“Banks cannot innovate if they’re busy keeping their legacy systems alive”
The internet world -and the internet people- is forcing banks to do their best to keep up with the digital transformations that are taking place. But, why so much drama then? The problem is not the lack of innovative ideas, but the barriers to their implementation derived from the so-called “legacy systems”.This has paved the path for the emergence of many tech firms providing banks -either newcomer or incumbents- with the flexibility they need to evolve.
Here we talk with Conor McAleavey, Head of Innovation at Leveris, one of these new core banking technology providers that is leading the way in Europe -a region which, by the way, is becoming the world’s hottest hub for this kind of businesses-.
Q: You have a pretty bold slogan (“Welcome to Leveris. We build banks”). How would you describe such activity?
Our primary business is providing core banking and lending platforms to financial institutions and other organisations looking to get into financial services. The strapline of ‘We build banks. Differently” came about simply by us trying to communicate what we do in the least number of words possible. We simply build the technology required to run a bank and we do it differently than most.
Ok, so maybe it’s better to start from the basics. What does ‘core banking’ mean? Would you consider yourself as a bank technology vendor?
A core banking system is the software stack which is used to support a bank’s most common transactions like opening accounts, debit card withdrawals or payment processing. Very often, functions which sit outside these core transactions are managed by separate systems. So for instance, mortgages are generally handled by a separate and dedicated standalone mortgage system. Our system however, unifies all of these disparate systems on a common core and code base, where products are then plugged-in in a modular fashion, that allows for fast and easy configuration of the required banking products.
But to answer your question, yes, we are a banking technology vendor.
How do you differentiate yourself from the likes of TEMENOS, Thought Machine, FIS or Fiserv (all of them bank tech providers)?
There are possibly as many as 100 core banking vendors worldwide, most of these have been around for over a decade and in many cases much longer. Some of the names you mentioned above like Temenos and FIS fit into this category and are generally referred to as legacy providers. These systems tend to be well proven, reliable and offer a wide array of functionality. However they also tend to be inflexible, offer poor UX and are incredibly expensive to deploy and maintain. Costs that spiral into the hundreds of millions and even into the billions are commonplace in larger banks, making them inaccessible and uneconomic to smaller and challenger banks. A key goal of ours is to democratise the banking industry by making the capabilities of these platforms available at low cost and in an easily configurable and extensible fashion.
We like to think of ourselves, as I assume Thought Machine would also, as part of the new wave of core banking technology vendors who build systems based on modern architectural principles, i.e. cloud native, built on a service-oriented open architecture and highly componentized. This architecture means our systems are highly flexible, can be easily integrated with other systems and in comparison to the legacy providers are ultra low cost.
I’ve read you’ve created a full-service, end-to-end, adaptable banking platform from scratch. Does this relate to the concept of bank-in-a-box?
Some of the modern core banking vendors focus on a particular slice of the core banking system like the front end or the mid-tier but we have built, and are building, the entire stack including lending capability. Our vision is that if you come to us with a banking licence and some regulated capital we can give you every single part of the technology stack required to launch and operate a full service digital bank. While we are still some bit away from that full vision I think it would be fair to refer to it as bank-in-a-box or more accurately as a banking ecosystem in a box.
So, if a bank buys your services, they don’t need anymore an IT department with 200 engineers?
First of all I would say there isn’t an established bank in the world with only 200 engineers, it’s generally many many times that. Secondly, it’s not that they won’t need engineers any more, it’s just that they will need a massively reduced number. Established banks employ vast legions of technology personnel and you literally wouldn’t believe what they spend on IT in a calendar year, in fact banks are probably the largest employers of IT people in the world. For example a bank operating in a relatively small country like Ireland could be spending as much as six or seven hundred million a year simply keeping their systems alive. That’s not innovation, that’s not new products or better user experiences, that’s just keeping the lights on.
While the exact number of IT personnel required to run our core banking system is much much less than what is required to run the spaghetti junction of systems that you find at the heart of most global banks, the exact ratio is impossible to pinpoint, but it’s certainly at least one order of magnitude less, and in most cases much much less. This is partially due to the low cost of resources that are required to run and develop on our system because it is built using modern languages like Java, Scala and PL/SQL.
