Investing in new technology has been a common theme in shareholder updates for all the major banks over the past 5 years, with the ‘Big Four’ banks globally reporting multi-billion-dollar technology programs that are all ultimately focused on improving profitability. Despite the vast sums being invested by the incumbent banks, their ultimate long-term success is not a given, particularly in the retail sector, where a number of venture-funded, tech-centric entrants are emerging, determined to change the landscape by offering better products around disruptive business models.
On December 1st 2020, at the end of a year that many will want to forget, Capital officially made its first internal transaction on the new banking platform. A moment the company has worked towards for over four years. The bank is still under development, with plans to open its virtual doors later in 2021 under a new class of licence, regulated by the Financial Services Authority in the Isle of Man.
In this article I will outline the technical pillars that were identified as being key in allowing Capital to succeed where so many other banking and financial services companies continue to struggle.
The biggest source of success for pure digital enterprises is that they consistently start with the customer needs and work backward to provide the best possible product experience. Amazon’s CEO, Jeff Bezos, once said, “the number one thing that has made us successful by far is obsessive compulsive focus on the customer”.
In technology terms this translates into embracing an often termed ‘agile’ culture in which the minimal viable product is launched and then updated very frequently based on how real customers derive value from the product. This is typically measured from their direct feedback but also from a host of indirect usage and experience analytics.
At Capital, we are geared up to release product improvements every two weeks. This continuous delivery capability contrasts sharply with traditional banking channels that have historically tended to offer products based on their own existing capabilities, updating them only a few times per year.
One size definitely does not fit all. Rather than building Capital’s new offering using an off the shelf, third-party ‘end to end’ banking solution, the strategic decision was taken early on to own the user experience, allowing it to be personalised to the needs of our customers. A major business goal was to allow potential clients to have a confirmation within 200 seconds of their indicative acceptance as a new customer. The onboarding process would then be 100% digital, even for the most demanding corporate entities that would historically have required a convoluted paper-based application. We also needed the user experience to be ‘contemporary’, in line with the standards for great internet user interfaces that have been set outside of the banking sector. These goals could only be achieved by technical ownership of the interface, and in-house development of everything user facing is a critical enabler for our customer obsessed strategy.
The cultural and technical inertia within long established businesses (of any kind) make transforming the customer experience through technology massively more expensive, time consuming and a lot less likely. Over the years, traditional banks developed their IT systems as a patchwork of legacy technologies without the advantages that new age scalable, plug and play technologies bring. It is not easy to fix these, and that is why we see new age banks building more optimal IT infrastructure from scratch using state of the art technologies.
At Capital, we have delivered a completely new product based on the latest ‘cloud’ infrastructure technologies, allowing us to scale efficiently using the world’s most secure and resilient hosting providers. This freedom from legacy infrastructure, specifically with no requirements to support old ‘branch based’ systems, has allowed us to innovate from front to back. This gives us product delivery flexibility, and it dramatically reduces our operational costs compared to our incumbents.
The standards for ‘open banking’ , whereby specialist service providers are connected like Lego bricks using common ‘application programming interfaces’ (APIs), were defined over a decade ago. However, the disruption of banking through the deployment of emerging technologies has been slower than other sectors due in part to the heavy regulation which represents costly barriers to entry for many newcomers. Outside of banking, within the world of internet gaming, a revolution has taken place. The global online gambling market size is expected to reach USD 127.3 billion by 2027 , and with internet gaming regulations now far exceeding the demands of the banking regulations, this has helped create an eco-system of payments, KYC, risk management, fraud detection, security and other specialist solution providers that are set to take the fintech world by storm.
With the long promised eco-system approach now a viable reality, this enables the decoupling of the three core functions within the banking industry: liquidity, risk management and KYC. Capital’s open architecture banking platform has been built around proprietary technology, supporting the onboarding and management of clients but with an integration hub that allows best in breed third-party solutions to be utilised. A plug and play technology platform capability is essential; it allows Capital to offer customers the best possible selection of payment options, all within a fiduciary framework that allows risk to be managed to the highest possible standards.
The eco-system is managed around two important principles: the responsibility for the user experience and the responsibility for the overall security and operational service levels. These duties sit with Capital as the ultimate custodian for the customer’s trust, data and funds.
In summary, it would seem a revolution is now underway. The losers will be the incumbent banks that see technology as a route to cost reduction rather than a key to unlock cultural reform. The long-term victors on the other hand will be those companies who use technology to support a culture which is customer-centric and provides the most value within the best possible digital banking experience.