June 15, 2016
Mexico City is in Mexico. Guatemala City is in Guatemala. Panama City is in Panama…easy. But it can get harder: I had lived in the greater New York City area for almost two decades before I learned that Long Island City is not in Long Island! (Yes, this post is about Banking Technology - getting there soon.)
I had also forgotten until I landed at MCI, the Kansas City airport, that I would have to cross state lines to enter the state of Kansas. (Kansas City is in the state of Missouri, for those who might not be familiar with US geography.)
And Lawrence, Kansas is where I met Suresh Ramamurthi, Chairman of CBW Bank headquartered in Weir, KS. Suresh is also CEO of Yantra Financial Technologies. The unassuming Yantra offices could be mistaken for those of a media tech startup in NYC's Flatiron district. It definitely not feel like a midwestern financial institution!
I had known Suresh for many years and had followed his pioneering achievements after he left Silicon Valley in 2009. However, I had to actually see it to believe it. And here I was, admiring the renderings on the whiteboard and poring over API documentation. All this while talking about our shared nostalgia in semiconductors, Google Maps and many other topics. It was particularly gratifying to be able to discuss APIs in financial services. Thanks t0 Amit Goel, LTP has covered that topic comprehensively over the years.
So, here's a banking technology-focused excerpt from my freewheeling conversation with Suresh, who has truly brought together the ‘Fin’ and ‘Tech’ in FinTech with his two companies. One of them is a regulated bank. The other is a technology company that offers itself as a banking technology platform for next generation money movement. These two companies are innovating in tandem, tucked away in the middle of nowhere. (Lawrence, KS is literally only 226 miles west of the geographic center of the continental US.) CBW and Yantra are two hidden gems that promise to pave the way for digital banking and money movement.
Here's the interview:
Suresh Ramamurthi: Money is one of the most important inventions of human beings. It allows them to divide tasks, specialize and contribute to society. Otherwise, we will be no different from animals hunting for food every day. While money came after fire, money can buy fire now. Buy" is the most important word. Money can capture the perceived value of one human being’s exchange with the other in a transaction.
It became clear that money has evolved from a token such as a piece of metal (gold, silver, copper) or even other objects to a number in a book or ledger. From a number in a ledger, it is now a number in a database. Along the way, several proxies or pointers to money have emerged with various guarantees and settlement features (e.g. Visa, MasterCard). As money was becoming digital, I realized that the best way to learn about this and add value during this period of innovation was to be within a bank.
SR: The most significant changes are in the plumbing or rails. We went back to the first principles. The account is a number in a database today. Adding to the number is a credit and subtracting from that number is a debit. We made the account the fundamental unit of banking. We rebuilt all the ways of applying credits and debits as separate channels with their own compliance as well as product management attributes.
I became a certified compliance officer since regulatory compliance is probably the most important factor in banking today. We decided that a legacy approach of batch-based, post-transaction, random testing was not going to scale. We are now ensuring that all transactions are risk scored and checked for compliance before they are allowed to go through. What this means for the end-customer is that we can enable real-time transactions. We can now open up APIs to address the long tail.
SR: Yes, we enable quite amazing products, such as those required when refueling a cloud-connected car. When a debit card is used at a gas station, the bank account platform triggers an API call to the cloud-connected car. It checks the vehicle identification number to ensure it’s the correct car. It views the miles since the last fill-up to confirm that the transaction makes sense. The use cases for this are varied and numerous. Purchases can be limited to certain gas stations, giving owners of company vehicles more control over when and where their vehicles are refueled. This also allows parents to limit how far from home their children can drive. On the enterprise side, it enables efficient fleet management.
Event-based applications extend beyond just gas cards. There are many other verticals that can leverage event-based transactions. CBW, the bank, believes that such event-based applications will be written by third-party developers. This can meet the needs of various consumer and business verticals much better, powered by the bank as a platform.
SR: The American banking system is unprecedented in the history of mankind. Unlike most other countries which have fewer banks, we have over 12,000 banks and credit unions. This means that any change has to be embraced by every bank. And of course, we are also a democracy, which means change is not that easy. Sometimes, instead of getting the best solution, we end up with the least common denominator solution.
SR: We see our role as a bank (CBW) as commerce-enabling consumers and various business verticals and micro-verticals. And the long tail is as present in banking as in every other business. Banks don’t do a good job of addressing the long tail and it is unlikely that they can without a marketplace approach. To be able to open up APIs for third parties, we had to solve for compliance at scale and in real-time. We also had to own all the payment channels and have a state management system. Finally, we needed to have the ability to kill a transaction if it does not meet the risk score or fraud check. Once we got to this place, we are now able to open APIs that expose events or can be event driven or can generate signals from real-time analytics.
This means that we can selectively open up APIs to serve various verticals and we are doing that through BlastPay, which enables a business to integrate disbursements into their business flow via APIs. We can enable essentially every type of payment via API now as well contextual and conditional payments. Here is where the enormity of long tail collides with the regulatory needs of a bank, which is forcing us to be very picky on what we open up and how.
SR: I have not found anyone who is willing to wait even one minute for Google to respond to their search query. The next generation is used to instant results. We now provide instant payments domestically and to certain countries. We have heard repeatedly about uberization. To me, uberization is not about a mobile app ordering a taxi. It is about taking a decrepit taxi dispatching infrastructure and rebuilding it, abstracting away all the processes down to a couple of clicks. Now they are exposing that as an API to businesses to leverage that infrastructure to deliver or to pickup. Amazon has abstracted away so many things into APIs. It is unbelievable what they have achieved given that they started as an online book vendor.
What we at CBW are on the path to do is to abstract away all the messy compliance, KYC, clearing and settlement issues to simple instructions. While capturing all the necessary information, these will enable movement of money almost instantly.
SR: Yantra is in discussions with very large banks that can see an immediate revenue uptick from rolling out the Yantra Infrastructure solution to their large customer base. They will be able to generate fees from new products that they are not offering today and cannot offer with their existing infrastructure. The consumer will benefit from an immediate ROI as well as the large banks. You will likely see announcements later this year.
SR: I may have started on building out the infrastructure even earlier if I had known that depending on legacy core processors to provide a few APIs was a non-starter. In fact, in some cases where there are APIs, their performance is pathetic.
SR: It depends on the day. Successfully solving problems is always fun and the process of getting there is riddled with many failures—or rather, let us call it ‘learning experiences.’
Stay tuned on LTP for ongoing coverage of this topic: Banking Technology, APIs, and how the space is on track for transformation. There has never been a more eventful time in banking and payments innovation, and we are excited to be part of the journey.