One of the core differences between the FinTech world and traditional financial institutions lies in the underlying technology and the level of freedom to build it. Unlike traditional banks, FinTech startups are free from legacy systems and operate mostly in the area of law that allows them to be relatively free. Hence, they can build their services on experimental algorithms and pivot them as they please to find the best solution.
Startups can also take a mixed approach and source underlying technology solutions for different services from the best in the market – other tech companies specializing in banking technology. Whichever is the choice, the bottom line is that FinTech startups are free to either build their proprietary back-office solutions or source the best technology and custom-build their back-office (or mix it all up) relatively freely.
Under the hood of FinTech services
Among interesting examples of FinTech startups that chose to build services on proprietary algorithms or found high-profile vendors is Metro Bank. As explained by Burnmark, a company powered by FinLeap company builder in collaboration with Devie Mohan, Metro Bank has implemented Backbase’s Omnichannel Banking Platform for its digital banking front-end, FIS/SunGard’s Ambit Asset Liability Management solution and outsources mortgage processing to SourceHOV.
Another challenger bank, Atom Bank, is reported to be using FIS’ Profile core banking system, combining it with Sungard’s Ambit Quantum and Ambit Focus for treasury and risk management, Iress’ Mortgage Sales & Origination (MSO) for mortgage, Wolters Kluwer’s OneSumX for regulatory reporting, Intelligent Environments (IE) for front-office capabilities, CSC’s ConfidentID for security and WDS Virtual Agent for customer queries.
Shawbrook Bank is using Sandstone Technology for the front-end, Target Group for business process outsourcing and Brightstar’s EasySource sourcing and case management. As a core platform, it uses Sopra Banking Software’s Mortgage and Savings Suite.
There is a range of other interesting examples brought up by Burnmark, like Monzo Bank, that built its own platform using open source stack: Linux, Apache Cassandra, Google’s Go (golang) programming language at the back-end and PostgreSQL, a relational database.
Shawbrook Bank uses Sandstone Technology for the front-end, Target Group for business process outsourcing and Brightstar’s EasySource sourcing and case management. As a core platform, it uses Sopra Banking Software’s Mortgage and Savings Suite. Aldermore Bank that uses Temenos’ T24 system for its core platform and Backbase’s Omnichannel Banking Platform for digital banking.
The outcome of a separate kitchen
The list of examples can go on, but the idea is clear – unlike established international financial institutions, challengers built their services choosing the best vendors or developing in-house solutions, which allowed them to adjust risks, costs, desired operational efficiency and substantially smoothen the customer-facing part of the business. In addition, the lack of regulatory chains allows them to establish their own metrics and glow as fast they wish to.
While the abovementioned examples are successful ones, Lending Club is an example of what could possibly go wrong when a startup gets to operate its own kitchen with little to no supervision. As simply put recently by TechCrunch, peer-to-peer lending bypasses the regulations to which traditional lenders must adhere and Lending Club has gone all the way with its loan irregularities and lack of disclosure on a personal investment.
Bad examples, however, are not a reason to underestimate the ‘puzzle’ model employed by FinTech as in most cases, it proves to be an efficient choice with great results. Moreover, some financial institutions are also moving towards the same model with particular services – the idea we have put out there when describing the modular bank of the future. Banks can substitute in-house maintained services (and whole departments) to dedicated FinTech startups, building them into the ‘body’ of the bank.