Digital Core Transformation as a Catalyst for Success

Jim Marous:
Hello and welcome to another Banking Transformed solution podcast. I'm your host, Jim Marous, CEO and owner of Digital Banking Report and CO publisher The Financial Brand. Most core banking operations run on aging platforms that are deployed in the '80s and '90s. These platforms are either homegrown or so heavily customized since origination, they're no longer effective. The needs of the digital consumer and functionality required by banks going forward requires solutions that enable and support the digital transformation journey and allow an organization to become future ready.

Jim Marous:
Our guest on the Banking Transformed podcast is Michael Haney, head of digital core at Technisys. We discuss the steps needed to modernize current core platforms and how firms are implementing these solutions. Competition in the banking industry has never been greater and change has never been faster. Digital banking firms are serving customers at one-third the cost of traditional banks using modern core technology built for digital delivery. These modern digital platforms enable firms to innovate faster and operate more efficiently than legacy banking organizations that have core systems built three or four decades ago.

Jim Marous:
According to McKinsey, 70% of financial institutions are reviewing their core banking platforms. The key challenges are the cost and time to market as organizations look for the perfect solution. As I mentioned, Michael Haney, head of digital core for Technisys on the show today. To start us off today, Michael, can you introduce yourself and give people a quick overview of what Technisys does?

Michael Haney:
Well, first of all, Jim, I want to thank you for having me on your podcast today. And we at Technisys are certainly avid readers of The Financial Brand and of course, listeners of Banking Transformed. So by way of introduction, I've been working in the financial services industry for almost 30 years now. Most of that time, I've worked at large multinational financial institutions around the globe, including traditional banking hubs, such as New York, Tokyo, London, and Zurich. And I've also worked for fintechs ranging from the largest fintech player on the planet, all the way down to Silicon Valley startups.

Michael Haney:
And as you stated, I'm currently the head of Technisys' digital core business line. And at Technisys, our mission really is to change the way people bank. And we do this through our cyber bank solution. It provides the digital technology banks' need to become a more integral part of their customers' lifestyle. Now, the firm began life as a provider of internet banking solutions over 25 years ago. And it quickly grew into a fully integrated fashion to support both omnichannel banking as well as customer account processing.

Michael Haney:
Now, cyber bank flips the traditional banking technology stack on its head allowing banks to focus on customer engagement, while simultaneously reducing the core's footprint to dramatically improve operational efficiency.

Jim Marous:
Wow. Since the pandemic, most financial institutions have certainly been playing a game of crisis management and catch up as everything in banking went to digital solutions. What has been the impact on Technisys as well as the financial institutions that you serve in the marketplace?

Michael Haney:
Starting with Technisys, our whole business runs on the cloud. So not only do we build, test and deploy our cyber bank solutions in the cloud, everything from our HR systems to our sales automation tools are cloud based. So, when we switch to a working from home environment, we barely skipped a beat. We continue to launch new product releases, onboard new employees, and sign new deals completely virtually.

Michael Haney:
So successfully, in fact that our executive committee is now questioning how much office space we truly need. And it's changed us in other ways too. For example, our recruiting strategy has changed from a location based focus to simply hiring the best talent wherever we can find them. Now, for financial institutions, especially the incumbent players, it's proved to be a bit more of a challenge. Continuity of business practices typically focus on isolated events, my branch was flooded, the primary power supply to my data center failed, or there's a bug in one of my systems.

Michael Haney:
No bank, I know of, really planned for an event where every employee in every role in every location around the globe needed to suddenly have a new place to work, and that was largely working from home. And also, we saw the bank's customer behavior change. In fact, they were forced to change. We saw the remaining holdouts of adoption of the newer digitally forward ways of banking the first time they downloaded their bank's mobile app to begin that self-service journey. Or to be able to utilize the bank's customer facing video conferencing tools for the first time to speak to their financial advisor.

Michael Haney:
And of course, the banks had to accelerate their speed to market of new products and services such as those PPP loans. So, time to market pressures and the ability to quickly adapt to a changing environment have never been more top of mind for banking management. And observing how the newer fintech players can really move at speed only has increased that sense of urgency at the incumbent banks.

