A WHITE PAPER PRODUCED BY FINEXTRA IN ASSOCIATION WITH DECEMBER 2018

THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY 01 Foreword...... 3 02 Introduction: The impact of cloud platforms, APIs and low code developer tools on ’ innovation efforts ...... 5 03 An unwelcome legacy...... 7

04 Transformers in disguise – key considerations of digital overhaul...... 9 05 Navigating the speed versus safety challenge...... 11 06 Using cloud platforms, low code and APIs to stage transformation...... 15 07 Culture change leads the way...... 21 08 The human element and not the technology will pose the biggest challenge...... 23 09 About...... 26 7 What should financial institutions be doing about blockchain right now? 25 03 | THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY

01 Meanwhile the world outside the has become digital. Computing the bank digital. has Computing become outside the world Meanwhile of artificial development near-infinite and the become have data and power learning machine is and accelerating. computing cloud intelligence, have Microsoft, Google to to from Apple successful today, of The companies with and digital clients interact their ecosystems open, to cloud-based, created services. with new huge banks large operated In contrast, develop have jointly technology. run systems IT closed internal legacy and by departments Legacy banking core the heart at banks’ systems of IT infrastructure are banks’ back innovation holding of causes, the one as identified generally to systems not themselves the it Oftenis agility. their effortscrippling and become they have years many but for reliably performed have They blame. canthat support talent find to getting harder it’s and complex increasingly on less and from the outside-in faster much is happening Innovation them. can and record banking arecore systems of only systems These systems. the around than innovation current slower is much which a rate at change engagement. customer or customer The challenge that lies at the heart of banks’ efforts to innovate the heartcan lies at banks’ that be of effortsto innovate challenge The are – speed. witnessing Consumers an word ever- in a single encapsulated they but providers digitally-enabled from new, innovation of rate increasing from witnessing agility the same are not in development service product or bar by also a higher expectations to set been banks. have their Customer companies. technology large and Fintechs CHIEF PRODUCT AND TECHNOLOGYCHIEF OFFICER FINASTRA Eli Rosner FOREWORD , a Platform-as-a-Service, FusionFabric.cloud existing regulations, from MiFID II to PSD2. existing from MiFID PSD2. regulations, II to and the technology off-the-shelf of the growing sophistication However, before thaneasier ever innovation made have concept platform of the benefits necessary. more been has never it a time when at can open themselves up to the outside world and the developers of the future. of the developers and world the outside to up can themselves open analysts, can millennials business or scientists, be data with people These skill They bank are department. different to setsinternal traditional the in five transactions and can that interfaces user new be completed demanding new These digital are fifty. service the clicks, not standardsbanks must that meet. will business and It banks take these operational time fully to for to adapt recruit to with in systems the cloud, putting core comfortable feel – to changes with all and, and maintain to new the while, compliance personnel new systems that may be better suited to new operating models. models. operating new to be better suited may that systems will platforms be crucial APIs cloud and use in of banks changing theThe way Non-core the institution. into bring innovation and systems new develop within the data and relieving can in them the cloud, be hosted applications standardised APIs tested Meanwhile, and systems. internal on the pressure of generation a new and world can the outside link be used to to systems core developers. FinastraAt developed have we they where model operating banksnew this adopt help to designed offering banks. It is encouraging that many have opened innovation labs and are and labs innovation opened have many that isbanks. encouraging It example, with software and Fintechs engaging For new actively companies. than companies has and centres 150 invited more hasBarclays six innovation with them. innovate jointly and space rent to apply and journey Banks customers’ their think also about to need more through new technology This at means looking can that help. technology are still to vitallyslow, dailyoperations while important systems, Core filters. them. make radical any to to changes reticent banksso are understandably office banksmiddle and via themselves canfront their differentiate However, Changing this approach willChanging this be both technical a approach cultural and for challenge

