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Neobanks and finance sector innovators soar with cloud-based core banking platforms

Financial services have been impacted by technology since the abacus was invented; but today there is a new sense of transformation urgency.

The competitive forces in the sector have never been more acute; regulatory scrutiny is intense; and customer expectations about the services and experience they receive continue to rise.

A new breed of cloud-based mission critical banking platforms is being adopted across the sector by both neobanks and forward-facing incumbents which want to digitally disrupt themselves rather than wait for someone else to do it.

Temenos saw the opportunity earlier this decade when it first moved to offer its T24 Core Banking platform across to the Microsoft Azure cloud, leveraging Azure’s in-built security, privacy and compliance as well as the Microsoft cloud’s demonstrated performance and scalability.

With 20 per cent of its revenues earmarked each year for investment in research and development, Temenos is firmly focussed on the future.

And that increasingly hinges around cloud. In Australia, it is working with two neobanks, volt bank and Judo Capital, to deploy T24 Core Banking as their core banking platform.

Challengers gather

Judo is the latest neobank to adopt T24 and has signed for its Core Banking, Channels, Analytics and Financial Crime Mitigation functionality. T24 Core Banking will be the key information platform for its challenger push into the SME market which it considers to be under-served by the incumbent banks.

Judo has established a cloud-based, API-centric, technology ecosystem which will integrate with T24 Core Banking through its zero-trust network and identity management system that tightly controls access to the system without limiting flexibility. This approach allows the bank the opportunity to connect with third parties as it grows, and to “own” the full customer experience it can deliver through T24 Core Banking, without compromising security or integrity.

It also positions the company to participate in the more open banking ecosystem that Australia is headed toward.

Judo is focussed on delivering high-touch engagement in terms of interaction with its customers – taking a firmly relationship management approach to business.  For its SME customers, this will help foster rapport and relationships, lay the foundations for preferential pricing, and allow them to work with a bank that understands their business.

According to Alex Twigg, CEO and Co-founder of Judo Capital; “The engine room of the Australian economy is its small and medium-sized business, which have been starved of the funding that they need to grow by the industrialisation of lending processes by the big banks.

“Consequently, these SME customers have lost the highly skilled banker relationship they so valued, and just haven’t had the support they need.

“Access to credit has become totally constrained by the amount of property security that they have to offer. Judo was created to fix this problem by bringing back the craft of SME lending and building long-standing relationships using true judgement-based lending, based on the four C’s of Capacity, Character, Cashflow and Collateral.

“Being a new bank not anchored by legacy computer systems and processes, we can offer a completely different, highly trusted lending experience that is genuinely customer-centric.”

Currently seeking a full banking licence from the Australian Prudential Regulation Authority, Judo required a secure and resilient technology platform that met its regulatory needs – but also with the agility and flexibility to grow rapidly. Which is where Microsoft Azure and the T24 Core Banking platform comes in.

Alex Twigg, Co-Founder of Judo Capital
Alex Twigg, Co-Founder of Judo Capital

Rapid reform

Today more than 3,000 financial institutions worldwide, including 41 of the top 50 banks, rely on Temenos software to process the daily transactions of more than 500 million banking customers.

Increasingly those financial institutions are exploring opportunities in the cloud and the migrations are gathering pace.

According to Ross Mallace, head of cloud for Temenos in Asia-Pacific, the company now has 28  cloud clients in Australia, and has signed four major deals this year with more in the pipeline.

“Whether you’re a start-up looking to launch, and looking to launch with a particular product offering, say term deposits, this solution can manage that. But as you grow your business, in two, three, four years you might want to branch into loans, mortgages and other things, and you will know our software can do it,” says Mallace.

Temenos’ R&D investment is the highest in the banking industry  and coupled with the Microsoft Azure foundations means that banks are future-proofed according to Mallace. Every time the software base is enhanced, the enhancements are instantly available to cloud users, while processing capability and geographic reach is addressed by the Azure foundations, which stretch internationally.

“We have examples of very, very quick implementations. I’m talking two months in parts of the world,” especially for neobanks which have no legacy systems” – Ross Mallace, head of cloud for Temenos in Asia-Pacific

Velocity and value

volt bank, which announced earlier this year that it would be using T24 Core Banking hosted on Azure, said that it was the agility, scalability and security of the cloud-based solution that would allow it to launch quickly and meet the Australian financial sector regulations, while at the same time let it offer clients a feature-rich digital experience.