Jim Marous:
It seems to me, I come from the World Bank and I had worked in financial institutions in the late '70s through the '80s. I can't imagine that some of these organizations are still using basically the same platforms that were in place back then, although many have modernized, to some degree, use chicken wire and duct tape as they say. What are the challenges that you've seen as organizations know what needs to be done, but can't get off stuck? What are the challenges?

Michael Haney:
Well, you're absolutely correct, especially back end systems are still stuck in the '70s and '80s for many, many banks. But when it comes to digital transformation, initially, banks thought it was enough to launch a new digital self-service channel, such as an internet banking portal or mobile application. And this helped them eliminate the need for those branches, or those costly devices such as the ATM, while moving and accelerating that move to banking anytime, anywhere.

Michael Haney:
Then, the focus moved to digitizing the physical world of paper and plastic, right, everything from the monthly statement to debit cards to even cash itself became the target at the cost to manage and process these items really ate into the bank's earnings. And then finally, those incumbent banks shifted their attention to the automation of business processes. The goal was to remove bank employees from the process to eliminate that human error, reduce the cost, improve scalability.

Michael Haney:
But the common theme in all of these examples is cost reduction, labor elimination, real estate elimination, elimination of physical items such as checks. The focus is on productivity of existing business models. So, it's a very bank centric approach to the adoption of digital technologies. The improvement to the bank's operational efficiency was the challenge they were trying to address.

Michael Haney:
But these days, the industry is focused on changing its business models entirely. Putting the goals of the customer first, banks and their fintech challenges are now using technology to create new digital first products and services and embedding those at the point of need for the customer, no longer limiting their distribution of what they do to their own closed ecosystem channels.

Michael Haney:
So customers, what are they looking for, they're seeking more than just the ability to transact, which is what the old banking business model is all about. They're seeking ways. They're seeking help, essentially, to manage their finances in ways that meet their goals and better ways to manage their cash flow, and so on and so forth. So, the focus is on driving business outcomes beyond operational efficiency. P&L owners, such as the bank's product managers, or the heads of customer experience are the ones leading the charge now, not just the heads of operations to technology.

Michael Haney:
And what's great is that this new generation of bank leaders is far more tech savvy than their predecessors in knowing what technology can do for them.

Jim Marous:
It's interesting, you mentioned about digitizing the analog back office. You're exactly right, financial institutions and to a degree still do think that the way to go digital is to digitize what they've done in the past when really, it takes a complete rethinking of everything you ever knew about banking, for a better world and a better implementation. Because we talked about before the actual podcast that financial institutions, about 75% after COVID, said they offered digital account opening and mobile account opening.

Jim Marous:
The reality was though, while they offered it, it took 10 to 15 minutes, which isn't digital. It's not reality in the digital world. As you said, organizations are now realizing that simply making things easier in the back office doesn't facilitate digital banking, it really has to be rethought from a digital perspective. So, when institutions are looking to modernize their core banking platform today, what are they looking for?

Michael Haney:
Yeah, and what you're really bringing up is this concept of a two speed architecture that many banks have adopted over the last decade or so. They're pouring money into that front end, those digital channels. They're adopting the newer technology stacks that allow them to adapt at high speeds, adapting to change. And these enable also agile ways of working. I think everybody's now familiar with Agile methodologies, DevOps methodologies and so on.

Michael Haney:
But the back end team is still working in a waterfall mode on Legacy technologies. And so, you end up with a bank where the front end moves at one speed and the backend moves at another speed. And we're starting to hit a wall. Because now, it's not just about enabling those digital channels and embedding those experiences into third parties, we are now seeking to fundamentally change the bank's products and services. So the backend now has to move at the same speed as the front end.

Michael Haney:
And we also see other traditional variables that banks look for in a modern core. Clearly, the lower cost of ownership. Not only the cost of change, but the cost to run in your production environment, the licensing cost, all those dimensions are things that banks are questioning. Should I still be charged by account by transaction? How's this core in my own data center? All those kinds of questions come up when they look at total cost of ownership.

