‘You can’t stand on the sidelines and watch that happen forever’: Volante Technologies’ John Farrell
- The market value of financial products offered outside the bank -- that could have been offered from within -- is huge.
- For FIs, undertaking digital transformation and restructuring their payments foundations is a big leap, and an urgent one.
The following was produced by Tearsheet Studios. We worked with payment as a service provider Volante Technologies to produce a two part series on banks transforming their payments to the cloud and the road to streamlining the customer journey.
Volante helps banks around the world rise to the challenge of digital transformation. Through simplifying payment systems and processes, it helps banks modernize their customer experience. And what sets Volante apart is its technology architecture — it was built from the ground up for the cloud.
John Farrell, Volante: I’m John Farrell, and I’m the senior vice president of product and engineering with Volante Technologies. We’re a next generation payments platform provider. We specialize in delivering payments as a service to mostly banks, and it’s all based on a next generation technology.
What makes volante next generation is the agility and breadth of its technology, that makes it possible for banks to move faster towards digital transformation.
John Farrell: I’ve had an interesting career arc with Volante. I’ve been a customer twice: once quite a while ago, where I just OEM’d a small piece of their software into what was a legacy platform at the time. And then the second time, I was a full blown customer of the whole payments platform at my previous employer. So I joined the company knowing they were on to something (or we were on to something, I should say now). What makes it next generation is that we don’t really have the baggage of a legacy company. And in payments, that matters. Because when you really think about a lot of the providers out there, they’ve got a long history in the market, which means they have a ton of install base. And you can’t make major changes to that install base without them saying, ‘Well, if I’ve got to do that much work, I might as well look elsewhere in the marketplace.’
That’s where we stand out. We are not that incremental jump — we are that giant leap when it comes to the technology, the architecture we’re leveraging, and the way we allow our customers to consume our products. We deliver both as a PaaS solution, and we deliver traditional in-house deliveries for some of our clients all around the world.
According to a recent SMB satisfaction survey, small and medium sized businesses and corporations feel underserved, and underappreciated, by financial services. Is it happening because the services of traditional FIs are not meeting their needs, or because their needs are changing?
John Farrell: I think it’s happening for a couple reasons. The banks have been slow to change, and there’s nothing new there, right? Anybody who’s been in this space for a long time knows the status quo typically wins out. But I think the more important thing is they’ve seen what’s possible; there are so many non-bank options out there, especially in the payment space, that small, medium, and large businesses are taking advantage of. That effectively shows the typical customer what’s actually possible, and they’re then contrasting that with their current banking partner. And that’s becoming an issue for the banks, because they’re losing some of that transaction revenue.
I always say good old fashioned banking — low value but low risk, with lots of transactions — has made a comeback since 2007. Each one of those transactions adds up over time, without necessarily putting any risk on your balance sheet. So it’s an interesting space to be in right now. We talked to a lot of our customers, and there’s a few of them, some pretty big banks from a global perspective, that are realizing this and trying to jump ahead of this curve, or at least trying to catch up. And that’s good to see right now. I think once these guys show what can happen, what you’ll see is a large group of fast followers saying, ‘Okay, it’s possible; we need to jump on this bandwagon.’
While a few big banks are leading the way, the majority are following behind. But banks are motivated by two things: the core banking software and their payments platform.
John Farrell: The tentacles of each one of those, and how they work within the banking ecosystem, are really difficult to unwind. They’re difficult to unwind for lots of reasons. Sometimes it’s legacy technology, and the guys who know how to actually support it aren’t around, and it’s more of a care and feeding process. You have banks that have grown up through acquisitions, where that whole system topology gets a little, or in some cases a lot, confusing. It’s costly and it’s risky. You’ve got to be the executive that’s willing to sign on the bottom line to do a deal like that, to jump into that kind of an effort. And we’re seeing some of them who realize they can’t wait any longer, but it is no small undertaking.
Deciding to undertake a renovation to the foundations upon which the entire institution rests is a huge leap. And it’s the bold ones who are able to make that leap.
John Farrell: They see an opportunity to significantly increase the wallet share with the customers they have. They see the valuations of these third parties that have jumped into this space over time and realize that this valuation could easily be on their balance sheet. I’ve never done the math, but I’ve often used the statement that there’s easily a half a trillion dollars in value created globally, offering products that banks should have offered. Easily. And it’s probably a lot more than that. So if you think of it in those terms, you can’t stand on the sidelines and watch that happen forever, because that’s going to be a net negative for your business.
