A Solution to Future-Proof Legacy Banking Platforms

Jim Marous:
Hello, and welcome to another Banking Transformed Solution podcast. I'm your host, Jim Marous, owner and CEO of The Digital Banker Report and co-publisher of The Financial Brand.

Jim Marous:
The importance of a digital banking platform that is flexible, powerful and affordable has never been more important. Banking organizations of all size are partnering with solution providers that can help them catch up in a marketplace that has never moved faster. Financial institutions must find solutions that are built for banking, tend to be deployed easily and quickly, and can be scaled in a manner that allows for building new price and services at digital speed.

Jim Marous:
Our guest on the Banking Transformed podcast today is Michael Coghlan, founder and CEO of BrightFi. We discuss how BrightFi partners with regional and community banks to deliver affordable cloud based technology and enables financial solutions that can make a difference in this digital environment we're in.

Jim Marous:
BrightFi, subsidiary of Verdigris Holdings, provides a cloud based technology solution that let's financial institutions and non-banks of all sizes test and launch digital banking products and services or entire digital brands at a fraction of the time and cost of normal solutions. Highly configurable and scalable, BrightFi provides a platform that can replace a legacy core or run in conjunction with an existing core.

Jim Marous:
As I mentioned, today I have Michael Coghlan, founder and CEO of BrightFi, on the show. To start us off today, Michael, can you introduce yourself, give our listeners a bit of an overview of who you are, what you've done, and also an overview of BrightFi?

Michael Coghlan:
Yeah. Of course. Jim, great to be here, and hello to everyone listening. My background is a career of banking. I've been working in banking since I left uni 20 something years ago, and was fortunate to be involved in setting up one of the early internet banks back in 1996, believe it or not, and that had stayed me in great stead as I've gone through my career in banking, often at the tip of the technology sphere, and I set up BrightFi as the next iteration of digital technologies for banking.

Jim Marous:
Interesting. Since the pandemic hit most financial institutions have been playing kind of a game of catch up and crisis management, as everything in banking went digital and many organizations enabled the opportunity for customers to use their mobile device to open an account or to get a loan, but really didn't do it in a digital way.

Jim Marous:
Some of the processes in our research of the digital banking report showed that it took 12 to 15 minutes to implement something. So what has the impact been on BrightFi, as well as financial institutions in the marketplace, since the pandemic hit, and really in the second year of responding to the pandemic?

Michael Coghlan:
Jim, I think there's been a number of accelerations in the environment in banking over the period that we've been in COVID. What I think everyone accepts is that the move to digital in every industry that is affected by COVID has accelerated tenfold, that we've seen the acceleration of the need for digital products across all industries during the period, and that we might say that banking has moved 10 years ahead of what it was going to do in the two years that we've been sitting in COVID.

Michael Coghlan:
I think we've seen organizations start to respond more in the second year than they did in the first year. I think in the first year a lot of organizations were at a loss as to what to do to change their strategies, and what we are now seeing is the recognition that the smaller institutions in the US must now embrace digital technologies much more fully if they are going to be able to continue to survive in this COVID and post-COVID world.

Jim Marous:
It's interesting, because when you look at what's happened organizations really... They differentiated themselves. Legacy financial institutions really took one path and your digital fintech firms really did another. But when you're looking at organizations today, they're looking to modernize their core or improve their digital offerings. What are they looking for? When you're meeting with banks what basically are they looking for today?

Michael Coghlan:
Gosh, I think the ones who know what they're looking for are looking for digital platforms, which is what their customers are demanding. They are looking for the ability to provide digital solutions, so digital banking. It's the products, it's the functionality, it's the tech end operations, and they know that they have to be able to provide it to their customers, because their customers are getting amazing service outside of banking in relation to their everyday needs, and they get that through the digital platforms that we use in our daily lives, and banking has not sufficiently caught up with the rest of the world, with the other industries in that regard.

Michael Coghlan:
So the businesses who know what they are looking for are asking for digitization and all of that functionality for banking. Unfortunately, not all of them know what they're looking for.

Jim Marous:
That's a really good question. So when you usually get in contact with a financial institution do you find them sometimes kind of picking your brain as to okay, we know what we want to achieve, but we really don't know the path to go? Do you help them structure that path and say, "Okay, let's figure out where you are today, let's figure out what you want become, and let's find the best way within your budget to get there." Is that... I mean a lot of organizations maybe don't have a complete, clear view of where they want to end up?

