Friday,21 June 2024

“Delivering the next generation cloud-native core banking platform for banks in Asia Pacific”

5 min read

Interviewed By Foo Boon Ping

Nick Wilde, managing director for Asia Pacific (APAC) at Thought Machine, a cloud native technology provider, discusses the readiness of financial institutions to move their core banking systems to the cloud and the challenges that they face.

  • Banks face less challenges to move to the cloud than before
  • Intensity and sense of urgency among tier 1 and 2 banks to move
  • Thought Machine's strategy built on People, Product and Partners


Financial institutions globally are racing to deploy new generation cloud-based core banking infrastructures that support open application programming interfaces (APIs) and microservices, as part of their critical digital transformation.

In Asia Pacific (APAC), new digital only players and incumbent banks are configuring their technology stacks to better leverage big data and connectivity with customer-centric ecosystems to deliver superior customer experience and enhanced security at a lower cost of ownership. 

Nick Wilde, managing director for APAC at Thought Machine, a cloud-native  provider of core banking solutions, discusses the challenges that institutions face and how it is introducing its Vault platform  solution in the region.


Here is the full transcript of the session:

Banks face less challenges to move to the cloud than before

Foo Boon Ping (FBP): What are the challenges that banks and financial institutions in APAC encounter in reconfiguring their technology stacks for the future?

Nick Wilde (NW): Things have come a long way, banks and cloud companies have been working together with regulators for some years now. It is fair to say that cloud as a technology is now seen by most banks as a mainstream option and by most regulators as well, rather than a strange use case. Now, that doesn't mean banks’ entire workloads will move next week, next month, or maybe even next year. But it is far less challenging, far less unusual than it was. Core as a cloud use case is at relatively early stages of adoption. So that is something that the banks and regulators are having to take much more of a careful look at. And there's still work to be done there.

Over the last 20 years, Asia has been by far the fastest growing economy region in the world and I think the banks in this region have benefited from that, helping them fuel their growth.  However, the last few years, we saw economies start to slow down. As that happens, and you trend more towards the sort of environments that the banks in Europe and in the US are facing, then there's an increasing focus on the cost line; margins become compressed.

What COVID-19 has done is radically accelerate that. We're still in the middle of it.  We haven't yet seen the real sort of impact of that on economies. There's still a lot of government support money around but the banks that we're talking to, seeing that this is going to take a while to get out of, means that top line growth is going to take a hit and there's probably two years of recovery there. So therefore, you've got to take a look at the cost line. And given the impact that COVID has had, that that look has got to be more than just trimming, it's got to be something that creates urgency.

To shift more of the workload to the cloud, and at the same time create some drivers towards the next generation cloud native core which offers that lower cost ability, but also the agility around financial product innovation and customer experience, at a time when just the app by itself is running out of a differentiation. We need to find new ways to drive top line revenue through that differentiation.

We have been open for business for about six or seven months in our region. We are in serious conversations with three of the largest banks in the region, who were variously running proof of concept prototype, proof of technology, pieces with a view to make a decision quickly on the back end of that. Obviously COVID has had a slightly delaying factor on that process, as the award of the licenses, so that people wouldn't be unfairly penalised when those licenses are awarded.

I'm looking at the back end of this year for us to be inking some deals and seeing some real commitment by the market. So I think the back end of this year and into next year is going to be a really interesting time.

Intensity and urgency of tier 1 and 2 banks to move to cloud

BP: How would you describe the adoption of cloud- based core banking in Asia Pacific?

NW: Unsurprisingly, we are having conversations with many of the neo banks and the fintechs who are looking at taking advantage of the new digital banking licenses we're seeing in Hong Kong, Australia, Singapore. What has surprised me the most, is the number, the urgency and intensity of the tier-one, tier-two banks, who are also looking at this technology and how not from a market research point of view, but from “how do we get this into our organisation?”

To add to that point, the migration of incumbent banks towards this new technology architecture. In a way the impetus is there because of the regulatory moves that allow more Neo banks to operate as well, they have to keep up to be competitive.

There has to be a question of how much of these neo banks and fintechs move the market forward? How much alternative have they really created for the consumer? Although small to medium enterprises seems to be taking their digital only cost structure compared to the incumbents who have large branches and taking that cost saving and, and to be crude, bribing customers to join them, effectively selling $1 for 19 cents now, without question that attracts customers.

