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The evolution of digital banking tech platforms and Deloitte BankingSUITE with Deloitte’s Tim O’Connor

  • In this episode of the Tearsheet Podcast, Deloitte's Tim O'Connor explores the evolution of banking technology, from monolithic systems to today's modular ecosystem.
  • Tim and Tearsheet editor Zack Miller discuss how modern banking is embracing an ecosystem-based approach to create customer-centric solutions and product propositions.
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The evolution of digital banking tech platforms and Deloitte BankingSUITE with Deloitte’s Tim O’Connor

In this episode of the Tearsheet Podcast, we’re diving into the digital banking landscape, its transformation, and how financial institutions are adapting to this new ecosystem. 

Joining me is Tim O’Connor, principal at Deloitte and practice leader in digital banking and payments. He’s also responsible for Deloitte’s investments in assets and product around banking.

In this conversation, we explore the journey of modern banking technology, from its monolithic roots to the dynamic, composable ecosystem we see today. We discover the driving forces behind this transformation and how supply and demand have played a role. Tim shares valuable insights into the approaches banks are taking to adopt these new technologies, from entirely new digital brands to coexisting with legacy systems.

We also touch upon the global perspective, drawing lessons from Europe’s experiences in the digital banking sector and exploring how these insights are shaping the future of banking in the United States.

And we also plumb the Deloitte BankingSUITE, a solution that’s accelerating modern digital banking propositions. Tim shares how this software streamlines the often complex and time-consuming process of building a modern digital bank.

This podcast is part of a four-part series (Part 1, Part 2, Part 3) we’re doing with Deloitte’s financial services leadership on the trends shaping our industry today and out into the future.

The big ideas

  • Evolution of Banking Technology: The banking technology and platform landscape has evolved from monolithic providers to a more composable, modular ecosystem over the past 15 years, with a significant acceleration in the last five years.
  • Ecosystem-Based Approach: A key shift in modern banking is the move towards an ecosystem-based approach, allowing banks to pick and choose different vendors to create customer-centric solutions and product propositions.
  • Supply and Demand Dynamics: The transformation is driven by both supply and demand. Banks are challenged to innovate and meet evolving customer expectations, and technology has matured across the entire stack, making this transformation feasible.
  • Next-Gen Core Platforms: Next-gen core banking platforms, born in the cloud, are a foundational element enabling this transformation. They offer flexibility and modularity for banks to innovate.
  • Learning from Europe: The US is learning from Europe’s experiences in the digital banking sector, particularly regarding regulatory changes and the adoption of open banking standards, which have allowed challenger banks to thrive.
  • Bi-Directional Knowledge Transfer: In successful transformations, there’s a bi-directional flow of knowledge between traditional banks and new digital entities. Lessons from both sides contribute to a more robust and efficient ecosystem.
  • Coexistence Model: A coexistence model is emerging, where traditional banks are integrating elements of the modern stack while coexisting with legacy systems. This approach allows for gradual migration and proofs of concept.
  • Deloitte BankingSUITE: Deloitte’s banking software streamlines the process of building a modern digital bank. It offers pre-configured solutions across various layers of the stack, saving time and resources.

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The following excerpts were edited for clarity.

Evolution of banking technology

Tim O’Connor, Deloitte: You said ‘ecosystem’ and I think that’s the critical thread to pull on where the market is at and what’s different about the history of banking. Like a lot of industries, there were big monolithic providers and players. The research will tell you that banking has probably been in a model much longer than almost any other industry.

Since the hype cycle around digital and experience-based pieces for the last 15 plus years, we’ve seen a tremendous amount of investment around how to think about unpacking the monolithic box, and start to actually get things into smaller, more appropriate kinds of composable pieces. And you’ve seen that really accelerate in the last five plus years, where a set of next gen core platforms started to fit into a really nice model to create a bunch of composable-based solutions, so that banks can pick and choose different vendors that best fit the experiences and product propositions that tackle the things that matter for their customers, and do things that are really authentically about them.

We see that explosion of composable-based approaches. I hear people talk about business product, platform architecture-based approach — we see that as the common thread of how people are leaning into this. It’s really enabled by these next gen platforms, as well as a set of fintechs and different players that fit into the totality of the bank systems architecture. There’s a tremendous amount of adoption and momentum in that space right now.

Push or pull: What’s driving the changes?