04 | THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY 05 | THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY 02 able to maintain their position. But for how long? New digital-only New banks built long? how for But maintain to position. their able clean infrastructures lean and on share. market are and growing in number banks’ standing incumbent banking erode open may of And the introduction further. yet innovation their down on banks double to encourage also may help it However, as the adopt they approach by the much determined as efforts. Successbe may they deploy. technologies to their core banking systems which are invariably outdated legacy products, products, legacy banking core their outdated areto invariably which systems with digital new are and incompatible middleware of wrapped in layers technology. historically were are IT internal there which large departments In addition, increasingly banks have for but their off withsystems charged one creating the bank keep running. to just extended themselves found institutions status as virtueBy reliable established their and heritage their of be trustedto financial withbanksassets, farso customers’ been their have services are digitally delivered by companies built on digitalservices on ecosystems. built companies are by digitally delivered with within from scratch new built been Even have banking, entrants new digital the same services. deliver to technology be more to regulators their by pushed being areFinancial even organisations open of concept its and Services Payment The Directive 2 (PSD2) innovative. third to parties, accessible data banking banks forces make customer their to new offer to able both rival competitors banksincluding non-bank new and services banking payment and these consumers. to products banks many In contrast, be still tethered to seem in stuck an analogue world, Banks are well aware of their need to innovate. In countless other sectors, sectors, other In countless Banks innovate. to need their are of aware well INTRODUCTION: THE IMPACT OF THE IMPACT INTRODUCTION: CLOUD PLATFORMS, APIS AND LOW BANKS’ ON TOOLS DEVELOPER CODE EFFORTS INNOVATION encouraging more innovation; the cloud); and code within work that them. people Resolving the conflict betweenmaintaining banking core their and systems low APIs to (from innovation address used to strategies technology The and barriers be overcome, The to need that the future functions the banks’ and for of technology implications The –  –  –  –  opportunity to escape the stranglehold of their legacy systems, to enable enable to systems, legacy their of opportunity escape the stranglehold to innovative new, for unlock the potential to and externalmore collaboration services.customer To the culture by organisation. any of orchestrated and is instigated Change financial institutions? for a challenge of more this does extent present what interviews extensive a series withThrough of IT strategists leading and CTOs, and directors, this CIOs report will banks examine how are addressing include: These above. outlined all the challenges of ecosystems, where third parties, developers – even consumers – are consumers third – even ecosystems, parties, where developers services, and products can that be own their applications, add to encouraged In contrast, proposition. the core extending and all, value to adding available are that internalised tightly systems, closed, on banks built been have guarded from external third threats to closed parties. and data stringent more ever involve transformation of While the challenges emerging large, loom the risks and migration strategies live of protection (APIs) interfaces application open platforms, as cloud such technologies new banks with present to an converging are now tools developer code low and The most successful companies of the digital age have been built on open open on built been successful the digital have most of age The companies

06 | THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY 07 | THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY 03 AN UNWELCOME LEGACY AN UNWELCOME At the heart of this tension lie the legacy systems that bank that systems infrastructures the legacy lie theAt heart this of tension these means replacing generally innovation more “Developing upon. are built open a process and resembles that investment This is systems. a huge legacy Tesselaar. says heart surgery,” replacement system legacy address to reluctant Banks are understandably fails can if in the way. project be any catastrophic the consequences that given digital with islittered to path from failed transformation legacy The the fallout replacements. system payment systems that are critical to their operations but largely incompatible incompatible largely but are that systems critical operations their payment to with applications. of digital services generations new and between the IT business and an tension has unhelpful created This situation Banking director, executive divisions within a bank, Hans Tesselaar, says Industry Architecture (BIAN),that a Frankfurt-based Network non-profit consultants. and providers banks, technology brings together typically“The IT while business maintaining is focused on innovate wants to says. he on,” the lights as usualbusiness keeping and never been a greater issue than it is now. than issue is now. it a greater been never a a digital pursue and to age adapt Banks to pressure increasing are under especially in the retail and development, product to approach innovative more services payment is for model the business transaction banking where market reinvented. being all and manner communication are living commerce, in a digital where We age such are exceptions, a few There services consumer digitally. of are delivered fully the leap the largest to into banks yet of have as some banking, where banking core age-old and because they to are tethered digital largely age, The problem of so-called legacy systems is not new to banks but it has possibly has banks possibly it to so-called new of but is systems not legacy problem The “The problem is that the technology, software and systems that have built up software up built have that systems and is the technology, that “The problem tryingwhen to problems Thiscreates years many are different.” allover quite between advocates the heart lies at the tension and of technology, new adopt the guardians and stability. the bank’s of innovation for There is a reason that banks have kept their legacy systems for so long. They They long. so for systems legacy their is banks that a reason kept There have bank many decades. Consequently, for effective and reliable hugely been have the but are that systems the problem the legacy is not it that believe executives the years. over them around built been have that tools and technology in but with cannot that cope systems technology legacy new are“There some if it even well, quite works system processing banks,most payment the core Core of Management, Cash Head Poel, der says Ad van replace,” is to difficult EMEA, Services Bank America of Merrill Transaction (GTS), Lynch. Global what to replace, and how, all of which requires a lot of insight and planning, planning, and insight of all requires which a lot of how, and replace, to what says. he as term the long for systems legacy any keeping of the idea consider “We up and system legacy your keep to a way find If you from. away keep to one During I expect the next decade see a mix to a compromise. running, that’s prevail migration their as banks agile and technology legacy continue of period, banks this will intermediate wrap For their to strategies. be looking via service an modular move and enterprise systems new to legacy business technologies.” to pursue innovation, they need strong leadership that will that changes ensure leadership strong they need innovation, pursue to sees that also someone actually need occur through. are and “You fully followed actually It is than rather costs. the to stay costlier of innovation, the benefits adds. Tesselaar make changes,” any are not and you where modern more try and system look make legacy it to your can up shine “You Nor will that with long. so but coding last it, for only new wrapped around in an migrate to need You once. drastic many can make at too changes you Tesselaar. says map,” a road need you and way controlled extremely keep, to Banks what assess to need IT current their decide and landscape Given banks’ aversion to radical structural change, Tesselaar says that for banks for that radical says to structural banks’ Tesselaar aversion change, Given