Michael Coghlan:
Yeah. That's precisely the case. Even more so, Jim, they don't really know what it's going to cost or how long it's going to take either. They have the notion, they have an idea, they have a desire to be able to digitize their business, not necessarily knowing exactly what that's going to mean.

Michael Coghlan:
Of course there are very smart, very capable technology and business leaders in many institutions across the country, but that doesn't mean that they understand this element of technology that's necessary for successful digitization, and so we do work with them to move them through that process.

Michael Coghlan:
It's about saying what have you got? How do we fit around that? How do we make sure that we are sensitive to the existing business, because it's not the case where you can just go in and pull everything out and start again. That's not how banks work.

Michael Coghlan:
We've got to be very sensible in the approach that we take and collaborative with the clients, and that's just good business sense from our perspective of course as well. That's a better approach than saying to somebody, "Oh, my gosh, your systems are terrible and you must do this thing." You've got to be much more practical and pragmatic than that.

Jim Marous:
Interesting. In researching BrightFi, your organization started off as a neobank, going directly to underbanked consumers. Now you're offering a platform for banks and credit unions. What changed? What changed your business model overall?

Michael Coghlan:
The realization, Jim, that what we had created for ourselves, which is a fully digitized, virtualized technology platform and operations support for banking, was something that other banks need as well. So it became immediately obvious to us in the early days that the very solution that we were putting together to be able to provide services to the unbanked and underbanked communities, which is what we set out to serve, was also going to be the same technology and operations that could support the wider public that is already receiving great service from community banks and credit unions and regionals who just do not have the technology to be able to compete against the major fintechs and major national banks.

Michael Coghlan:
By offering the service that we do we allow them to compete and to be able to use the best technologies for their clients too.

Jim Marous:
It's interesting, you talked about the way you started off as a neobank, and one of the reasons why a lot of the neobanks are in existence, they say they're reaching out to the unbanked and underbanked, but a lot of that has to do with the fact that that whole segment has been underserved by traditional banks that have a much higher cost structure.

Jim Marous:
The lower cost structure of a digital bank makes it so that you can reach a niche that wasn't reachable before, and even more than just the cost of serving. It's the data collected and the ability to use data to build better price, isn't it?

Michael Coghlan:
Yeah. For sure data is an important element of every transaction that occurs in banking, and it always has. The power now, though, is to be able to take all of that information and use it to identify whether that's next best product or risk level that relates to a specific credit product. All of those things become information that, yes, we can use to be able to provide better service to the customer and to the clients, and to do it at the time that they need that product.

Michael Coghlan:
So, yeah, data is an important element of it, but it's not the be all and end all. As you say, the operational costs, the fundamental costs to serve, is an important element in how we are able to provide services to even the unbanked and underbanked, the people that generally generate the lowest revenue for the banks, and therefore are not targeted by most banks.

Michael Coghlan:
Our premise was always if we can provide a profitable service to that group and treat them properly as our customers, then ever other group becomes even more profitable. So being able to use that same platform for other customer groups then generates a cost save for the institution that can translate into greater revenues for them and also then to maintain the appropriate risk profiles and all of those important things too.

Jim Marous:
So it's interesting, you've mentioned the smaller community banks and credit unions, which is really pretty much... As I understand it, the primary target market of BrightFi is you're partnering with organizations, but it's interesting, because our research shows that the best right now of the digital transformation journey have been the biggest banks, because they have the dollars to do so, and actually the smallest banks, because they don't have the legacy leadership that holds onto the past so strongly that it makes it so that move forward and the innovation and the digitalization format is so difficult.

Jim Marous:
What advantages do you see? You obviously are picking community banks and credit unions as your target customer base. What advantages do you see within those organizations and how they serve their communities, but also their willingness to open their minds towards digital transformation as you've provided?

Michael Coghlan:
To some degree, Jim, I think that there's a sense of necessity about that digitization journey, so they are a group that is very open to the conversations that we and others have with them about digitizing their business. They're very open to it because they recognize that it's a journey that they must take.