Michael Haney:
We also see banks wanting to work at what I call the level of granularity they want to work at. Some banks are very happy working out with extreme primitives. Others want to work at higher levels of abstraction. And so, modern cores such as our cyber bank will allow banks to assemble primitives into more macro or composite services, allowing them to then embed those services into their own channels, as well as third party channels, either at a macro level or micro level or whatever they're comfortable working with.

Michael Haney:
So, that ability to quickly decompose a product or a service into those primitives and to re-compose them in other ways in a fast manner is absolutely there. And lastly, viewing your backend as an enabler of customer journeys. Do we view these things in the same light? Can the back end power the front end, rather than just being distinct and separate from the front end and just be viewed as a transaction process?

Jim Marous:
In my introduction, I mentioned that a lot of organizations know what they need to do, but have a challenge in actually doing it. Everything you're talking about, obviously, makes all the sense in the world, especially given our environment today and given the competitive environment that every organization is up against with organizations that really were built on digital cores. When you're working with financial institutions, what are the hesitations that you hear from them as to why they're not moving forward? What are the major challenges? What are the reasons why they don't get unstuck from your perspective?

Michael Haney:
Yeah, absolutely. It's partly fear of the unknown. Many of these systems were built, as you mentioned earlier in the podcast, in the '70s and '80s on Legacy technologies, which some banks may not understand anymore, and the people who did understand them may have retired. Difficult to find those skill sets in the marketplace. Many of those systems, we didn't have the discipline back then to document them as well. They're wired into an environment I've seen as high as 160 or more applications to which the core is wired into. So, that's viewed as heart surgery, right, that I'm replacing something that's so tightly interwoven into my banks' operating model that I'm afraid that even touching it will disrupt something.

Michael Haney:
But I think now that the business pressures have come to the point where they have no ability to wait anymore, they have to now act with speed and do what's right. But we do see them taking different approaches to modernization than they have in the past. It was always the assumption that it was going to be a one time event, a so-called Big Bang event. Where one day you're on your old core, and then you switch over, and the next day, business day, you're on the new core. Those are not really the paths forward anymore. So, banks are searching for and have found alternative ways to modernize their tech stack and be able to do it in a way that's not so scary, if you will.

Jim Marous:
Honestly, everybody is buried today. And organizations look at a core transformation, as you said, as this big beast that that, geez, I just don't want to face it. It's just too big. But what you're saying here is that organizations now have the ability to actually maybe modernize a component of what they do. Make the whole effort of what they want to do in the long term, in the shorter elements where you can say, "My biggest problem is on the under deposit side of the bank and the tunnel below that." And you can help an organization find the best solution for that that will then be able to build into other areas in the future then?

Michael Haney:
Yes, absolutely. There are ways to deploy your core as an iterative and progressive approach. One of the ways that comes to mind that most people think about is sort of a side by side core model. So perhaps I run deposits on one core and lending on another core with a view to then consolidating in the future on a single core platform, that's the more modern of the two choices. That has advantages and disadvantages like any core modernization approach.

Michael Haney:
Now, you have two cores wired into the same front end systems as well as the same downstream systems, such as your data warehouse and your general ledger and your AML monitoring solutions. Now, side by side could also be done in other ways, a lot of banks are now exploring or already have launched a digital only subsidiary, where they build the tech stack that they really want with the view of eventually cannibalizing their existing systems and moving them over to the new system.

Michael Haney:
So, again, we see a little bit more freedom in that scenario from the upstream and downstream systems than we typically see. But you still often connect at things like a general ledger, or payment rails, or AML monitoring solutions. So, a new approach that we are starting to see now and are promoting in the market is a core augmentation approach, which is more front to back, where the newer core actually becomes the enabler of the real time piece of the business, your digital channels, your real time payment, rails, et cetera. And almost takes over what we call the memo post front end of a legacy core.