It’s a challenge for banks to innovate and do more, to start to meet customers from a digital expectation and show a lot of flexibility and nimbleness in terms of their products and how they serve people. Some have struggled to be able to meet that demand in the marketplace and haven’t quite had the right assembly of technology to make that feasible for them. But the maturity across the layers of the stack, in the last few years, has gotten to a point where it’s actually achievable. That stack requires you to have enough capability within every layer from a cloud standpoint.

I think about the future of experience, if you try and tackle it with just one of those layers and one of those pieces, it’s going to be sub optimized. You’re not going to be able to meet the real needs of the market. But we see the tech really nicely maturing across every layer that of that stack now, with people able to take advantage of it. So there’s a nice alignment of the push from the marketplace, and from the banks doing that stuff, into the tech nicely maturing across those layers of the stack to be able to achieve those ambitions.

Next generation cores

It’s an awesome opportunity: banks get this opportunity to really, almost in a green field way, reimagine how they’re set up and the technology they assembled to be able to serve their existing market and their plan for the future markets. But there’s a thousand different decisions. And it’s a little bit of a whack a mole game in terms of, if you make this decision here, the implications for it to coexist with your legacy and how you think about this entire thing.

From a Deloitte standpoint, we think that’s one of the value proposition that we bring — we’ve been there, done that, and have a lot of muscle working with many clients and marketplaces. They go through those same strategic choices. And then because some of these things, if you’re the individual bank, you have to build it once with some pretty significant upfront capex to build that first base and then the return can be circumspect at some point, but we can show with more things preconfigured, more things already figured out, so the initial capex bubble can be more contained, and you can get to value much quicker.

Building a modern banking tech stack

You kind of teed up around convergence across industries across segments — it is a big driving force of all this stuff. Modern architecture fits really nicely into that model. Much of the opportunity happening in the marketplace is tied to ecosystem-based plays, but really underpinned by these gen three platforms. Gen three platforms are modern core banking solutions born in the cloud, headless by nature. So it’s intended to be that piece, which is a really thin ledger, a store of value, transaction facilitation, and really contained to that piece of the overall bank architecture. That gives you a lot of flexibility, how you think about the assembly, and the different pieces on top of it. So you make your own choices about how you actually manage and distribute card.

I think about servicing and the different pieces around that. And so that ecosystem-based model, with a much thinner core, requires more sophistication and a kind of technical elegance, I think about integration and how you leverage event-driven architecture to best plug into the ecosystem-based model.

We preach a lot about the standardization of how you approach that, how you think about extraction from the historical individual vendor lock in, so you don’t fall into the same traps they just kicked out of. And how do you think about a balance of orchestration-based and choreography-based patterns, that allow you to do things very differently?

From a customer experience standpoint, it’s the same material investments for mobile and web development. We think there’s some really interesting things happening within frameworks for mobile and web, with Flutter as an open source framework that allows you to develop natively across Android, iOS, and web. So you can code within one code line and deploy across each of those. It gives you a tremendous amount of synergies, as you think about what used to be three teams now, which is one team. And the ability to assemble all this in a smart way, we think is the structured way how people are approaching this marketplace, and how things can get really interesting from the overall monetization, getting into a stack that’s elegant, really scalable, and extensible. So you can innovate and run a really safe and sound bank.

Keeping vendor optionality

You have to have some real discipline, if you think about the definition of your logical data model, how you approach integration, because it’s easy to fall back into the adoption of a vendor-specific data model, and how they define APIs and move data in and out of it. So we really lay out an industry standard based view of how to think about integration and data that gives you a backbone off which you can then assemble different solutions and avoid that really tight coupling between a single vendor and the logical aspect of the future modern bank.

We’ve seen the results of that where people are able to flex out and swap out different vendors because of business changes, performance issues, or even market relevant stuff as they roll out to different geographies. It creates a lot of flexibility and extensibility in that space.

How to build a digital bank

We think about this in almost like three different archetypes: something that’s on the edge, more on the leading differentiation phase with motivation as an edge based proposition. That’s generally thematically similar to the challenger banks, globally, in Europe, and APAC, where someone’s now creating a brand new brand, a new proposition, really outside of the existing brand and existing bank tech and operations. It’s deliberately done that way. So they can build from the ground up brand new. Everything is in the cloud and the full assembly of that, including the brand and the identity of that piece. There’s some tremendous value within there because you get the opportunity to push the edge of innovation to really stress what you need to do from the best of breed or this kind of future modern architecture, prove that stuff out in a way that doesn’t have a lot of the legacy antibodies.