Half a trillion dollars in market value for outside-the-bank financial products is an understatement; that number is the market value of Square and Paypal alone. And that’s a loss for traditional FIs — huge enough to justify the risk of steering the wheel in a new direction.
John Farrell: 18 years ago, when I got into this, it was kind of a rip and replace strategy, which in many cases, you might have had a 50%, or if you’re doing well 60% or 70%, success rate. But I do think there’s a better way to do it. You see some large banks standing up these digital only banks, which give them an opportunity to get comfortable with the technology to move their customers over in a very controlled way, to introduce it to new customers. I think that’s one approach: put it on the sideline.
Another approach is to look at it from a customer segment perspective and move it that way. If you said, ‘I want to move all my ACH, all at once’ for instance, that cuts across every customer segment a client has. If the customer is big enough, there might be half a dozen custom products per customer. That sounds like a lot, but if you look at these relationships over 20, 25, 30 years, it’s not surprising to see those kinds of things in the payments landscape of a big bank.
To successfully adapt to the modern era, all banks will eventually have to go digital. But are they truly becoming all-around digital, or are they merely launching a few loosely packaged digital products?
John Farrell: From a retail perspective, 80% of the customer base is 99% digital when it comes to dealing with their bank. And therefore you have the platform to do that. But if you’re only offering the products that you were offering walking into the branch, are you really pulling back that market share or are you just getting digital? Are you offering those services that some of those third parties have come in and taken advantage of to great success? Can I send a cross border payment from my mobile phone if I’m a Chase customer? And those are the things you have to look at — not just, ‘Am I digital?’, but ‘Do I offer the whole scope and breadth of products in that digital footprint?’
Prior to a desire to push boundaries for the sake of evolution, there is mandated modernization — from new global ISO messaging standards, to the real time payment rails the Fed is ushering in.
John Farrell: So that’s kind of table stakes innovation — you have to be able to support those or your customers will notice.
I think the other piece is looking at that legacy landscape you have and asking, ‘What is the least risky and most impactful way I can start to peel the onion on it, and start to really create a much more agile technology platform that I can build on?’
That’s one of the things we do really well. We bring in these payments capabilities, but we also bring in this platform that you can build off of. And that gives clients a lot of flexibility when it comes to not only that initial deployment, but the flexibility to say, ‘Alright, what do we do next? What can we add to this?’ And that’s been exciting for us; our latest product is only a couple of years old and we’re already talking to clients about what’s next. And that’s really interesting, and tells us we pointed it in the right direction.
We look at our product a couple different ways. There’s the technology platform, that’s cloud native micro service based, and it ticks all the boxes for today; it could be deployed as a PaaS solution, or it can be deployed in house, leveraging all those technology components.
On the payments functionality side is where we deploy the microservices architecture, which really gives you flexibility to bundle those into business functions. And we have a lot of clients for whom that’s one of the major drivers — to be able to easily bundle certain features and functions together, so that you can quickly and agilely create a product, modify a product, and do it at a fairly granular level.
For banks steering the wheel in the direction of digital transformation, the decision is between build, buy, or collaborate. And collaboration can happen in different ways — from a partnership to an acquisition.
John Farrell: I always find it interesting in the US compared to Europe, that the private market figures out a way to make something work before it’s mandated by the regulator, whereas in Europe it’s kind of the opposite. But Zelle is a really good example: that’s effectively a consortium of banks all deciding they want to offer a better product to customers, with interoperability between each one of the participating banks, and to make it a white label thing that any fintech or any bank can leverage to move money domestically. So that’s a really good example of where it’s worked.
While an acquisition can begin as a collaboration, sometimes innovation can get drowned out by the rigid compliance needs of traditional FIs. Farrell believes some of the acquisitions we’ve seen recently point to a bigger trend.
John Farrell: We’re seeing the MasterCards and the Visas buying up fintechs on a fairly regular basis. But you know, you have to let those companies continue to do what got them there; taking them into a traditional rigid structure of an IT department within a bank, the only thing that’s going to happen is you’re going to slow it down, you’re absolutely going to slow it down. We all recognize that there’s different compliance, and it’s a massive component of that — integrating that into the bank’s compliance kit is probably the most important thing you’ve got to do at the beginning of one of those acquisitions. But once you get that done it’s really about letting them continue to focus on the innovation that got them so attractive that the bank decided to buy them.