Michael Haney:
And the back end still plays that traditional role of batch based or nightly processing and feeding those downstream systems which don't actually require real time intervention. And then slowly, again, that's not the end state, that's an interim state where they've been able to now introduce the platform they want to move to, and then literally and progressively moving the legacy core to the new core.

Michael Haney:
But they also can start launching their newer products on that new core. And I think that's the other advantage that we're seeing is that you have these dual cores acting as one in the short term with a view to sunsetting that legacy in the longer term.

Jim Marous:
So actually, you're getting to one of your first comments, which is, putting the customer center. Basically, you're improving the experience and then fixing the back office after the fact. Not that much after, obviously, but you're really working on the front end experience, correct?

Michael Haney:
Yes, absolutely. In fact, that's where Technisys began its life is building those front end experiences over digital channels for the customer. So, we're one of the few firms that not only have a front and a back end within one company, but we actually designed our core with that customer centered mindset from the very beginning. And it really permeates every single thing we do, not just our architecture of the system and how we think about designing cyber bank, but even our pricing model and the way we describe and go to market with our solution. It has that customer centric vision at the heart of the company and our product.

Jim Marous:
So, how has the rise of things like embedded banking and banking as a service, really changed the way that not only provide more opportunities and revenue streams, but also change what organizations are looking for from a core digital banking platform provider?

Michael Haney:
Yeah. It's all about making that customer journey seamless. So, let's take a simple example of something that we've all seen over the last decade evolve, buying an airplane ticket, right? Of course, the first thing one could start to do when the airlines started shifting to online purchasing of their tickets was embedding the ability to pay for that ticket online. So, like most things in financial services and including the embedded financial services, it all begins with money movement, right, with payments.

Michael Haney:
But now, we start to see things like the ability to book a hotel and a rental car as part of that airline ticket purchase. We see the ability to purchase both trip and travel insurance as part of that journey, and so on and so forth. So, the whole point is that you've got this journey, which is I'm going on a trip. And the airlines are now starting to think about what is everything you need, even beyond and above what we offer you, what is everything you need for that trip. And that increases of course loyalty and customer satisfaction. It makes that journey that much more seamless.

Michael Haney:
And so, we're going to start to see banks continuing to come up with financial products and services that they embed in non-financial brands, right? We'd all began with embedding in fintech players, like Chime Bank is probably the most famous example of that. Even if we go back far enough in time, we see the Bancorp bank out of Delaware embedding banking into wealth managers and insurance companies back when banks and insurance brokerage couldn't be under one umbrella. And we see, obviously, payments has always been embedded as part of those customer journeys.

Michael Haney:
But now, really, this concept of embedded is really exploding. The hot topic, of course, buy now pay later, is another example of embedded finance where we're commingling traditional payment lending and deposit solutions in ways that truly address customer needs at the point when they need them. Now, not all banks are going to be able to play the same way in this space. Some banks are going to be excellent at the utility model or the plumbing, if you will, of embedded finance. And they're going to excel at operational efficiency and low cost and uninterrupted service availability.

Michael Haney:
Other banks are going to be more brand first, where they want their brand front and center and they don't want to lose that customer engagement. And they don't want to lose that customer loyalty and satisfaction. They're going to have their brands front and center. And there's no right or wrong model. The point is that the industry needs all of these models and we have banks that are pursuing all these models. So, there's plenty of room to grow.

Michael Haney:
But banking, as a service, in general, is a nice new revenue stream for these banks. And it allows smaller players to get customers nationally that they were unable to do so in the past. It allows a whole new revenue stream they never had before. So, it really is something that's changing the marketplace.

Jim Marous:
So, when we're looking at the core, obviously, you brought up buy now pay later. The core really has to be so flexible and built in such a way that can take on new products. But just as importantly, the incorporating things like AI and natural language processing and machine learning and blockchain and Bitcoin, all these other things. How does Technisys work at building these capabilities or functionalities within the platform, so that you don't have to completely rebuild something? How do you build that flexibly into the core?

