innovation. Infuse is a next-generation issuer processor that powers card programs and payments infrastructure for both banks and fintechs. Infuse's mission is to enable modernization without forcing financial institutions to break what already works. So they're the perfect people to be having this conversation with. So let's get started. I'm delighted to be joined by today's expert panel to dig into the strategies, challenges, and innovations required to deliver the future of banking.

1:36So first of all, we have a FinTech Insider debut for Denise Johansson, co-founder and chief executive of Infuse. It's absolutely great to have you on the podcast, Denise. Your role is probably fairly clear from your title, but can you tell us a little bit more about Infuse, please? Yes, lovely to be here and I'm excited about the conversation we are going to have here today. We are, as you already mentioned, an issuer processor. So we are enabling the ecosystem with digital first experiences. And what I've seen again and again is that modernization in banking is rarely about technology first. It's about mindset.

2:20The systems are important, of course, but the real barriers are cultural. Fear of change, siloed structures, and the belief that transformation has to be massive and painful, and therefore something to fear. But I also see many successful transformations, and I hope we get to share some of those here today. Fantastic. Welcome. Next up, we have Andy Starrick, who is Chief Technology Officer of Atom Bank. Thank you so much for joining us as well. Again, your role is probably relatively obvious from your title, but can you tell our listeners who don't know Atom Bank a little bit about Atom Bank and a bit about what you do there, please?

3:07Yeah, so Atom Bank, we were one of the first kind of neo-banks, I think back in about 2016 was when we got our banking license. So we do a range of savings accounts. We do residential mortgages and we do business lending, so commercial mortgages. I've been at Atom for about three years, three and a half years now. Before that, most of my career, I was a software engineer, accidentally ended up being a manager at various investment banks and then I worked at a large oil and gas company that you can see if you look on my LinkedIn and then yeah about three and a half years ago moved to Atom. Wonderful thank you for joining us and finally I'm delighted to welcome back, Richard Davies, Chief Executive of Alica Bank.

4:09Welcome back to the show. Again, some of our listeners will have come across you before, and some of them will know Alica Bank. But perhaps for those who haven't come across you or Alica Bank before, perhaps you can just give us a quick overview of what Alica Bank is and what it does. Sure. Great to be back. So yeah, Alica is very much dedicated to what we call established SMEs, typically five to 250 employees. We've built out a full stack set of services covering carried accounts, cards, all types of lending, et cetera, for that client base. We have a deep passion for it. It's about a third of the UK economy and jobs.

4:50And yeah, been going pretty well. We're the fastest growing company in the UK, according to the FT this year. But lots more to go from here. I guess relevant to this conversation, before this, I was the COO of Revolut. was involved in setting up Oak North back at the start of that, but have also worked in places like HSBC and TSBC, so seeing some of the legacy. Which is a pretty impressive CV, but not as impressive as leading the fastest-growing company in the UK, which is a tremendous achievement by you and all of your team. So congratulations. Fantastic.

5:25Benjamin Ensor:Okay, well, let's unpack the current state of play between sort of established banks and digital banks. Let's explore some of the challenges they face to scale sustainably and meet changing customer expectations. And also think about how modern enablers like Infuse can help banks and fintechs alike move faster, stay compliant, and unlock new growth without ripping everything out and starting over. So, Andy, it might make sense to come to you first as a chief technology officer. What's the problem with older systems, right? I mean, there's many banks and obviously insurance companies, investment firms and so on that have been operating successfully or fairly successfully using older systems for decades.

