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A group of former Google engineers in the UK have announced an all-in-one cloud-based core retail banking platform that could put an end to traditional retail banks’ struggles with legacy systems and accelerate the development of challenger banks.
With banking customers suffering more outages as a result of legacy banking systems not being designed to support new trends such as mobile banking, the Google-inspired system could be an option for banks of all sizes.
Banks have thousands of IT systems that support thousands of different products and thousands of underlying systems need to be shared for it all to work. Every time they add new products, their IT ecosystem gets more complex. UK retail banks still have underlying systems that are 40 years old. This is why the large retail banks spend 80% of their huge IT budgets simply on maintaining their existing systems.
UK startup Thought Machine, set up by Paul Taylor, Google’s former head of text-to-speech, is addressing this issue. The firm now has a team of 50 engineers and finance experts in Tech City, London.
Its system, VaultOS, offers a real-time high-volume architectural structure that Thought Machine says can handle billions of transactions a day, and offers cryptographic security via private centralised ledger and smart contracts to enable banks to launch new proucts quickly.
Taylor said: “People have suffered for too long from the archaic software that banks are built on, and their CIOs stay awake at night worrying if these systems will cope with one more day. It’s time for new ideas, built with today’s technology. VaultOS fixes broken banking and will be the engine for the banks of tomorrow.”
For the last two years the team at Thought Machine has been “working under the radar”, according to Mark Warwick, creative director at the startup. This is because it didn’t want to be influenced by the banking software industry.
“A lot of the engineers that had come across from Google wanted to build a core retail banking platform that wasn’t influenced by the banking systems that are out there today or the banking providers,” said Warwick. “We are 15,000 builds in, and have been releasing new builds every week since we started.”
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- The Royal Bank of Scotland (RBS) has failed to invest properly in its IT systems over the years, leading to a number of high-profile IT failures that have prevented customers from accessing their own money.
- Computer Weekly looks at six challenger banks and their use of IT to differentiate.
- There is a rising clamour across the world for the big banks to be broken up – and the technology industry is key to providing an alternative.
A core solution
While banks are innovating through the fintech community with new apps, the systems just form a layer on top of the legacy infrastructure.
“It is really complicated if you are a big bank just to switch core banking systems, so everyone in fintech has been addressing the edges of the problem. We are trying to address core banking,” added Warwick.
VaultOS offers a full stack of retail banking technology available via the cloud and is ready for banks to start looking at it.
Using a private centralised ledger overcomes the pitfall of running several different ledgers, according to Warwick.
He added that VaultOS also uses smart contracts, which reduces the time it takes to launch new products. Smart contracts allow customers and a bank to agree terms and sign off an agreement, often highly bespoke, in minutes. “You obviously need all the marketing to go with it, but the technical solution is quick,” he said.
“Technically smart contracts mean you are ready to have an individual product for every customer.”
He added that the system will appeal to new banks as well as long-established institutions. VaultOS can scale with a bank because it is cloud-based, which make a huge difference for challenger banks.
Warwick said startup banks could start using VaultOS and configure their business from today, but that an existing bank with millions of customers would have to work out a migration strategy. He said that setting up a parallel system for new customers while the old system was scaled down is an option for the traditional banks.
Ready to expand
Thought Machine has been working with two financial services organisations for the last 12 months, including a large retail bank and a private banking firm. “This is to make sure what we are developing is in line with what is needed,” Warwick said. “We are now ready to start looking at other banks.”
Internet giants such as Google have enormous processing power, while system crashes are common at banks, even though uptime is arguably more important for banks. When a bank introduces new systems or does an upgrade, the thousands of interdependent systems it uses make the process highly complex and prone to outages.
Big banks have thousands of systems providing current accounts, savings accounts, mortgages, loans and many more. Many of these share the same underlying systems. Some systems at banks are now understood by only a couple of people, and newcomers to IT are not well prepared to maintain them.