APIs drive fast, front-end upgrades that minimise risk and power growth
Why aren’t more digital banking front ends being re-tooled to supercharge growth?
Sandstone Technology’s CEO Michael Phillipou helps explain how APIs make exciting fintech integrations possible with many core banking systems, however monolithic and problematic they may be.
It’s an interesting time in financial technology.
First, we’re operating in a unique economic environment. Money is cheap, which has prompted a series of mergers and acquisitions in banking, with smaller players merging to achieve bigger scale. This increasing rationalisation in the market means financial institutions need systems that can facilitate the scale of growth that they’re seeking to achieve.
Secondly, customers are calling the shots. And they don’t care what’s happening in the back end. As Phillipou says, “It’s banking innovation in front-end applications that they notice – making it easier transact online including to transfer money, withdraw money, borrow money, get a credit card, make payments.”
The critical part is the engagement and interaction they are experiencing; how simple is it to open an account and become a customer digitally. A bank’s system needs to be able to automate processes and provide a frictionless experience for the customer.
If a bank is looking to replace or adjust aspects of its core banking system to address consumer expectations and growth objectives, it’s going to be a risk/benefit trade-off.
Here is where the crucial questions come in, according to Phillipou. “Do they see the value in investing hundreds of millions of pounds doing a transformation of that gravity? Or, if their core system can still do the basics and evolve via upgrades, should they be investing in front-end applications that enable them to supercharge their growth and satisfy consumer expectations?” he says.
Taking stock of systems
A core banking platform is the engine that drives the bank’s central operations, responsible for the opening and maintenance of loan and bank accounts, maintaining the central record of transactions, interest and more. It’s the ‘source of truth’ for account status and account data which are accessed by other systems and feed consumer channels.
On top of that platform, institutions have account opening/origination systems which collect customer data and manage the application process by interacting with the core banking engine. And there are account servicing systems that allow customers and internal users to query their account status and transact on their account.
Both additional systems may be provided by the core banking provider and classed as part of the core banking engine, or they may be a separate system/product that is integrated with the core banking engine.
Is there a third option?: Fintech providers like Sandstone Technology offer solutions that can be integrated with the core banking engine after the fact. These fintech integrations are typically achieved via standard APIs which help simplify the integration and allow a new provider to more easily weave the solutions seamlessly into those of other technology vendors.
Risk, and why change has been so slow
Most core banking systems have been in situ for years, sometimes decades. Huge amounts of money and resources have been invested. Benefits aren’t instant, they’re counted over years. “Once a bank has done its benchmarking and made a decision to invest in a core banking system, they’re committed for the longterm,” Phillipou says. “They won’t be writing off that level of investment in a hurry.”
Add in the fact that financial institutions, by and large, are notoriously very risk-averse organisations. They need to be conservative, because they’re custodians for people’s money. They need to make sure they have systems, processes, and a risk appetite strategy that is in line with their customers’ expectations, to ensure consumer confidence and data protection.
But as Phillipou explains, the greatest risk they are exposed to when migrating off an older data platform is execution risk. “Firstly, these kinds of programs are complex and renowned for running over schedule which has huge implications for financial institutions,” he says. “What may present itself as a compelling proposition in the tendering process can, once implemented, become an operational and costly nightmare for the financial institution.”
Many CTO and CIOs get alarmed when they look at core banking transformations that have gone south, like Royal Bank of Scotland, whose ill-fated software upgrade in 2012 resulted in an outage leaving millions of customers unable to make or receive payments. RBS was fined 56 million pounds by British regulators in 2014.
When CTOs, CIOs and other decision makers opt to change their core systems, they need to win the hearts and minds of the board and the executive right across the organisation. It’s often not an easy sell.
Front-end integrations are the key to growth
Many institutions are in the difficult position of being beholden to ageing, monolithic core banking systems where changes and updates to their systems are often complex, time consuming and costly. Transaction processing is congested, loan processing is slow and they may not have the ability to interface into their front-end applications to the extent they’d like. The system can’t do what they need it to do, to meet growth goals and objectives.
In the end, growth increasingly comes via the banking applications that are customer facing, Increasingly banks are recognising that new front-end applications will get a greater return on investment than a major core transformation.
Frontend solutions can involve revamping the entire customer-facing architecture, or simply making small strategic changes to processes that affect the customer experience.
With smooth UX across digital banking capability through apps, “it’s like opening a window to a shop” Phillipou says, helping banks open accounts quickly, onboard customers quickly – all of those retail banking requirements. It’s building that digital value proposition which gives banks the ability to compete and win, making sure they’re preserving existing customers, growing their customer base and market share, as well as improving reputation.
Fast, agile integrations with Sandstone Technology
A banking integration specialist, Sandstone Technology can work with any core banking system provider. Deployment is fast – between 3 and 12 months depending on the complexity of the deployment and the bank’s internal processes.
Sandstone Technology is a trusted digital partner to tier 1-3 banks, building societies, member community owned banks and credit unions with customers across Australia, New Zealand, Asia and the United Kingdom.
“As an experienced fintech, we’re flexible with deployment methods, and because we take care of the integration, that process is de-risked for the financial institutions,” Phillipou says.
Customer data is still controlled by the bank, so there is less/reduced risk associated when working with a specialist front-end vendor. Sandstone Technology is held to the same standards as banks when it comes to data privacy and security and we hold information security certifications at the highest standards, attested to year on year.
“At some point in the future when they are no longer supported, all core systems will need to be replaced,” Phillipou says. “But until then, API integrations mean that any bank, lender or building society can still innovate without the burden – and risk – of changing their core banking system.”