6:07Why modernize? And I realize I sound like a Luddite in saying that, but just to cover it off, what's the problem with older systems? I think it's worth pointing out that there's actually quite a lot of good about older systems. They're very well tested and they tend to be pretty stable because by definition, they've been around for quite a long time and a lot of the wrinkles have been ironed out. that said they there's a number of things that that do start becoming problems you know again i've worked in um you know bank of america and and all sorts of really large companies and you know in some of those roles i've i've run the technology that is mainframe based it's cobalt based uh and getting to the point we can't you know we couldn't hire anyone the engineers were all retiring um and and just actually continuing to operate the thing was was you know some of some of those really big legacy systems like that is is just not sustainable you just can't get the people as much as it is about the technology sometimes actually the technology gets out of data and and you know you you hear apocryphal stories from all sorts of different organizations about, you know, so-and-so bit of technology that this thing's been running on for 20 years is now not supported and they go and buy all the spares in the country up from eBay.

7:33And I don't think they're necessarily just apocryphal actually in cases. So there's definitely just some, okay, this is going to die actually anyway, and you need to do something about it. I think on the sort of, you know, positive side of the ledger, when it comes to modern systems and modern ways of working and what's changed to be good technology, engineering, architecture practice, you do get some real good benefits in terms of being able to get, you know, changes out to your customers or potentially colleagues if they're colleague-facing changes just quicker than you can with some of those older technologies.

8:16So just the ability to spin up a new test environment and test your changes kind of on demand rather than having to wait for one of the existing testing environments to become vacant so you can push changes through. There's definitely some advantages when it comes to speed of execution. I think there's also some advantages. You do things like operational resilience in a different way in kind of modern technology. I think I talked about how stable some of those old systems are because they've been around for a long time. and mainframes, I think there used to be some demo where IBM would literally fire a bullet through a mainframe and it would carry on working.

9:04It would literally bulletproof technology. You kind of do things in a different way in cloud, horizontal scaling and resilience and so on. So there's resilience advantages as well. And then finally, I think there's some cost advantages. So you've got that mainframe, it's a big capital investment, and then it sits around, you have to operate it forever, But with things like cloud, you can do ephemeral environments and you pay for it when you use it and you don't pay for it when you not use it. So, you know, pros and cons, obviously, Atom, we're pretty modern. So, you know, we've got all the advantages of the modern side of the ledger without actually thankfully having the, you know, the downsides of the other side of the ledger.

9:48Thank you. So, Richard, I always think for senior executives, it must be, particularly in sort of established organizations, it must be tempting to sort of kick modernization down the road and defer the costs to next year or the year after, because it's kind of better for short-term shareholder returns. You know, you make a bit more profit if you don't spend the money now. But what's the urgency to modernize? I mean, sort of building on some of the points that Andy was talking about. I mean, how long can you leave things in an established organization before you actually kind of have to tackle it?

10:21I mean, so I'm fairly strong beyond this that the incumbent traditional banks only invest significantly in their stack. And often it's the top of the stack, not deep in the stack, when they are sort of forced to by competition. So if you look at, say, I guess, retail mobile apps, retail payments, with the likes of Revolut, Monzo, others, there's been a massive step change there over the last 10 years. And I'm literally billions of pounds from each of the major banks in the UK to improve their apps. And listen, they're fairly decent now, right, for a bank mobile app in general. There's no way that would happened without the likes of Revolut and Starling and Monzo getting to kind of 10, 20 % market share in the market.

11:17And frankly, it's one of the things we always talk about in Alica is we're about 5 % penetration right now. Can we get to 10%, can we get 15 %? And through that kind of force change in our segment that is deeply underinvested in by the major banks. David Steinberg Denise, I'd love to bring you in here. What do you think is stopping many, many older firms from modernizing? Yeah, I think Andy touched upon it in his earlier answer that when everything is working well and you don't see anything burning around you, why put time, effort and money into that right now? So it's often not being honest around the table of where are we?

12:04So who is taking care of the infrastructure today? How long will they remain in the company? Are they retiring soon? Do we have available tech pool that can take over? How many actually know the business processes operated in these systems today? Do any of the younger employees know about those processes? So it's maybe not digging into the facts, not being honest around the executive tables of where are we? Do we understand how things are operated today and where we should start? And then it might be that some are already a bit too late. So they actually don't have the needed competence internally anymore.