Michael Haney:
Yeah. So, that flexibility in the core is, by the way, what shrinks the time to market to deploy or change the core and build those new financial products that the customers are thinking. And it all begins with that concept of being able to work at a primitive level. But we also wrap the core with what's called low code or no code toolset.

Michael Haney:
So you can actually automate the creation of code and the deployment of code in ways that we couldn't do before. And you become less reliant upon more expensive software engineers and programmers, right? And you can have simple business analysts or product managers defining the services that the bank wants to offer through these low code tool sets.

Michael Haney:
Now, AI brings a whole other dimension. We see the three largest flavors of AI, if you will, in the banking industry are the ones that you mentioned, machine learning, natural language processing, I would add robotics to that equation as well. Now, machine learning, of course, has probably a very exciting promise of delivering more actionable and automated and timely insights. Because the banks have this abundance of data but they don't necessarily have the tools to gain those insights and then act upon those insights.

Michael Haney:
And shift the insights from the executive management of the firm, to the front facing staff of the firm or customer facing staff to the customer themselves. And that's the ultimate journey is how do I point those actionable insights to the customer themselves, so that we don't have this sort of lag between what I learned about you and what you need to when you can take action upon that.

Michael Haney:
But of course, there are still significant challenges in building these models. They're much better models because they self adapt, unlike a traditional business rules engine which might be predictive, but not self adapting. And the models obviously come often with inherent bias that we have to kind of work through to make sure that the data itself is reflective of the true behavior and needs of the customer.

Michael Haney:
And also, customer data privacy policies and regulatory privacy policies can also limit how this data can be used. So, all the combinations of data quality, availability of talent, lack of investment in the infrastructure, all of these are exacerbating the challenges. But machine learning remains, to me, still one of the most exciting possibilities of AI. And we started to bring that in there in a very specific way.

Michael Haney:
So our focus at Technisys is less about marketing offers and using machine learning for the traditional spaces or fraud detection. In my experience in the bank, the majority of decision management spend is in marketing first and fraud second, with a growing center around things like anti-money laundering and tax evasion and these types of scenarios. Where, really, where the new trend is going to be is financial health and wellness of the customer. And how can I use these actionable triggers and the data that comes from the bank accounts that the customer holds to really provide daily nudges, if you will, that change the customer behavior in a positive way so that they truly are meeting their goals and not getting themselves into financial trouble?

Michael Haney:
The second way, the second flavor, that natural language processing flavor is really part of a theme that we call the conversational bank, which is rapidly emerging. It's been a great journey over the last 10, 20 years of digital self-service through the internet and the mobile app. But it's still largely about filling out forms and pushing buttons, right? And especially the younger generation wants to interact in more natural ways with their bank. What does that mean? That means they want to speak to the bank or they want to type. So, email, e-chat, these types of capabilities, or speaking to a smart speaker or smartphone.

Michael Haney:
This is a more natural way of engaging with your bank. And that's where that natural language processing comes in. But it has to be done in a way which allows for an out, right? So, one of the things we've done is we built in sentiment analysis, so we can understand that the customer is getting a bit frustrated with the experience and wants to seamlessly transition to a human agent or a human relationship manager. Or it's simply just the customer is requesting to be transferred.

Michael Haney:
And so, we're seeing a retraining of the contact center staff, because we still want to stay in the channels that the customer enjoys, those chat channels or those video channels. But we want to seamlessly transition away from the chat bots and other emerging channels that were being handled using this natural language processing and transition seamlessly to a human agent, but continue to stay in those channels.

Jim Marous:
It's interesting, because when you're talking about how you implement a program, speed is of utmost importance right now. The ability to introduce new product and speed, the ability to make an offer and speed and all this. And that's a major advantage of a modern core is that these things could take a year or more in a traditional core. And adding new products may not even be able to be done, let's say a buy now pay later scenario. And building an AI engine or a machine learning engine on an outdated court can't be done, just because of the speed of development.