What is the role of the APIs in your business?
APIs play a crucial role in our system as they should in all modern platforms. We have a full suite of both internal and external APIs which are part and parcel of a service-oriented architecture. Without external APIs we would have a traditional closed system that made integration with third party products and services incredibly difficult and expensive. Global financial services are moving fast toward some incarnation of a financial marketplace, and without the APIs that enable participation in these new ecosystems, banks will simply be left behind. Or as Chris Skinner puts it “They will just be playing with themselves”.
Do you think Leveris falls under the label ‘banking-as-a-platform’? In what sense do you have a platform business model?
We support almost any customer option as regards running the software, from a fully managed SaaS service all the way down to just providing the software and letting the customer integrate and run. However our definition of BaaP is an open ecosystem where the bank supplies the financial processing engine, and retains the core relationship with the customer, while opening up their platform and access to their customer base to third party products and services on a revenue share basis.
“You can pick and choose whatever products you want, integrate any 3rd party service and, with our “pay as you grow” model, you’ll only pay for what you use.” Could you elaborate on this?
The Leveris platform is highly modular which means you can choose whatever parts of the system you require without having to purchase any other parts. So if you look at our mortgage system for instance it is a full stack end-to-end platform, so you could choose to utilise the entire platform on a cradle-to-grave basis and simply integrate for accounting reasons. On the other hand you could choose to keep your own pre-drawdown systems and processes in place, including origination, underwriting etc etc, but then use our back end for servicing the mortgages post drawdown. In other words, we can help you with the entire process (onboarding, AML, KYC, credit scoring, underwriting, asset verification etc etc) or you can just choose the part of the platform which fits best into your already existing systems and processes.
In addition it is also an open platform so the ability to easily integrate with 3rd party systems is already baked into the architecture. In terms of the “pay as you grow” part, this is because we are natively deployed in AWS with all the scalability benefits of a cloud deployment. You can achieve very efficient cost-to-growth ratios and almost totally avoid the over and under capacity issues of traditional high capex systems. In fact one of the major attractions of our platform means that the more customers you put on the system (i.e. customers of our client banks) and the more transactions they carry out on there, the cost per customer (for our client banks) actually goes down, which is the polar opposite of what happens in a legacy system.
Could you help also challenger banks? How do you see that some of them are building their whole tech infrastructure “in-house”, like Starling or Monzo?
Can we help challenger banks? Absolutely… in fact when we started out we thought that challenger banks would be our main source of revenue. Since that though, the age of bank and fintech collaboration has really started to take off and we now realise that almost any bank in the world, challenger or otherwise are sweet spot customers for us. We have also had several discussions with non banks, such as a very well known supermarket chain and an air-line who want to get into the lending and debit card business. Their proven ability to monetise data and their already existing data set from loyalty programs makes them perfect candidates to exploit the new asset class, which of course is data.
If I was a challenger bank and I had the right expertise, experience and budget I would be doing exactly what Monzo and Starling are doing. They are building modern and flexible systems and then looking to open up their stack to third party product and service providers. Banks simply cannot pretend to be the sole source of innovation for their customers going forward and I think both Monzo and Starling get that, I can’t wait to see how both companies develop. If you look at our lending platform as an example it is designed specifically for this kind of bank-fintech collaboration in mind. Monzo and Starling appear to be going for this banking marketplace approach where their customers can choose to take out a personal loan or mortgage with a multitude of different preferred suppliers, and that’s exactly where we see the future and exactly how our system is designed.
Buying a third party core system, can’t that create problems to agility and real-time service provisioning?
Yes relying on third party core banking systems in the past hampered agility but that was because they were decades old systems that were never designed for agility. They were walled gardened systems which were incredibly difficult to upgrade, integrate with or innovate on. That is not the case with systems built on modern architectures which are designed to deploy natively in the cloud.
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Conor’s Twitter: @
My Twitter: @bankingunion_eu
Leveris’ Twitter: @
Kantox’ Twitter: @kantox