08 | THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY 09 | THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY 04 TRANSFORMERS IN DISGUISE– KEY OF DIGITAL CONSIDERATIONS OVERHAUL more radical change. Both approaches work but operate at vastly different levels vastly at different operate but work Both approaches radical change. more disruption. and velocity of – have – Google, Amazon today Facebook of and companies tech While the big digital infrastructure change, legacy by embrace to unencumbered been able and making banks are still radical any today legacy-run, the big change of very much says. Nielsen challenging, more much that “There are two ways of looking at technology. You can look at it as necessary a it at can look evil You technology. at are“There looking two of ways can differentiator costs as a strategic keep Or you see it down. to hireand a CIO is hire driveand a CTO technology to in CDO fundamental the way changes or deployed.” and developed being a digital strategy; incremental are implementing there two of ways Similarly, bringing slowly process, process by and system by system can changes beadopted radical undergoing with Or banks along you. can wholesale, it do the people entity can from within, the can do a separate it be or done Additionally, change. strategies, where the technology moves from a supporting role to being integral to being to role from a supporting moves the technology where strategies, always have companies with is something non-technology which It strategy. their Bank,who was Deutsche Digital at Chief Officer struggled, Nielsen, Thomas says serving after previously Digital as Chief Officer at 2017 in September appointed Tesco. UKthe large retailer, ‘digital’ what on consensus of the lack by isfurther challenge The complicated strategy’ tothings means A ‘digital different actually Nielsen. means, says cost- operational or experience better user innovation, more – people different itself bifurcated technology of the stems from view definition of lack cutting. The within Nielsen. says the banking world, This tension has become more acute when banks have attempted to pursue digital pursue to banks attempted when have acute more has become This tension

THOMAS NIELSEN, CHIEF DIGITAL OFFICER DEUTSCHE AT BANK There are two ways of looking at technology. You can look at it as a necessary can as at it look You evil two are There ways technology. at of looking and hire a CIO to keep costs to keep can a strategic see down. you a CIO Or as it differentiator hire and being is way technology the in changes to fundamental drive a CTO CDO or hire and developed and deployed.” “ driving an old gasoline powered car – but wanting all car a shiny driving of powered theattributes – but gasoline an old has time it and running been a long for it’s the car, love “You electric car. new But it. named even probably You it. built – you Heck every day. work to you got AA 2,000 putting by a Tesla get don’t you – and really is a Tesla want you what car.” powered gasoline 20-year-old in your batteries is mindset, their companies banks for non-technology and challenge biggest The in banking they attitude conservative but is a more often “There Nielsen. says radical any things achieve to doing of think the normal way to need beyond change.” Nielsen describes as the conflictdigitaltechnology legacy and betweenakinNielsen to

10 | THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY 11 | THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY 05 NAVIGATINGTHE SPEED VERSUS SAFETYCHALLENGE where more than 60% of the staff at its headquarters are IT professionals. headquarters its are professionals. the staff at IT of than 60% more where some of the money previously spent on regulation and compliance can now be can now compliance and regulation on spent previously the money of some services.” and products new into invested bank,branchless banksit asis easier Russia-based Tinkoff, newer such the For “Generally, a digital legacy. by strategy because they are unencumbered adopt to don’t ensuringby you is upgrades system legacy expensive fight the to best way inespeciallybankingplace, the first them areasof core such in ATMs produce as at Officer Tinkoff Bank. Information Chief Tsyganov, Vyacheslav says CRM,” and bankingwith a “essentially describestech company a TinkoffHe licence,” as, Another challenge is the overhead cost to banking products, says Ramsay. “There Ramsay. says banking cost to products, is the overhead challenge Another isan annual technical increase maintaining cost these to and generally systems in earnedthe opposite goes from these products time the revenue while over in that, but natural this address seem volume to might increasing by direction. It adopting This of argues in favour strain the technology. more on turn, put would as quickly as possible.” technology new adaptation of the increased cost to has the level been factor contributing One where a period enter to “The industryrequired regulatory by change. is about innovative services. This puts incumbent banks at a disadvantage to newer newer to services. banks a disadvantage at innovative incumbent This puts start- whereas banks support existing to because they have challenger products Liquidity Global for Innovation of a says clean Craig have Head ups slate, Ramsay, processfrom existing is “There a migration HSBC. at Cashand Management how underestimated is often it and ones the new to systems and products legacy process that takes.” long distributed ledger of success early in has a number had HSBC example, For will there clear when be significant is not it but projects (DLT) technology is a critical often services. through factor such adoption Speed going of volumes conversations. fintech excitable in the more forgotten Speed to market is vital when adopting new technology or releasing new, new, releasing or technology new is vital market adopting Speed to when SOCIAL MEDIA MAGNIFICATION That said, banks need to continue to innovate and to build new customer customer new build to and innovate to banks said, continue That to need these is proof- taking of challenge some Eacott. “The says biggest propositions, our protect We full into production. from the sandbox pilots and of-concepts in a very carefully production, environment into getting so from idea production challenge.” biggest is our way, timely but safe to new platforms. for painfully all aresocial the more made of these media, moves public In the age the banks concerned. Payments, Development, Business and Innovation of Eacott,As Head Simon million 20 maintain as our to usual business need for “We says, NatWest change any so running and be online to smoothly, have we Every day customers. be carefully must system the legacy managed.” into goes that banks cannot afford to be complacent about the prospect of any element of their element of prospectany the about banks to be complacent cannot afford IT infrastructure status. legacy an unwanted adopting leave organisations systems, legacy of maintenance and in investing support “By is less becoming which cost of the ultimate innovate, to room less themselves that believe “We Tsyganov. says business,” of out forced being even or competitive teams should all practices, and systems aging development of rapid prevent to regular resourcesallocate to refactoring.” code been risk, have there potential and a massive is clearly systems legacy Replacing banking core systems old migrating as a result of IT meltdowns very public some and new systems development, says Tsyganov. says development, systems new and resources, so internally for compete we organisations, other like at “Certainly, is there needs are carefully However, technology goals. against business weighed whichof question a rather It’s Tinkoff. at innovate to whether of a question never our to contribution the greatest ensure to on concentrate we should products new adds. Tsyganov forward,” going line bottom means the speed that development technology new of pace the rapid However, the newest meaning even that with existing is accelerating, which age systems Consequently, it is able to allocate more of its IT budget towards new products products new towards IT its budget of more allocate to is able it Consequently,