12:53So they just know that everything is so embedded into each other. So how do you start tackling one business processes? Then it becomes this massive thing that you have to modernize everything as once because you don't know what will break if you start moving things around. So to executives, I would only say that be honest around the table. make sure you understand how things are operated. And if you don't understand the tech language well enough, then ask the questions until you do. Because I think it's in today's modern world, we all need to understand tech. We can't be executives servicing the financial industry without understanding how the services are being brought to our customers.

13:49And once you understand that, don't wait until things are burning around you. Because yes, you are probably facing years of transformation ahead. So if you only look at this quarter or what you can do within this year, physical year, you might get depressed. But you have to start somewhere. And once you get started and familiarize yourself and set a plan that you believe in, together with your talented team, then things will improve over time. And in two, three, five years, you will have the modern platform that can make you compete with the more new banks and new providers around you. Come on now, because I think there's a really good point there you make about executives in banks needing to care about and know about technology.

14:44and I guess particularly the know about point. And I've not worked in incumbent banks for six plus years now, but certainly my experience when I was there was that the only person around the table at Exco was the new thing about technology was the sort of CIO role. And sometimes the CIO role is set under the COO and wasn't even around the table. And rest of the execs didn't really feel it was their job or something that they have to know about. And I totally agree with you, Denise, that it's just essential. And I think without that sort of, from the top leadership of caring about and knowing about tech, it's very hard to lead a transformation.

15:28Yeah, you can't really become a bank, a 21st century bank, if your leaders don't understand technology and they're not living and breathing technology every day. Andy, I'd love to bring you back in. I mean, you and Richard are both part of digital banks. You're both building digital banks. what are some of the advantages, maybe one or two of the really big advantages you see from having a more modern technology stack? What are a couple of the crucial things that you can do that you wouldn't be able to do at, you know, firms, other firms with older systems that maybe you've worked for in the past or maybe not worked for in the past?

16:00What are some of the things, because we see digital banks in this country and all around the world gaining market share, winning younger customers, winning younger businesses. but what do you see as kind of the big advantages you get from having newer systems yeah i'd say primarily speed so you know we're talking about we've kind of framed this a little bit in terms of like big organizations versus little organizations i don't i don't know it's not it's about fast organizations and slow organizations and there is a quite i think it's attributed to various you know one of those quotes that's attributed to various people that you know it's no longer the big beating the small it's the it's the fast beating the slow and i think that that's the real key to it so you know i talked before about you know the ability to be able to to spin up an environment on demand to test a new feature that you've been um developing you you just can't do that really on a on a main frame or or you know kind of that that it's not really legacy but even kind of on-prem right i mean yes you've got some kind of vms and that kind of stuff but but just the real flexibility of a kind of cloud native kind of stack.

17:13It just has that huge advantage of allowing you to quickly and also cheaply experiment and try things out and try, you know, without this huge regret cost if it doesn't work out and then be able to get, yeah, get that to your customers and see how it goes with your customers without having to commit this massive time and effort and money up front. Quickly and cheaply experiment, that's nicely put. Denise, one of my former colleagues, Jost Hoppermann, used to say that systems modernization was a bit like trying to change the engines on an airplane while it was in flight. And it is a little bit daunting for people at, you know, established organizations, you know, and to Andy's point, some of which are very small as well as some of which are quite big.

18:04How do you start? I mean, can you tell us a little bit about how you at Enfuse work with some of your clients to start tackling some of this? Where do you start? Good question. I think it's about working together. So no matter if you do it all in-house, you rely on your own teams or you decide to partner are but you definitely need great collaboration around the table from business process owners to operating the hard core environments to those that are using on daily basis the system in back office. so we come in as a partner not thinking that we know what's on the other side of the table but navigating discussion making sure that are we tackling the questions from all angers are we involving all the right people because it's not only the CTO office who needs to be involved but But it's not just the back office people who need to describe their needs.

