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Volume 32, Issue 1

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Tuesday, 04 December 2018 16:09

Competition Heats Up In Banking Transformation Services

After a few quiet years, Thought Machine, the fintech behind a new core banking platform called Vault, is stealing the limelight, first with its announcement of a strategic partnership with Lloyds Banking Group, then with a similar partnership with the digital bank Atom. And today we’ve learned about another partnership, this time with IBM. We think this sudden activity reveals wider trends in three areas we have been following closely: fintech, banking transformation, and digital transformation services.

Fintech has been all the rage, and Thought Machine, with its ex-Google leaders, smart contracts, cloud, encryption, and continuous deployment, certainly fits the hype. But here’s the problem: Few CIOs are courageous (or mad) enough to select a startup to run their core operations. When evaluating emerging vendors — including fintech — we advise organizations to look at the business value that the solution will generate, the likelihood of failure, and the potential impact of that failure. Unfortunately for fintech startups aiming to disrupt the market of core banking systems, these are business-critical solutions. And the risk and cost of potential failure when replacing them is high. More importantly, not all banking leaders agree that the change will generate enough business value to justify that risk (we disagree).

The ones that do agree subscribe to the vision of digital business and the transformation they need to get there. Lloyds Banking Group and Atom Bank fit that bill perfectly. Lloyds has just entered the third phase of its business transformation. As we have written in the case study detailing the Lloyds journey, the first phase focused on digital banking channels but was unable to tackle customer experience problems holistically and across channels. The solution was to embrace a new operating model. But, as is the case at most banks, the current application landscape limited what Lloyds could do. And so simplification and progressive modernization of Lloyds’ IT and data architecture are the key objectives of the third transformation phase(2018–2020). And Atom Bank is one of the UK’s digital challengers that is competing with other agile players such as Monzo, Revolut, and Starling Bank, with both Monzo and Starling having built their banking platform from scratch to enable them flexibility and experimentation with business models.