Banks are making moves to replatform their payment systems — but no one is really asking: are their business customers also ready to implement real time payments?
John Farrell: The interesting thing about customers today and when I first got in this business is that they’ve been consuming cloud based, ERP accounting, general ledger or any kind of system like that — they’ve been consuming those for a very long time now. And that gives banks and frankly, folks like us here at Volante a real opportunity, because you’ve got these points where your customers have consolidated onto these different platforms.
If you really want to give your customer a great experience, fully leveraging the features of that platform is a big deal. You do it once and it can benefit (depending on the size of the bank) hundreds or thousands of customers. And that’s a really good way to look at it: find these points of concentration where your customers are, and build your product around those; make it so it’s easy to make payroll, make it so it’s easy to move money around from those tools.
Frankly, it’s one of the things we do. We look for these consolidation points, and work to build pre-built integrations, so if we get a bank that wants their customers that are on Sage, or Oracle, or SAP, or any of these providers that are pushing these cloud based platforms, it’s in our best interest to at least know how they work, and at best to have them pre-integrated into our system.
For banks to get connected to the RTP networks and bring value added services to their customers in 2021, it’s going to take some work.
John Farrell: The large players will have a team on it. They’ll build it out, and it’ll look very different from their ACH or RTGS, but they’ll build it out. They’ll either partner with somebody like us, potentially one of our competitors, or they’ll build it.
But then you have the 8,000 to 10,000 other small banks out there, that can really look at it a couple of different ways. They can depend on their current service provider to offer something that at least ticks the box; they can look at somebody like us and say, ‘Okay, these guys have it, it’s on the cloud, I’ve got to just integrate it, it’s got all the features and functions I need, and I don’t have to do a massive IT project.’ That’ll probably be the three broad buckets: build it yourself, partner with your service provider, or partner with somebody like us.
We’re on a timeline of only about 14 months out to rollout of RTP — but is the industry prepared?
John Farrell: Again, I think it’ll be the whole broad spectrum. The big banks have been doing RTP all around the world for a long time, so they’ll have a really good idea how to make it work. I think some of the super regionals might even be in that same position. I think some of the regional banks are going to have to do some serious work to make it happen. I think the smaller banks have a couple of choices: either let their current service provider do it, or they’ll come to somebody that’s offering a PaaS solution like us. So I think there’ll be a full gamut of different reactions to it. What will be interesting to see is to see how they productize and how they market it, how they create a value add for both their retail and corporate customers.
By that point though, RTP will be standard, as the US gears up for an industry-wide change with big implications.
John Farrell: At the end of the day, it is table stakes, but it’s table stakes for something that really hasn’t existed at that scale in the US. Obviously, the Clearinghouse has their offering, which has a fairly good participation, and we were one of the first ones to get involved with that. There are a bunch of banks and a bunch of fintechs already putting together product offerings that are going to take advantage of that, that they’re going to bring that to the US market. I guarantee that that’s happening.
We can’t talk about the payment landscape without talking about the mainstreaming of crypto. Will central bank digital currencies participate in the existing payments landscape, or do they pose a threat to it?
John Farrell: I think it’s evolution. It’s where we’ve been pointing at for quite some time, and it makes a lot of sense — to facilitate the transaction, to get more transparency in these transactions. I think it makes an awful lot of sense. And you’re still talking about a currency backed by a central bank, so it’s really a form factor at that point.
How the banks want to leverage it or integrate it into their product offering is up to them. There are a lot of them doing it right now. But from a technology provider’s perspective, we look at the various cryptocurrencies as just another currency; we can integrate, we can create that transparency, we’re not shying away from them. It’ll be interesting to see what the demand looks like over time. But the central bank digital currencies are a great idea, and I think it’s just a normal evolution.
And this is an example of what makes Volante stand out — its architecture is broad enough to capture new and evolving workflows, as is.
John Farrell: Every one of them has slightly different workflows. Of course, you’ve got to do the validation across the blockchain and whatnot, but it’s all workflow for us. It’s another process flow that we would then manage end to end. We’re really fortunate given the architecture we developed, as we have that flexibility built in, and we’re even doing more with it now than we ever have. It really gives you that flexibility to look at your current system and say, ‘Alright, we can do that. We don’t have to buy something else. We don’t have to build something else.’