19:20You need to involve a compliance, a back office, customer service, and the CTO office. So you need to be prepared to take your time in navigating through whatever is at the table. So if you want to transform a whole bank infrastructure, you can't do it at once. You need to decide, okay, where do we have the most urgency to get started? How do we find the connections into this part? And how do we make sure that we don't do things today that we need to change already in a year from now or in two years from now? How do we make sure that when we go in and start the modernization, we don't end up in two years' time realizing that what we did two years ago was wrong design?

20:18So I think partnering up with someone like Enfuse, during our 10 years, we've seen 60 transformations go to production. Most big banks, they have some people that have been around in some transformation, but you don't have the big teams who have over and over again seen change happening and being part of planning and executing on the modernizations. So the value in bringing a partner is all the experience that can be brought to the table. Not covering your own setup and your know-how, but I really think it's complementing each other and asking the right questions and diligent planning and then the start of execution.

21:11Because you can also be in endless planning mode and fear to take the actual step to start executing. thing. So you also need to have someone there pushing you, okay, so now it's time to get started. And yes, you will probably make some wrong decisions. Yes, it probably will hurt, and it won't be the most comfortable years of your career, but it will be impactful. And once you're over the hurdle, you can feel proud of yourself for executing it. Do you think it's harder for big firms or small firms? Because Andy, you made the great point that it isn't just big banks. There's all sorts of, you know, smaller credit unions, building societies, Sparkas, etc., all across Europe, Latin America, etc., that are also sitting on old outdated systems.

22:03Big firms, in theory, have lots of people, lots of money. Small firms often don't. Is it actually harder if you're in a small firm, easier if you're in a small firm? What do we think? I think you can argue both ways. and you can always find excuses why it's so hard for you and why the others might succeed, but the others will have the counter arguments for it. On the other side, a smaller firm, you can be more agile, you can have a much tighter team working really closely to each other, you don't have too many stakeholders. I mean, big firms, you can have hundreds of stakeholders, You can have layers of decision-making before you can move ahead.

22:49But then on the other side, you have the massive amount of people. You have maybe deeper pockets. So excuses you can find anywhere, but also the will to do real change. Yeah, I completely agree on that. I was going to say kind of the same thing. People in Atom are very used to me couching any kind of situation in terms of people, process and technology. and then I kind of add culture in as well. I think in a big company, the people, kind of how to organize things and the structures and all that kind of thing, that's quite a big, you know, just there's a lot of people to organize. Process often is quite difficult to change in big companies because there's a lot of, you know, it's embedded in a lot of big company, just ways of doing things and a lot of people are used to it as well.

23:43so it's a lot it is a lot easier to do that in a smaller company but then on the other hand particularly around the technology i think you know that's something that that i've found very different moving to atom a smaller company than some of the really big companies i've worked at where you know getting something there are some things that you need to do which are you're going to write almost the same number of lines of code in a big company as a small company and that means in a big company, getting that code written is, and that bit of technology done is a rounding error in a budget, whereas that's quite a big deal in a smaller company.

24:21So the technology bit often is, or at least the cost bit, I suppose, is more difficult in a smaller company, but the people in the process bit, and to a degree, I think the culture part is easier in a smaller company, just because there's kind of fewer people that you need to convince that you actually need to do something. We need to pause here shortly, but Richard, it sounds to me as if some of this coming back to the point you made earlier about leadership, but a lot of this is just about leadership and you sort of get the bank that your leaders deserve. Probably fair. Yeah, I mean, I personally always take this small over the large if you're trying to do things, just because your ability to take decisions, to make things happen, And if you need new skill sets, sort of tweaking culture, that's much easier in a small firm than a large firm.

25:14But yeah, clearly in a large firm, you do have more resources to do that with. But I always found the very large firm, sort of Byzantine bureaucracy to get any decision made being pretty tedious. So yeah, I think leadership is absolutely vital in this, right? And I think it's personally, I'd say, harder to get that cut through from leadership in a large firm than a small firm. Um, so, but yeah, I think the other point I just wanted to make that, so perhaps builds on what people were saying earlier. I, I, I think some people look at this as like a, a one-off project and I think that's a completely wrong way to do it.