Jim Marous:
But if an organization realize that one of the key components of the digital world is the speed to market of solutions, offers, products, integrations, all these different elements, really, without having a modern core, it's almost impossible to do it. But you certainly can't maximize or optimize the experience from the customer standpoint.

Jim Marous:
And the other element of speed is the speed of implementation, the speed of actually working with you. And I know I'm asking a wide open question, because it's not something like you buy it, you plug it in, and it turns on or that it's all done at once. But if an organization decides that they want to modernize and transform their core, what kind of timeframe are they looking at? And how do you break that timeframe apart? Because it appears from what your discussions are, that you sit down with a client first find out what their goal is, then you try to find out how they how they want to build this transformation.

Jim Marous:
But you also have to tell them at some point what the timeframe is going to be. What's the timeframe that an organization is usually looking at to see results?

Michael Haney:
Yeah, earlier in the podcast, you actually brought up that one-third figure. And we literally are in apples to apples comparison seeing a one-third or one-fourth the amount of time and effort it takes to do something on a Legacy core from the '70s and '80s versus a more modern core that we have now.

Michael Haney:
Actually having done those effort estimates with the bank's Legacy team, and then doing them against the newer team using the newer core, we are seeing those kinds of dramatic time to market reductions. And the long pole in the tent is no longer my core, the long pole in the intent is perhaps those surrounding systems or retraining bank staff or what have you, right?

Michael Haney:
So we've been able to eliminate the core being the historical thing in the bank's project that takes the longest and costs the most. Now, the core can cost the least and take the shortest amount of time. And the onus falls elsewhere within the firm to dramatically escalate the other ways they implement change within their day.

Michael Haney:
Now, of course, that's for a Legacy or an incumbent bank. A neobank, we've seen remarkable times to market. Obviously, neobanks had the advantage that there is no incumbent or Legacy software. And we're not transforming from one thing to the other. We're building a tech stack from scratch. And it's not just our solution. It's also the surrounding solutions that the bank is adopting are also cloud first low code tool enabled and so forth, all the tricks of the modern age that one has to dramatically shrink what typically would take years to launch a neobank. We've been able to launch cores in a three to six month timeframe for those neobanks.

Michael Haney:
Now granted, that's around a very specific MVP or release one scope, so not everyone's going to achieve three to six month timeframe. But these are just super surprising numbers. And some of the things we've seen in our home base of Latin America are these kinds of fast moving neobanks, who've been able to go live with their MVP in less than one year's time. And it's been absolutely remarkable to see that it's not something I expected to see, even in my own lifetime doing this now for almost 30 years.

Jim Marous:
Yeah. It's very much like digital transformation that modernizing a core is not a destination, it continues to evolve. And new things happen to the marketplace that makes you have to bring in updates or new ways of doing things. And I think it's important for people to realize once you've made that decision, your work has just begun. And even once you've implemented a lot of what you decided to do, your work continues, it's not something we let go because the marketplace is evolving so quickly, as you said.

Jim Marous:
We're even modernizing the core of what I call legacy fintechs. Fintechs that have been around for a decade or so. And the importance of that is non negotiable. I mean, the reality is you can't stay in the past and expect to be in the future and exist in the future. So, I'm wondering, as you're talking about this core transformation, it's a big endeavor and takes resources, both financial and human. Can any organization of any size really take on these sides of the transformation?

Michael Haney:
I think they can. One of the things that you mentioned there is really talking about how to manage change. In my career in the 2000s, there was actually a lot of regulatory pressure in markets, like the UK and the US that focused on how do banks manage change holistically? Not just technology change, but change in general. So there was a very rapid maturing program management processes in those things. In 2010, it was also about moving to Agile.

Michael Haney:
And agile really also helps the bank shift costs from a CAPEX perspective to an OPEX perspective so that you start to think about things in a continuous change mindset, rather than a traditional project mindset, which has a beginning and an end. And then, there's cost associated with that that gets amortized over so many years according to bank depreciation policies and the like. So, that mindset that we are going to be in a continuous change mode and continuously adapting to our environment and we started to see these methodologies permeate banks of all sizes.