12 | THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY 13 | THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY

PAULA DA SILVA, HEADPAULA DA SILVA, OF TRANSACTION SERVICES, SEB from beyond our firewalls using APIs. It is a credible way to connect our services way to connect our a credible is It to APIs. firewalls using our beyond from transport retail. so and has It service health, as such industries providers other in benefits.” many Instead of having an army of internal developers, you could have individual, external individual, have could you developers, of internal army an ofInstead having infrastructure of to areas our expertise connecting specific on focused developers “ One approach to mitigating such risks is avoiding ‘big bang, behemoth projects’ projects’ behemoth bang, ‘big risks such is avoiding mitigating to approach One incrementally, make changes “We change. to approach an evolutionary adopt and parts digestible changing and those smaller step into breaking project the overall Tsyganov. Tinkoff’s says step,” by One area where banks such as HSBC are not willing to compromise is on the is on willing are banks not area compromise as HSBC to One where such “We technology. of underlying the robustness in, the security confidence and of, been have We ourselves. or our customers for risk to introduce cannot afford the next 150 over be servicing to years plan we 150 customers and our for around trust to us. be able to customers our want years. We new want banking is thing. a wonderful The not industryHindsight would want don’t a futureyears’we of be the cause to time, crisis. five “In technology technologies,” these new fast in too deploying the industry say went to anyone perspective, everything an HSBC “From through robust go has to Ramsay. says process.” testing risk and evaluation For example, at what point do you stop the provision of incremental services incremental of on the provision stop you do point what at example, For Banks offerings? manage to their new will to have migrate existing and products expectations carefully servicescustomers’ what in terms of will in the be available Ramsay. future, HSBC’s says are technologies banks new Global will what about be also selective to want solving be on “The focus needs to Ramsay. says basis, a global on applied the appropriate can we apply then so, In doing requirements. customer a problem.” for looking cannot be a solution technology New technologies. As will there banks make. to turnstill innovation, focus on be compromises to

” CRAIG HEAD RAMSAY, FOR OF GLOBAL INNOVATION LIQUIDITY AND CASH MANAGEMENT, HSBC There is an annual technical cost to maintaining systems and these generally increase increase systems these generally and cost to maintaining technical annual an is There over time while the revenue earned from these products goes in the opposite direction. these from products earned direction. opposite the revenue goes the in while time over put would turn, that, but in volume by increasing to address this natural seem might It as technology new of adopting favour in argues This technology. the on strain more quickly as possible. “ is moving away from both a pure self-build approach, or a transactional vendor a transactional or vendor approach, self-build from both a pure is moving away core its to external are added and purchased where products relationship, existing the vendor’s partnership using vendor a deeper favours it Instead system. platforms. we system, the core to are we close are“There two – when parts this to approach the leverage to are we happy further get you away, when but retainlike to control banks other with there and of a lot work vendors Typically, expertise a vendor. of everything.” know we that pretend not should learn. We could we that ismuch simply replacing individual apps, platforms or systems with newer versions,” says with versions,” systems or newer platforms individual apps, replacing simply can it system, in one tied up all technology that of have if you “But Poel. van der them.” replace taskbe a challenging to ‘Platform-as-a- a promoted years, software In recent and developed firms have a bank’s up APIs are open used to whereby IT to development Service’ approach more encourage to in order external and internal other developers to system core innovation. the bank However, is similar. approach modular BAML’s that says Poel der Van Other banks are taking a modular approach, such as BAML.Other such banks are “Thistaking areapproach, means you a modular