25:53Um, and I think actually that's what leads you into deep legacy. So I mean, listen, Alec has got pretty good tech, right? But we are continually devoting time to technical debt and to, I mean, changing components or or upgrading our own software where we believe that it's needed, right? So you don't fall into the trap of having some old system that isn't probably documented, that is out of date, is out of support, whatever. So I think that's vital that almost you're setting aside ongoing cultural acceptance that, look, we're gonna invest 25, 30 % of our resource every year in keeping updating.

26:37I mean, just for example, we're six years old. We're on our second go-round on a full upgrade of the data warehouse and data tooling capability. So I think there's kind of something there about just if you think things are sort of once and done in technology, you're in for a sort of nasty surprise down the road. Thank you. Let's take a quick pause here and we will be back shortly after a quick break. Hey folks, David Breer here, CEO of 11FS. Here's something you might not know about me. I get a lot of people trying to impersonate me online. Fake profiles, scam emails, the lot. And a big part of that comes from data brokers.

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28:51Okay, well, in the second half of this podcast, let's explore how banks can navigate their shift from sort of legacy infrastructure to more modern systems in order to meet rising customer expectations for things like personalization and sustainability and to stay relevant in a world of instant embedded and intelligent financial services. Denise, let's start with you building on some of those points that Richard was just making about, you know, how can firms sort of manage that fear of risk and disruption from migrating away from systems or that fear that you suddenly realize oh my goodness we're dependent on this really old system that we don't have to support any longer and so on how do you help sort of firms manage that kind of transition away from some of the older systems i think going with a partner is partly about de-risking your journey, your modernization.

29:54If you partner up with someone that truly can help you navigate what's ahead for you, but also enable new features so that it's not just keeping up with what competition already offers, but that you also can look through that What would you like to innovate at the same time? So not just change one over to something else exactly the same, but making sure that you also meet customer demands while you do it. And if you choose a partner that already have systems operating, you can start off with, say, a new product launch. So you can softly introduce new ways of working, new systems to your own back office, to your own customer support with something small.

30:50Because it can be scary if you immediately start thinking that, okay, over this weekend, four million of our customers will be migrated to something new. And it's new for everyone. We haven't seen it live in production. and we don't know how it actually will operate. So it's then navigating and finding a path forward that feels safe for everyone involved while also testing your own internal capabilities to modernize, to change ways of working, optimizing business processors. But it's also about navigating compliance, risk and compliance, because it's not an easy navigation for anyone today to keep up with latest legislation and making sure all data is protected according to all rules and regulations around you.

31:53And especially if you work in environment across many geographies, so let's say EU and UK. A lot is similar, but there are also differences. And do you know how to optimize that in your modernization? So it's not just only looking at the tech side. It is about looking at the end users and it is about ensuring that you stay compliant as well. But I'm not saying that going with a partner is the right choice for everyone. I really think that you need to make constant choices. So what is the core capabilities internally at our bank? Where are we really good? Where do we think that we maybe have weaknesses and where we might need to partner up?

32:50So it's not one size fits everyone. Again, it's about being honest around the table and then stick to your beliefs of what your core business is and then outsource the parts that maybe won't fit in to your core capabilities. Love that. Richard, that might be a really good question for you as a chief executive. How and when do you decide to sort of bring in partners for something like systems modernization or whatever or other things more widely? when when do you decide yeah we need help this is more than my team can manage right now and when do you decide nope we've got this um the team can handle it we don't need extra help or outside help yeah so i think it's um i agree with what dene said right you've got to pick your choice uh so for us uh so as we came to alica from revolute in 2020 and yeah i guess had a quite deep, rigid conviction that for Alaka, we should be doing our own software, data, platform, engineering work in-house, not via partners.