But if you're only serving one small piece of that customer's needs, they're unlikely to leave, their income in the bank. That therefore, attenuates the earnings that you can make. Many of them are still operating, offering current account, savings account, credit card, debit card.

Software has been said to be eating the world, and I think that is absolutely true. Despite the billions of dollars that banks and neo banks have spent on technology in the last 10 to 15 years, I would say banking as a sector has gone off remarkably lightly. And it is yet to face its big disruption moment. And the reason I say that is if you look at what the internet and the digital revolution has done to print media to the music industry to high street shopping, banking hasn't seen that yet, and many of the neo banks and fintechs should be as worried about that as the incumbents.

BP: What do you see influencing the choice/type of cloud-based platforms among institutions? What opportunities do you see for your Vault solution? How is it differentiated?

NW: There is a difference between truly cloud native which Thought Machine, Vault, is, and cloud resident, which we're seeing an awful lot of in the market where a last generation legacy technical core is lifted and shifted into the cloud. Digital interfaces, APIs are grafted on. There is certainly a place for that in the market. Our opportunity is those banks who are truly interested in moving to a next generation platform and gaining the significant advantages in cost and agility that that offers.

BP: One of your strategic investor is also a bank, right? most of your installation so far has been in Europe, with Lloyds with SEB. How does it stand out in terms of talking to incumbent banks in the region?

NW: When Paul and a handful of founders came out of Google and decided to establish the company to solve the core banking challenge. One of the decisions they took at that time was it was never going to be enough to just have a good idea, a PowerPoint and a minimum viable product. So no bank, large or small was going to take that risk. So through a combination, initially, a seed round. The company has been working on building the product, platform for over four years before we actually launched the company to the world. So what we did was, about roughly a year before we went to the initial four customers, Lloyds Bank was one of them, Standard Chartered Bank, SEB in Sweden who did a greenfield challenger and Atom bank, one of the largest digital challenger banks in the UK.

They took the significant risk to become paying customers on our pre-production software. That allowed us to ensure that our product when it was fully released last year was secure, functional, resilient, and scalable. All of the necessary pieces.

What Lloyds did was take the position that they wanted to invest in us to ensure that we had the money that we needed to continue to build this properly and launch a version that was gold standard. What was launched is an industrial product that large banks are now taking their product to market.  Lloyds did not want Thought Machine to just be an extension of Lloyds IT department. They are extremely supportive of us building a global software business and they are very careful not to overplay control and there are some limitations as to what they get to do and don't.

That's important because if you are a tier one bank or a small fintech in this region and we're asking you to trust us to be your core, what you need to know is that that you are a customer with standing and you don’t step to the back of the queue. You will see other customers get to invest in us future funding round. So a number of prospects have already made that request.

Strategy built on People, Product and Partners

BP: In an increasingly crowded market and Thought Machine being a relative new comer to the region, what is your strategy to win?

NW: First and foremost, whether you're a bank, small or large, you need to feel that there is security around your vendors. To that end, we announced earlier this year that we had raised and secured $83 million in our series B funding. We've just recently announced that due to demand we reopened that series B and raised an additional $42 million. So that's $125 million. It is a significant war chest that says that we are around and we can afford to be around and support our prospects and customers for a good long time.

In terms of strategy, we're not so different from the banks themselves in that our strategy is anticipate and meet the customer needs of our chosen target market. I summarise it in three parts “People, “Product and Partners”.

People, the initial team came out of Google and that has a day one commitment to cloud native, battle tested, open source technology. But just as importantly, a commitment to high performance teamwork, hire the best people, but no brilliant jerks. People need to come to work and feel that they are excited about working with people on things that matter. So high performance teamwork just as important.

The Product, many kinds of unique aspects to it that make it appealing at the moment and we will continue to develop that not least of which is financial products as code for unparalleled agility and differentiation for our customer banks.

And Partners in two main contexts. Customers as partners. We are agile. We have been agile as an organisation from day one. We released our software every few weeks, now there are a whole bunch of technologies around that but it shouldn’t give our customer heart attacks. But what it does mean is we are able to incorporate customer requests into our roadmap far more quickly than they are used to with their current legacy core vendor providers.

And then secondly, core transformation is only partially about the core technology. And we're fiercely focused on excellence in our own area. But we do understand our customers have a broader solution need, including enterprise architecture, integration, changing operating models. To that end, we have a lot of energy focused on building a coalition of partners and enabling them in our technology such that we are collectively better able to serve our target market.


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