14 | THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY 15 | THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY 06 USING CLOUDPLATFORMS, STAGE TO APIS AND CODE LOW TRANSFORMATION APIs. It is a credible way to connect our services our connect to way service is a credible to in other APIs. It providers as health, transportindustries such has benefits.” many retail. so and It risks with are there with also come that operational working But third parties a strategy, such around governance have to need you so externaland developers legacy-based are currently from period the old in a transition “We Silva. Da says banks for to are various decisions There an strategy. API-based to approach infrastructure their up they open which to the extent outside to about consider APIs. open APIs or parties they use private whether and performers in this new digital space, so it is important to keep them ‘dumb’ ‘dumb’ them keep in thisperformers is to important digital it so new space, infrastructure. in be smart your then made and elsewhere be a match could It could We right now. this approach adopting of I am and in favour in heaven quicker.” much more, much do demands increased customer to is solution also a potential This approach new of the utilisation and cost control the eternal for need innovation, for having an of developers, army internal of “Instead Silva. Da says technology, specific areas focusedof on individual, external have developers could you expertise infrastructure our connecting to firewalls our from beyond using way to address the limitations of legacy infrastructure legacy of the limitations address to way througha the use of services and systems APIs cloud-based and where strategy, platform-based the legacy of the outside on tools and applications new are build used to systems. says “This in banking time,” be the best could thing in happen a very to long Services, Swedish bank Transaction at SEB. of Head Silva, Da Paula All a banks in systems the midst of maintain to pressure legacy their face to be an APIs that could effectivesolution believes Silva digital Da and age high they run are to not are but systems “Legacy cheap problem. this ongoing The trend toward ‘platformification’ is considered an increasingly viable an increasingly viable is considered ‘platformification’ toward trend The

VYACHESLAV TSYGANOV, CHIEF INFORMATION OFFICER TINKOFF BANK AT Certainly, like at other organisations, we compete internally for resources, for so internally we compete organisations, other at like Certainly, is there goals. However, business against weighed carefully are needs technology new of which rather a question It’s at Tinkoff. of whether to innovate a question never bottom to our greatest the contribution products to we concentrate ensure on should line going forward,” “ IN THE CLOUDS of misconceptions about security, data privacy and regulations concerning the concerning regulations privacy and data security, about misconceptions of Nielsen. Bank’s Deutsche says cloud, public a third have party rather managing much non-core bank a global I would “As “Setting servers up Nielsen. says storage,” and power utilities, like compute also argue. argue a bank, I would that I would for competency a core isnot as as well on-premise cloud secure in systems to the public is possible it deployments.” Some, such as Tinkoff, are completely cloud-based. Others are increasing cloud-based. as Tinkoff, such are completely Some, in the last has two changed to the cloud to attitude “Our the cloud. usetheir of Silva. Da SEB’s says with conditions,” albeit some ‘go’, to three years from ‘no’ are currently trying the risks manage and “We with associated mitigate the to and see benefits we wherever the cloud consider to are we prepared But cloud. from CRM finance.” system, any trade to for opportunities daunting but promising the most of as one Others see the cloud services cloud from in banks. public Whilefor has there an been explosion Services,the Amazon likes of are Web Google there Microsoft, also and lots to ensure service quality because it is not the API developer that is that directly service ensure to the API quality developer is not because it is the bank it are slow, or work not If the APIs do exposed the customer. to the third will that partynot frustration the enraged of catch developer downstream is a significant is governance There an consumers. risk.That firstimportant step.” in banks’ – cloud- plans prominently feature technologies Three new Banks tools. are development code/no-code APIs low and based platforms, especially the cloud. towards positive “We have seen other industries using APIs for a long time. It will time. It be important long a APIs industries using for other seen have “We