Now, there’s significant cost challenges with that. And there’s also a hey, once that’s done, how do you prove it’s going to work in the context of the legacy bank and what that looks like? So that’s always kind of an edge based archetype, whatever here on the right hand side, in the middle, as we see this kind of emerging priority for a lot of banks, which is a coexistence based model. It’s like, Hey, listen, we recognize different layers of this modern stack. We’ve got, in our making material, big investments to push the envelope forward. But we’re not ready to bite off the full migration. And we don’t see the financial viability of an edge-based proposition or the usefulness of the proof point that can actually show us the future of our bank from an innovation or modern stack standpoint.

So with coexistence, we’ll figure out the right pieces, that modern stack to build out how that fits into the existing legacy architecture. You can really think about deploying brand new propositions within that coexistence model, prove that out over the course of time in successful iterations, lay the foundations for the core type of model, so the existing legacy bank, over the course of years, can be migrated into that new stack.

There’s still a lot of traditional migrations — they’re still smaller, more simple based businesses, simple product propositions, that believe in a proof point through intensive research and POCs, that they’ve got the right selection for this set of vendors that they want to go to. And they’re going to commit to a full migration of the full stack or with the core pieces. And we see smaller institutions still going down that traditional migration pathway as well.

Europe’s learnings with banking technology

Over the last couple of years, the US is catching up dramatically right now. But post financial crisis, Europe had some regulatory changes that made it much more friendly and open from a fintech and challenger bank standpoint, with established open banking standards that have created a nice model for making incentivization around APIs and data across different banks that open up ecosystem-based plays and opportunity for fintechs.

There’s been a lot of adoption of those European native challenger banks. They’ve had tremendous amounts of success. We’ve seen the lessons with that coming to the US marketplace, not only from the tech and how that works and the cycle of investment into players that are both existing in Europe, and now coming to the US or US versions of those players really taking hold. But critically, we’ve seen really great lessons from the business challenges and social business decisions. How do you think about the economic viability of these investments? How to ensure this is really the right fit from a US market standpoint?

We’ve seen the US market be really smart and structured about how they mobilize around this with a strong sense of what it really takes to achieve this in a sound business sense and how to approach this.

Unit economics

In the reality of the economic environment we exist in today, you have to be focused on unit economics. And the challenger model has proven to be really interesting in terms of the assembly and the birth of a lot of awesome new tech and operations and how you think about these businesses. I think what we’ll see is more traditional banks be able to adopt the smart, good pieces of that from digital tech and operations to fit into their banks. But they’ll do it in a viable way, economically. Regulatory and compliance always plays into the incumbents — it typically plays into incumbents’ benefit by waiting a little bit to watch that and watch how things play out. You don’t have to be the first off the diving board.

They’ve been watching this for many years, being smart about how they explore different fintechs, different vendor platforms and it makes sense to them dabbling at different paces. Also, there’s been initial investments in different pieces of the ecosystem. There’s a level of maturity that exists within that ecosystem of these next gen cores, that you now see a tremendous amount of direct investment into this space in the US marketplace, which is nicely aligned to the lessons that people have seen from the challenger banks in Europe and the European and APAC based innovations.

Deloitte BankingSUITE

I teed up how modern stacks have this layer architecture to it, where everything’s modular, everything’s composable. So, what we’ve done from a banking suite standpoint, over the course of many years, is that there’s this really awesome new world to do one for banks. There’s also a thousand different decisions to make. And there’s tons of under-the-hood investments that you have to make that aren’t directly tied to meaningful client value. So what we spend a lot of time on is now laying out what the future of this design architecture should look like.

We’ve been in this market globally, within this market in the US, and have a really strong opinion and POV about how this full stack us to be assembled: the pluses and minuses of different flavors of what that looks like, in the build across that acts as the blueprint for this stuff. Then we tackle it across that entire stack with vendors that we partner with in our own solutions that we stitch into the solution in a highly composable, modular way.

So whether or not that’s from a cloud standpoint, from a next gen core standpoint, the ecosystem vendors that you assemble around these next gen cores, the way that we approach integration and build out pre existing journeys and full end to end customer flows, from consumer and small business, to the development of really rich front end experiences for mobile and web.

From a BankingSUITE standpoint, we show up and say, Hey, listen, if this typically takes X number of hundreds of thousands of hours to complete in a brand new edge based proposition build out, we’ve already got 50% of that stuff solved for you guys. It’s because we’ve been there, done that and been directly investing in these whitespace areas where there’s no obvious solution, as well as preconfigure every layer of that stack so you can take advantage of that.

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