Michael Coghlan:
There's a survey that related to the confidence that small banks, community banks and credit unions, have in the relationships that they have with their customers. Their customers say we love the fact that community banks and credit unions understand our business, they understand our cashflow, the create the appropriate products, they have good relationships with us, I know that I can go to them and have a proper conversation with them about my business or my needs or my particular experience or problems and they will respond humanly to those problems.

Michael Coghlan:
But the reality is also that if they don't have the digital capabilities to serve those customers as well as the relationships, then they are not going to be able to survive, because that's where the major banks... You know, Bank of America spent $12 billion last year on technology and digitization, and they're getting really bloody good at it, and unless the community banks and credit unions can use technologies like ours to level that playing field, then they will continue to lose customers, particularly younger customers, which are the future lifeblood of all of those organizations, to the major national banks and to the standalone fintechs as well.

Michael Coghlan:
So the conversations that we have with them are often very positive in relation to, exactly as you said, the innovation that they want to embrace, but we have to show them and bring them on a path to be able to do that effectively.

Jim Marous:
Obviously there's a significant cost to implement digital. You might be able to modernize and reduce costs, but the implementation hill is significant to climb with regard to a core transformation. How do you address that challenge at BrightFi as you partner with the banks and credit unions you're working with, because obviously they don't have the staff, they don't have the team, the certainly don't have the dollars to implement at such a broad way that a large bank can?

Jim Marous:
But this is all scalable, isn't it? How do you work with your clients right now in not only dealing with the cost implement, but more importantly the time and effort that's pretty significant as well?

Michael Coghlan:
Yeah, well the answer is we do it very carefully. From the very start we created something that we knew would have to be implemented into organizations that would rely more on us and our skills and our capabilities to be able to fulfill that implementation.

Michael Coghlan:
My experience in major banks is that it would take many years and tens if not hundreds of millions of dollars to do anything like a core banking transformation, and it is the stuff of nightmares for CIOs and executives in every organization.

Michael Coghlan:
What we have done is to set out a platform that we can introduce alongside or indeed swap over a corp banking system, but we can implement it alongside in as little as 90 days and for as little as a couple hundred thousand dollars, so it is a consequential change from implementing the old legacy systems of the last 20 years because it is a virtualized digitized system and it's configurable, and it's got all of those great... All the buzzwords are all in there, but the important outcome is that it's a relatively, in inverted commas, easy thing to implement and that there's a path that we can bring our client through quickly and to the extent that it's possible painlessly.

Jim Marous:
This is interesting. What you're saying is when your partnering with a financial institution you really address the three major challenges that our research found that financial institutions have with digital core transformation. Number one, cost. You have a way to drill this down, and obviously between the cost of what they're doing and the cost of what they're going to be doing going forward there are savings involved.

Jim Marous:
Secondly, speed of implementation. You mentioned that this can done extraordinarily fast from this concept of when things are being done, and if you listen to podcasts we talk over and over again about the speed of digital is so fast that if we don't catch up and go ahead in the speed category, if we don't do things that aren't annual plans, but quarterly plans or monthly plans, we're not going to succeed.

Jim Marous:
The third thing you mentioned, it's configurable in that you don't have to jump all in. You can do a section. You can do a department. You can do a line of business. You can do certain areas, which makes it so that this whole thing can be absorbed in a fairly easy way compared to what we mentally put in place.

Jim Marous:
And if I'm not mistaken, BrightFi is cloud based, so even the security issues are being addressed, because obviously we have found while a lot of this hesitation around using the cloud was security, actually the cloud is a much more secure environment than most of our legacy platforms, legacy core systems. So really you've really addressed all those issues, haven't you?

Michael Coghlan:
Yeah, we really have. We've embraced the virtualization wholeheartedly, because it creates an environment, or has now created an environment, a platform that allows us to achieve all of those things, and importantly to do it in a way that doesn't create additional risks and doesn't sacrifice the service to the customer, but in fact enhances it, so the customer is getting all of those things securely to their phone or to their laptop or to whatever device they're using banking, and they are then to quickly transact to using that platform.

Jim Marous:
This is interesting. We talk often on this podcast and in my articles about the need for speed, about the need to become digital, to really work on the back office and make that so that not only is the platform modernized, but your processes are modernized. This seems to be the solution that everybody is looking for, but obviously not everybody is standing in line to sign up or anything of that nature.