16 | THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY 17 | THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY DON’T WORRY, BE API BE WORRY, DON’T Information Officer, StandardChartered Bank. Officer, Information other new technologies. are there APIs exposed external used the externalThen by to environment, security the bank. to will connect These which a consistent have developers will will but and systems core be directlylayer the bank’s not to connected vialayer. connect instead a mid-office Standard Chartered APIs, using Bank use its of is to taking a similar approach using and the world bank services its and the outside to promote to them Gorriz, Chief link internally to Michael own its them says systems, Group The bank will then be able to apply machine learning AI machine and create to bank apply willThe to be able then of user APIs will prolific It more also clients. be a much for insights valuable from existing “The migration platforms. cloud to the move achieve to in order and be underestimated not should infrastructure environment a cloud into Ramsay. APIs says willthe use of banks,” be integral for APIs are discussed Ramsay, ways inAccording two to within different HSBC. are extract from core there APIs, the internal which information Firstly, can it be exposed AI, where to and ML in the cloud it deploy and systems As HSBC’s Ramsay says, “Successful teams can develop a hybrid approach approach Ramsay “Successful a hybrid says, teamsAs can HSBC’s develop are agile within you are existingwhere we your architecture HSBC, at and, this.” achieve teams to with technology and working the business the bank In 2017, March HSBC. at is increasing the cloud use of The store to platform Cloud can it use Google’s how is investigating it announced is digital becoming is data growing and “The world cloud. indata a private banksstore so to gives will flexibilitycloud the the from exponentially, benefit in a as the data, it organise as access and well the ability to it manipulate and standardised way.” in the near future because it creates a huge cost saving in hardware in and the near future a huge creates because it matures and time, Over asthe technology security. over concerns reduces a more with they can adopt the concept, comfortable banks more become data in a cannon-core be stored the where approach hybrid cost-effective cost saving cheaper and a huge gives them “It Tesselaar. says cloud, public hardware.” will a the cloud also use banks of adopt beThe essential to for looking the existing that given software for development, agile environment more infrastructureentrants. banks many with new at compete to makes difficult it BIAN’s Tesselaar foresees the majority of banks moving to a private cloud cloud banks of a private the majority moving foresees to Tesselaar BIAN’s

CRAIG HEAD RAMSAY, FOR OF GLOBAL INNOVATION LIQUIDITY AND CASH MANAGEMENT HSBC AT existing architecture and, at HSBC, we are working with the business and technology technology and with business working the we are HSBC, at and, architecture existing this.” teams to achieve Successful teams can develop a hybrid approach where you are agile within your your within agile where are you a hybridSuccessful approach can teams develop “ people’s processes. Business and technology start technology and talk processes. to Business language, the same people’s services new easier.” of much development and makes it innovation and creation of a digital bank in , which it hopes to roll out in 2019. a digital of in bank 2019. increation Africa, out roll to hopes it which Gorriz. says “You way,” traditional typically“Banks in a more have operated find then but all it through compliance put then and with plan up a big come canyou model, [API-based] With this different. the realityout is completely is agile It doesn’t. what well, works things, important the most what at look months.” of success in a couple can fast just learning you show and mode, APIs is thinking, use also of clearer fostering Gorriz.Greater says the “In services about other based on it’s processes, now at looking were past, people agreed, then you can bring in technical people,” says Gorriz. says canagreed, you bring in technical then people,” accelerator and Standard environment a lab Chartered up set In 2016, March invited to Gorriz. were says customers Mumbai, and Corporate in Singapore services finance trade management cash and for forward demands their put accordingly. was designed model operating a new and in and then pilot first its Within the bank conducted six had months hasIt since taken the client. first its corporate onboarded it 2017 September service custody its to retail and banking, approach same culminating in the perform simple transactions using an API. The APIs transactions an are using The also API. serve used to perform simple selling third party for and institutional customers, services as insurance. such than years isand ten more APIs for has behind around been “The technology Gorriz. says part interesting is “The more property,” important most their not model.” part business become a new of the APIs have how new generate to is able and innovation to more itself lends that is a model It everything channel having without to ideas of through layers the many thinking can a design build technical internal team teams. “You the bank’s has that been Once people. technology and clients users, business by created Of the APIs that are publicly available, the vast majority are for elected users, users, elected arethe vast for majority available, Of the APIs are that publicly users. the intended for Gorriz.says access information to APIs create The status balance, and and account their check to are able customers Corporate

18 | THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY 19 | THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY LOW CODE VERSUS NO CODE stage further.” further.” stage will need new tools.” will tools.” new need publish and deliver the cost to the lower the asset created, “The smaller being a high without people allow to a method become Low be. could code must products new access easily to create data to technical of degree knowledge servicesand within environment.” a controlled code also expects Nielsen see a growth to Bank’s code/no Deutsche in the low to software and hire scientists to data have developers you “Today market. gain meaningful data-sets exist that the large use of a in banks. goes code No development process, says Gorriz. process, says are devised concepts in of two Proof to development three weeks anonymised if and, theusing the results project data are positive, can through the full process. go compliance code/no low are the ‘suite’ in digitalthe transformation finalThe components drastically that tools the coding develop required reduce to development code cloud-based a new to software. arenew especially tools These applicable own than apps, rather in the bank’s in the cloud sits data where environment, we in the cloud, sits data our “Now Ramsay. HSBC’s servers, says or databases based on the JSON language and publicly available. “We are getting there,” are getting there,” “We available. publicly and language the JSON based on Gorriz.says Standards notwithstanding, Gorriz product more expects see much to between banks external and integration APIs more using and development looking individual entrepreneurs or customers be they corporate developers, Banks sandboxes the use of are apps. also employing payment new design to systems core the bank’s process insulate and the innovation speed up help to risk. operational from any Standard Chartered has that transform helped its is an approach It a problem that hasthat areas existed the in banking other of industry one a problem and the manual processes still of that many The for persist. isthat responsible difficulty ofthe creating in standardssize market.sheer As Gorriz is the says, banks 50 task. all the top be a big standard even the same using would have to Standard Chartered Bank insists standards on wherever Consequently, Any external APIs internal arepossible. or examined they ensure meets to external at services internal and look own standards. the the bank’s “We bank installed with set recently The says. an one he API gateway way,” same as securitysuch issues other and standards is that of access around control However, there is still progress to be made on the standardisation of APIs, of the standardisation is on still there be made to progress However,