It was the first bank to be granted a restricted authorised deposit-taking institution (RADI) licence by Australian Prudential Regulation Authority (APRA), and will initially offer savings and transaction accounts, term deposits and foreign exchange, before moving into personal loans, mortgages and credit cards as it transitions to a full licence.

Steve Weston, Co-founder and CEO of volt bank says that it hopes to secure a full banking licence by the end of 2018, at which time it will launch to the public.

“Since the arrival of the internet, customers have become used to consuming services at the speed of light. This immediacy of services is expected from customers in the way we re-process payments and receive transactions.

“volt aims to transform the way banking is done via adopting a genuinely customer-centric business model and by leveraging best in class technology and data analytics capability,” he says.

Steve Weston, Co-founder and CEO of volt bank_1
Steve Weston, Co-Founder and CEO of volt bank

Weston notes that; “Being cloud native, Microsoft is a key partner of volt. Fast ramp up and easy to scale cloud services will position volt well for challenging the incumbents.”

volt is Temenos’ first client in the Australia region to be hosted on Azure. The bank also uses Power BI for data analytics and Office 365, and as a cloud-first business is primed to take full advantage of new and emerging Azure services.

“Having early access to emerging technologies such as AI and machine learning we can provide smart, friction-free financial services to our customers wherever and whenever they want – transforming the customer experience,” says Weston.

Experience essential

Judo is also alert to the importance of experience – both for its staff and customers. It is working with Temenos to create single sign-on access, by leveraging Azure’s federated identity capabilities.

“It allows staff to authenticate and do two-factor authentication. That’s how you tackle zero trust; you don’t physically have to be in an office and on a network, you get the one-time PIN, or whatever it is, and you come in through Azure’s security access and use our back-end services,” says Mallace.

“And then the same is true for the consumer experience where they’re looking to leverage Azure B2C, which allows you to do things like Open ID connect, which is really around being able to login to your banking system via Facebook and LinkedIn,” says Mallace, acknowledging that is likely a longer-term prospect.

That future-facing stance is important, says Judo Capital’s Alex Twigg who notes that working with technology partners able to leverage an API-based software-as-a-service operating model allows a neobank to focus on customers.

“This API-centric approach using Temenos T24 Core Banking and the underlying Microsoft Azure identity management capabilities, means we can develop things like single sign-on, big data analytics, machine learning, as well as tackle financial crime mitigation without compromising security.

“It’s the flexibility our SME customers want, with the rigour that our regulators demand” – Alex Twigg, Co-Founder of Judo Capital

Transformation journey

The journey to the cloud is also being explored by incumbent financial service providers – that need scalability and want to innovate quickly. As Mallace points out; “The biggest factor is data migration.  Typically, if you’re trying to get off old systems and pump data into a new one, that’s always going to be your critical path. The benefits for banks moving to an Opex model are immense in terms of improving their profitability.”

“If you were a medium to smallish-size bank and you know how to get your data out of your existing systems, and you’re taking your out-of-the-box solutions, then you can look anywhere from a six to 12-month horizon, in terms of getting live.”

To expedite matters, Temenos runs the cloud service efficiently, using the same incident management process globally, and leveraging tooling and automation to accelerate progress.

Having Microsoft Azure as the compliant, high performance and trusted cloud foundation for T24 Core Banking also accelerates transformation opportunities and is important to securing the comfort of financial sector regulators.

Mallace says that APRA has signalled it will explore the neobanks’ information systems in detail, and examine their risk policies ahead of granting them full Authorised Deposit-taking Institution licences.

He adds that allaying bank or regulator concerns about data sovereignty is simplified by the opportunity to use Microsoft’s Australia model of Azure to host T24 Core Banking.

Ross Mallace, Head of Cloud for Temenos in APAC
Ross Mallace, Head of Cloud for Temenos in APAC

This has been further enhanced by the 2018 opening of the Azure AU Central cloud regions in Canberra, which are specifically designed to support mission critical national computing infrastructure, and which have been certified at the Protected level by the Australian Signals Directorate to store government information.

Mallace acknowledges this has bolstered the offering for banks, especially for institutions which want to use T24 Core Banking but also co-locate their own data centres with the Azure cloud in order to have maximum performance, low latency, and unparalleled security. That is an option afforded by the unique design of Azure AU Central, hosted by Canberra Data Centres, which offers co-location opportunities.

Mallace says that the combination of Microsoft’s commitment to, and investment in, the Australian model of Azure, combined with Temenos’ continued platform innovations and deep sectoral understanding, is helping accelerate demand from the likes of Judo and volt. Together they will ensure Australia’s financial services landscape transforms for good.