Michael Haney:
I would say that coupled with the technology enhancements that we've seen over the last decade or so, right? Cloud, I no longer have to have a data center, network operating center, these physical facilities, these hardware stacks. Low code tools, as we've been discussing, I no longer have to have super sophisticated programmers and software engineers making six figure salaries. Open source, right, a lot of open source even embedded in our own solution of cyber bank.

Michael Haney:
Open source dramatically lowers the software licensing costs that one needs and has traditionally paid to their software vendors. All of this is sort of having a net effect around simplicity to configure and deploy dramatically lower total cost of ownership. And it brings this sort of democratization of technology so that you don't need to be a top for a bank with a $10 billion annual IT spent.

Michael Haney:
You can be a smaller bank and achieve some of the same things that the larger banks are achieving. So, it's a whole different world and it really sort of starts to level the playing field in a dramatic way. So, will every community bank, under a billion in assets, be able to achieve what the top four are achieving? Maybe not. But at least now, the playing field is level for them to at least try to compete on that space.

Jim Marous:
You know Michael, from your perspective, a lot of what you do works on implementation and getting your solutions to the financial community. But because you're a Legacy banker and because you've been in this world for a long time, and your role is looking at the information on that as needed to improve your core solution. What trends, opportunities, even threats do you see in the future of financial services that you're looking to as an organization to try to be prepared for, to get ready for?

Michael Haney:
Yeah. So, we're definitely focused on empowering the traditional players, as well as the neobanks, but also very much the traditional players, to get ready for a future world and have a future proof model that enables them to compete. Not just with the growing set of competitors that are out there that don't have the drag of Legacy holding them back and are able to adapt at a speed that the Legacy banks traditionally have not been able to.

Michael Haney:
But also, for more existential or esoteric threats that we're starting to see right? What happens in the world of a retail or direct to consumer, CBDC, right, these central bank digital currencies? They have a lot of potential benefits to society, such as reducing the number of unbanked customers, or citizens, simplifying payments infrastructure and even lowering financial crime.

Michael Haney:
But we see some potential risks with these kinds of fundamental changes in the long term with things like CBDCs, right? Erosion of consumer privacy ...

Jim Marous:
Yeah.

Michael Haney:
... lowering of customer service quality, especially if the government is now going to be playing the role of guiding consumers along, introducing single points of failure into the industry. And fundamentally, what does this mean for the role of banks if they're no longer deposit taking institutions? So banks have to start thinking beyond, again, traditional transaction processing for their savings account or their investments accounts. And they have to start now thinking about getting into more of the advisory game.

Michael Haney:
We have to start now thinking about the cost of funds if banks are no longer able to take in deposits and then turn around and lend those out. What does that do to the cost of funds? And how can banks get ahead of that game as well? So there are some things that we see in the medium to long term which pose even more existential threats to the traditional banking model than just the emergence of fintechs or neobanks.

Jim Marous:
A lot on everybody's plate. So, finally, Michael, what key piece of advice would you give to financial institutions who are evaluating, updating their back office core and cloud native digital and their core banking platform. Number one, what piece of advice would you give them? And where do they start?

Michael Haney:
Yeah, absolutely. I do think that the neocores or sometimes called the generation three cores, which are less about programming and parameter files and more about flexibility and low co tools, it's now here to stay. And every bank of every size is now exploring them. The good news is there's very few of these vendors on the planet. So, as you explore your options, you don't have to create a RFI, which has 20 vendors listed in your RFI to explore.

Michael Haney:
The neocores, it takes a brave company such as ours to get into this space and build something like a core solution from scratch. And many such as ours are also coming from overseas. So, if you're a US domiciled bank, look for those folks that even if they're coming from overseas, they have a proven track record and making sure that they are making the investments in the US market, regulatory compliance, US accounting rules, US localization on all fronts if they're hiring teams on the ground for sales and delivery and ongoing product support.