HANS TESSELAAR, EXECUTIVE DIRECTOR, BANKING INDUSTRY ARCHITECTURE NETWORK(BIAN) Do banks have the right attitude to adopt a design thinking culture? Banks have to have Banks culture? thinking attitudea design to adopt right the have Do banks become aware that there are better ways to connect with customers and they don’t better are there that aware become ways to connect with don’t they customers and are to services there of accept the to that need provide all have They themselves. parties certain a better can do that third of there providing out services.” job “ specific data and then feed it into learning algorithms that are iteratively learning iteratively it feed into are algorithms that specific data and then improved.” trained continuously and containing design guidelines and JavaScript code for different frameworks, so frameworks, different for code JavaScript and guidelines design containing the wheel.” reinvent to need they don’t is code the way learning change in may machine In the future, improvements He Tsyganov. says desirable, more approach written code’ make and the ‘no will learning deep techniques and also neural networks that be believes the software of Software development. basis of – the next generation 2.0 written giving in programming of instructions“Instead a computer to domain- will prepare to people as be Python able such languages, Java, or but in a reduced timescale, whereas no code makes software development makes code timescale, software no in a reduced whereas but development use. limited of applications produces users but business to accessible more essentially means code’ that ‘no since approach code’ in the ‘low believe “I says with technology all limitations,” basic its of on willyou a lock-in have minimal be used in only some should approach code’ “The ‘no Tsyganov. full its when functionality not but is testing required. phase, product teams end front example, For optimise. the ability to gives code you “Low library kit, a front-end interface user from our can easily re-use elements will require a re-education of the user base, but withwill but base, and the the right user systems of requirea re-education training their all create and users customise willthis to of technology be able own solutions.” maketo it is distinctionimportant the betweensays Tsyganov Tinkoff,At CIO streamline to is the designed the former where code, no and code low so- to refers the latter and developers professional process for development write to a single have not do users that business or called citizen developers code. traditional of line can code enterprise-class still is low that argument applications The produce Artificial intelligence, machine learning and related technologies willtechnologies learning Artificial related machine and intelligence, is a Lego-like “It easy Nielsen. and use, says to readily available more become it will I think and In the short-term be the massive. implications approach

20 | THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY 21 | THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY 07 CULTURE CHANGE LEADS CHANGE WAY THE CULTURE adoption of a design thinking model, however Tesselaar says this says effect could Tesselaar thinking a design however of model, adoption data over concerns consumers, among awareness of a lack to due be limited uncertaintyprivacy and quality as to the services of far so produced. are open still are but we used banking to in“We the closed environment sure if I am not but competition banking more will will and come generate needsmeetingof it more than is the fintechs new is the needs meeting of it consumers.” technical. thinking a design Banks culture? adopt banks to the right attitude “Do have with connect are there to that better aware ways customers become to have all the services provide have of to They need themselves. theyand don’t are there that third accept of partiesto can that there a better job do out certainproviding services.” the open and Services the Payment of Directive 2 (PSD2) introduction The driver APIs the in and the use of is expectedbanking be a major to concept who believes that the technology is secondary the cultural the technology that to believes business who and and models business of “The transformation can it facilitate. changes model in interest of a lot got have We than important culture the is technology. more services and are gravitating those models to We agile devops. and the cloud, take with to the business this us have on we journey.” but closely more banks where work is one model business a new of example One with of fintechs, thirdcreating – via use or the APIs parties, be they vendors and the Google, likes Apple by of digitalthe kind of ecosystem employed describes thinking as a design it culture Tesselaar BIAN’s says and Facebook. than mental be more to is likely an approach such barrier any that adopting to As Gorriz is, the bank as important the of technology executives is another