But the expansive and flexible architecture is not enough. It is equally important to keep making sure that architecture is stable, safe, and accessible.
John Farrell: We’re deploying north of 50% approaching 60% as a PaaS solution. So one of the things we’re working around the clock on is looking at resiliency, recovery, throughput, security, and basically putting those things as our number one priority day in and day out. How do we make this completely bulletproof? How do we have the best performance? How do we have the lowest costs for that performance? How do we have the quickest recovery? How do we have the best resiliency?
And so we spend an awful lot of time on making sure that our system is fit for purpose today and well into the future. The surprising thing there — not surprising that our system can do it but surprising from a demand perspective — is the number of tier one banks that are taking this solution from us.
If you were to ask me a couple years ago, ‘Is payments ready for the cloud?’ I would have said, ‘Yeah, it depends on the bank.’ But I wouldn’t have said I would expect to see tier one players doing it. And that’s what we’re seeing now. So that focus that we have is well placed, given the size of the banks that are starting to take advantage of it. And that’s been an eye opener for me.
In some ways, the pandemic opened people’s eyes up a little bit. I think the C-suites in banks probably didn’t have the full picture of how much they were already dependent on cloud until everybody went home. And all of a sudden, everything still worked. I don’t think they had that full picture. But I do think because of that, any views on cloud have probably fast-forwarded at least five or 10 years in the last 18 months. And I think that probably explains a little bit or at least one of the factors in why we’re seeing such an uptick in our PaaS solution.
The adoption of cloud also accelerated partnerships between service providers and tier one banks. Seeing those partnerships fosters trust in the industry and helps other tier one banks make the move towards collaboration as well.
John Farrell: 100%. They still vet you. But through repetition, the vetting becomes easier for us, too. Anytime you can help validate somebody’s decision making process in anything, it helps smooth the process over. As you can imagine, when it comes to an as-a-service solution, the vetting is an order of magnitude more detailed than selling you a piece of software that you’re going to deploy in your data centers.
After succeeding through the vetting process, it is up to service providers like Volante to shepherd their customers through strategizing the roadmap needed into the future.
John Farrell: Security, resiliency, recovery, throughput. That’s table stakes. And if you’re comfortable with those table stakes, then it’s about any piece of functionality you need. If we have it, great; if we don’t have it, we’ve got the flexibility in the architecture to add it very quickly. And that’s where I think we’re having success in the industry right now; those table stakes are strong, they’re next generation, they’re what the CTOs, CEOs, and CIOs are looking for. And our feature set is broad and fully featured. You could always add more, that’s just the reality of any software product — you’re never finished, but having that flexibility built into the architecture really helps us quite a bit in that respect.
One of the interesting things about our whole company is that it started with a tool called Designer, which was really a financial messaging/mapping/orchestration tool. And that tool became the basis for everything we do in all our other products. So our whole development kit is based on this specialized financial messaging tool called Volante Designer. We use it across the whole organization, our clients also use it, and it’s really helped a lot in creating velocity when it comes to adding either new payment types or new features and functions in the product.
Modernization is motivated by the catalysts in the industry that set new precedents and dictate trends. Now more than ever — it’s happening quickly.
John Farrell: The interesting thing for us as a company is that we get a couple of different kinds of customers. We get a customer that’s looking to solve a problem, which we will typically solve for them, but often that problem is 10%, 15% or 20% of their payments landscape. And as a technology company, once you solve that one problem, you kind of have an invitation to go in and solve the next one and the next one. This gets back to, ‘How do I modernize?’ Well, that’s one way to do it. I think those catalysts in the marketplace are really helpful. We’ve got the ISO standards coming into effect this year. We’ve got FedNow — we’ve got RTP popping up all over the place. As the world’s gotten smaller, cross border payments have become more retail. So we’re seeing a lot of demand and high volume, low value, cross border payments. People want to offer that, whether it’s for small business, medium sized business, or even the remittance side of the business. So there’s lots in the space right now that makes me excited.
I would have sworn that 10 years ago, we were at the inflection point where everything was going to start moving fast, and I was off by 10 years. But here we are. We’re actually at that point right now in the payment space. There are groups that are leading it, there are groups that will be fast followers, and then the million dollar question — what will the rest of them do?