Jim Marous:
When you're working with financial institutions and you get to that first meeting and you sit down with them, what holds a lot of organizations back from actually implementing your solution, which seems to answer most of the major issues that organizations bring up in their challenges section. What holds them back from becoming more digitally mature and using a process like yours?

Michael Coghlan:
Jim, that's a great question and I'm not sure that there is one single answer to that, because every organization is necessarily different. They have different calls on the funds that they have available for investing. Smaller institutions don't have billions of dollars. Many of them don't have millions of dollars to be able to spend on different projects, and therefore they have to then be very sensible and careful about where they direct the funds that they have available.

Michael Coghlan:
Funding is always going to be a conversation point right from the start, so we're very transparent about the cost model that we've pursued, because we know that it is consequentially cheaper than they will have had experience with with the legacy systems. So costing is for sure always one of the things that come up.

Michael Coghlan:
The reluctance to mess around with existing systems is always something that comes up. If it's not broken don't fix it I think as an objection comes up time and again. However, that generally is an obstacle that has already been resolved in the minds of the executives at the majority of institutions, because as we've just said they recognize that if they don't embrace this set of technology changes, that if they don't make their business digitally capable, if they don't virtualize and provide a basis for future changes and whatever is coming down the path in six months and 12 months and five years time, then they will not survive in the current market environment, which is one that is defined by digitization.

Michael Coghlan:
The successful businesses that we all see now are ones, particularly in the service and banking space, are ones that have high digital functionality, so that is not going to change.

Jim Marous:
I'm a financial institution, I'm a community banker or a credit union and I want to move forward, but it takes more than technology. It takes more than simply a plugin play or working on a core technology that's going to run parallel to what I currently have... Our research shows that it takes to look at your back office, because simply digitizing, what you've done in the past, isn't going to give you the benefits that technology will bring.

Jim Marous:
You really have to work at reconfiguring and rethinking your back office. In addition, you need to implement and use data and analytics more proficiently in order to know what you have to do next.

Jim Marous:
How does your organization work with clients, even though it's not your necessarily your column and silo to work on... How do you work with organizations to fix the other things around the technology to allow to get the highest level of efficiency and effectiveness?

Michael Coghlan:
Yeah, you're 110% right. Digitizing the old process, the old broken process, is not going to solve the problem. There was a study that I saw a few months ago that said that something like 90% of transactions are now initiated digitally, but of those more than 50% then are passed to a manual process for completion.

Michael Coghlan:
So all you're doing there is put in a digital front end on an old broken back end, and the opportunity really is to be able to have that end digitization. That's really where the opportunity lies.

Michael Coghlan:
Yes, the first step is to front end digitization, no problem. They need to take that first step, but really it is about then taking the second step as well. Because we actually operate our own bank for unbanked and underbanked, then we are able to show here's what the operations can look like as well and direct the clients around using more efficient operations to have that full end-to-end process rather than just the front end.

Jim Marous:
I would imagine that one of the benefits that you bring to the table is that since you work with financial institutions overwhelmingly and the size of the organizations that you're targeting and the size of organizations that you already have, you could also connect the dots and say, "Here's how other clients that we've worked with have solved this problem."

Jim Marous:
Again, one of the benefits of having a highly focused target audience is that certainly if not helping them directly, you can point them in the directions of what other organizations who they've used to help solve these issues, or other financial institutions have already addressed these issues. So you provide that guidance in such a way, because you've already gone down these paths. You know the challenges organizations have. You know what's going to mess up the efficiency and effectiveness of your platform, and you can connect with organizations that have already solved it, can't you?

Michael Coghlan:
Yeah. That absolutely is the case, and I'd add to that as well we can also bring in learning, and have brought in learning from other industries too. The gambling and gaming industry is further ahead than banking in remote identity verification. They've just been doing it for longer. They are better at it. They've got more skills, and we looked to them when we were building our elements for remote customer onboarding. How do we make sure that that is the most secure and accurate mechanism for us to be able to identify an account opener?

Michael Coghlan:
The same with the medical industry. It's further ahead in secure data access retrieval and sharing across their infrastructure, so we looked to the medical industry to take examples and learn from that industry so that we can make the best available for our own platform.

Jim Marous:
Let's look two years out. I used to say five to 10 years out, but you know that time frame, everything can change by then. But let's look two to five years out. How do you see community banks and credit unions competing against not just the bigger banks, but also against the neobanks that have been eating away at the size credit bit?