Michael Haney:
If you're not seeing evidence of that, they're probably not serious about the US market and maybe spreading themselves quite thin. So, there are clues you can look for. It's not just in the product, it's not just about always adopting the latest and greatest technology, that's definitely a piece of it, because you want to future proof your enterprise. But also look at the company itself and what are the moves it's making as it expands to new and different markets.

Jim Marous:
Great point. And I keep on bringing this up probably in every podcast now because it's a big challenge in the banking industry. I'm sure you're familiar enough for the banking industry to know that even the most minor decisions, financial systems tend to take too long to make those decisions. And I've used this term before that it's better to make an imperfect decision today, than what you think may be a perfect decision 18 to 24 months from now.

Jim Marous:
Because with everything changing so fast, the ability to make up that time is gone, you're not going to be able to do it. And it is better to find that organization. Couple things that I recommend, number one, make the decision quickly. You can bury yourself in an analysis and the reality is the differences between different providers is there. But it's not so significant to justify a 18 to 24 month delay. Because that marketplace changes as anybody who's lived through implementation of ATMs, implementation of online banking, implementation of the first mobile banking solutions, people that made the decision within 18 to 24 months look back and said, "Geez, I wish I'd made the decision on the first day, I wouldn't have been that far off."

Jim Marous:
Secondly, get your team together and make decisions as to what you want to become because Michael brought up some interesting points about you got to define what kind of bank you're going to be in the open banking world, in the digital banking world. What markets you want to solve for? Who you're company is and really who you think it needs to be? And if you can define that, that helps you a long way.

Jim Marous:
Thirdly, and it's so important, pick a partner that's willing to work with other partners of yours. The problem is some organizations just say, "I want it all." And they'll spend more time fighting with your other partners than they will working on your behalf. And the good news is, we tried very hard, and we succeeded today, not allowing those partners to be on our podcast, because they burn bridges very quickly.

Jim Marous:
And finally, be willing to work with an organization that's going to be able to take the ball and run with it down the field on your behalf, and have enough case studies that can allow you to avoid a lot of the decisions that are the same for every financial decision. We didn't talk about that, Michael, but I know in past talking with Technisys, one of the benefits you bring to the table is you can take about half the decisions that were used to be on the plate, and tell them how they should go today, because you've seen enough successes. And I use the GPS a lot, the analogy of a GPS.

Jim Marous:
The GPS allows you to avoid the traffic jams, avoid the detours, avoid the rough roads. This is what a good partner does. And this is what a firm like Technisys can do because they have enough implementation to say, "You know what? We kind of screwed this one up because of this. We've kind of this one really right because of this. The client did this that made the whole implementation smoother."

Jim Marous:
Bringing those case studies to the table allows you to implement faster and more successfully than you would have been able to do on your own. Michael, thank you so much. And thank you for Technisys for sponsoring this podcast. But most importantly, thanks for being a visionary. Because in your role, you have to be, you can't sit still, you have to continually transform yourself and your organization in such a way that allows you to serve your clients better on what they need to do today.

Jim Marous:
I keep on mentioning buy now pay later. But when a product that was as old as time comes out in a new way in a matter of days and becomes a disrupter, you got to be ready for it. When organizations are looking at Bitcoin and looking at deploying Bitcoin and ATMs. You have to be ready for that. And then, again, be prepared as three quarters of the game. So again, thank you, Michael, appreciate you being on the show today.

Michael Haney:
Yeah. I absolutely enjoyed it. I enjoyed it, Jim, and looking forward to our next conversation. And those insights that you gave there at the end, this is why you're one of the GPS for our industries, and we're very appreciative of that. So, thank you for having me. And thank you for having Technisys as sponsor to today's podcast.

Jim Marous:
Thanks for listening to Banking Transformed solutions podcast, a new banking podcast that focus on innovative solutions for the financial institution community. We would like to thank Technisys, the sponsor for today's show.

Jim Marous:
If you're a solution provider, why don't you discuss how you can help banks and credit unions solve a major marketplace challenge? Drop me an email, we're keen to help. This has been a production of Evergreen Podcasts, 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. Thank you so much for listening.