Jim Marous:
Do you think these organizations can actually do the digital transformation that's necessary to not just survive and keep up, but to actually maybe get ahead of the game and succeed?

Michael Coghlan:
Yeah, I do. I think that in two to five years we will have a thriving community bank and credit union environment. I think that the group has a superpower in the relationships that they have with their customers. They are by far better than the major banks and better than the fintechs at maintaining those relationships and understanding their customers and engaging in their communities and owning that relationship.

Michael Coghlan:
The thing that they now have to do is to get the infrastructure right. I'd love to say that our digital platform is the thing that will make the difference for them. That's not true. Their continuing relationships with their customers will be the difference. It will continue to be their superpower, but unless they get the technologies, unless they digitize, they won't have the chance to use that super power or continue to use that super power.

Michael Coghlan:
So yes, I think that it will be a thriving community in two years time, but it depends on them taking this digitization journey.

Jim Marous:
I agree totally. I think the span between those that thrive and those that don't any longer exist is going to become clear to us, because I think that we've made the journey easier than it's ever been. It's less costly. It's faster. Organizations have to make the decision though.

Jim Marous:
At the end of the day... And we've interviewed a lot of fintech firms and a lot of really innovative financial institutions, it gets back to legacy leadership, is the leadership willing to embrace the change that's required, willing to take on the risk that's still going to be in there, you can't do all this without some risk being accepted, and are you going to do it at speed, that is so key, and that leadership is going to drive it?

Jim Marous:
I think we're going to see a lot of great success stories. I think we're also going to see organizations combining. I think we're going to see more fintech firms and the traditional financial institutions combining to make more digitally oriented traditional financial institutions.

Jim Marous:
Finally, what key piece of advice would you give to financial institutions for evaluating currently cloud based digital and core banking platforms? What would you tell them... Number one, what key advice would you do, and what should they do first?

Michael Coghlan:
My advice I think comes back to precisely what you just said, Jim. The only real competitive advantage that I think is left in business generally is the ability and the desire to change, because the market is changing at such an accelerated rate that organizations must embrace change positively. That would be my advice, is accept that you're going to have to change and then pursue that change.

Michael Coghlan:
Do it in whatever style and mechanism suits your business of course. Take the time, do the reading, ask the questions, but then make the change. There is no doubt in my mind... Like you, I share the view that there are going to be survivors who will thrive and there will be organizations who do not make this digital change and they will not survive. It will not be enough just to have relationships with customers. You must also serve those customers with the products that they want, in the manner that they want, and that's digitization, like it or not.

Jim Marous:
Well, it's interesting, because at the end of the day it is going to be those organizations that are willing to make those changes, and I am of the personal belief that the mid-sized, the second tier, not the third tier, but the second tier, the regional banks, are probably going to be challenged more than anybody, because they don't have the money to compete directly with the biggest banks and they have legacy leadership that's been in place for 30 years that is less likely to change, because financially they're doing very well. If there's no pain there's no movement.

Jim Marous:
I think again, the smaller community banks and the credit unions really have an advantage in this, because they understand what's going on in the street and they're usually more the innovative spirits out there, the challenger mindsets that we talked about.

Jim Marous:
Michael, thank you so much for being on the show today. If somebody is trying to get ahold of you and find out more about BrightFi how do they do so?

Michael Coghlan:
The website of course, brightfiservices.com. A Google search will certain get to us, and ultimately to me.

Jim Marous:
Great. Thank you so much for being on the show.

Michael Coghlan:
A pleasure. Thanks for having me, Jim.

Jim Marous:
Thanks for listing to Banking Transformed Solutions, a new banking podcast that focuses on innovative solutions for financial institutions. We would like to thank BrightFi, that sponsored today's show.

Jim Marous:
If you're a solution provider wanting to discuss how you can help bankers and credit unions solve the major marketplace challenges drop me an email. We're keen to help.

Jim Marous:
This has been a production of Evergreen Podcast. A special thank you to our producer Leah Longbrake, audio engineer Sean Rule-Hoffman, and video producer Will Pritts. I'm your host, Jim Marous. Until next time remember the ability to deploy innovative solutions at digital speed usually involves a trusted partner.