AD DER POEL, VAN HEAD OF CORE CASH MANAGEMENT, GLOBAL TRANSACTION SERVICES(GTS), EMEA, BANK OF AMERICA MERRILL LYNCH And it is always ultimately the people that make one bank different bank another.” from one make that people the ultimately And always is it Agile only works when you have liberated thinkers who are able to think differently. differently. to who think able are thinkers liberated have when you works only Agile “ “We have a venture capital arm also capital we and run in invests a venture that start-ups have “We areas as or around robotics such attract to individual developers hackathons utilisingby AI. a offering current I think our in the future will we complement mix the two.” of Nielsen. more develop and more do to customers allow to recognise have we that “We transparent and services. and own their open tools of be more Banks to have platform with an open infrastructure. become and systems to our have We is a painful it but process.” until will it enacted be officially this was introduced not year, Although PSD2 will we that then is only it banking and start open see more to 2019 early bank is The willing Silva. with Da both work individual to SEB’s says projects, Silva. Da says as as well start-ups, developers further on banks’ territory. But most bank technologists are more enthused enthused are more bank most technologists But further banks’ on territory. “APIs are than of competition. the threats of collaboration the benefits about Deutsche says partners and fintechs the way can collaborate,” connect and with they own our but compete products mean some might “It Nielsen. Bank’s willopportunityIt fantasticis a alsoother areas. offerings in enhance our and this.” about arewe very passionate also means banks that PSD2 by anAPIs as use are of mandated losing The systems their develop and they run in how operations their control of element says companies, technology like other be more this to them hasbut forced Open banking has raised fears about the potential for fintechs to encroach encroach to fintechs bankingOpen for has the potential raised fears about

22 | THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY 23 | THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY 08 THE HUMAN ELEMENT ANDNOT THE BIGGEST THE POSE WILL TECHNOLOGY CHALLENGE relevant regulations. regulations. relevant Tinkoff’s Tsyganov. Such a mental shift mental a necessary Such is to withinTsyganov. organisation an Tinkoff’s This means banks banks the future of must innovative innovation. or enable standards for clear established and structure, a flatter bureaucracy, lesshave with staying legal while compliant network, their partners into canhow plug compromised. ensuring and securityrequirements isn’t standards enabling ‘plug-and-play’ establish to need would A platform services and says products consumers, for innovative build to developers infrastructure platform of The the secure manage exchange would Tsyganov. with compliance ensure and authorisation, and authentication oversee data, APIs needs to be considered, as does security, so few banks few so as security, does are willing beAPIs considered, needs to to “We says, HSBC As security. Craig Ramsay, before development speed of put we always bebut firstwill not safe.” be might always AI the use of that around ML and are alsoThere regulatory considerations with an issue of particularly more as privacy is data now be monitored, must Analytica the Cambridge and scandal.both GDPR banks is that recognised “The newer as biggest is by a challenge well. It says banking how is carriedbarrier in mindset about is a change out,” will clearly enable banks to indulge in more innovation without necessarily without innovation in more banks indulge will to enable clearly removal. sudden one in leastnot at – systems legacy sacrificehaving to their existing their of the outside on they tools canInstead new build use APIs to infrastructure. banks, most by SEB’s as by evidenced is that welcomed is a model As it such, in banking be the best thing for happen “Could to it: that comment Silva’s Da time.” a very long all banks realise will there that practicalHowever, considerations be some standards open digital. of to for A lack from legacy the transition in terms of A development model based on cloud platforms, APIs and low code tools tools code APIs low and platforms, cloud based on model A development

THOMAS NIELSEN, CHIEF DIGITAL OFFICER DEUTSCHE AT BANK Banks have to look at how they upskill the existing workforce and encourage them to workforce them existing the encourage and upskill they to at how look have Banks to cater creative non- more for have and You environment. new this within easily sit Those banks. for challenge will be a big that and non-banking) (i.e. people traditional will oftenpeople differently,” look, think talk and “ It is a sentiment shared by BAML’s van der Poel. “Agile only works when you you when works only “Agile Poel. vander BAML’s shared by is a sentiment It it is always And think to thinkers differently. are able who liberated have bankanother.” from different make that one the people ultimately will with many individual be a cultural developers for young change Working fix and it interface any can can onto banks. talk who go a 20-year-old “We to a “They Silva. Da have SEB’s says are that available,” tools web simple using banking dedicated to professionals. mindset financial the and totally different the banking these guys industry than teach about to rather the easier seems It round. way other can keep up with the technology but overcoming the cultural overcoming barriers with but can and up keep the technology can challenge.” be a big operate we changing the way banks for finalThe challenge humanwillresources be recruiting and staff “Banks Nielsen. Bank’s Deutsche says environment, in a new work to able them they upskill encourage and the existing how at workforce look to have creative more for cater to have easily within sit to You this environment. new will that and non-banking) challenge be a big (i.e. people non-traditional and will talk banks. people look, often think Those for and differently.” involved, which is an integrated effort that covers everything effort covers that is an which integrated strategy from involved, experience management.” customer to governance and new the use and of in innovation cultural and human The involved issues the bankers. among concern held are a commonly techniques and technology NatWest’s cultural says and are“There commercial technical, legal, barriers,” Eacott. find to need So we the risk liability and involved. understand to also have “We maintaining but the balance innovation the boundaries between of pushing you and can issues legal be solved The safety security and the customer. for “The most challenging aspect challenging banks moving“The traditional most of a platform- to ecosystem will or be in change managingbased the organisational approach

24 | THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY 25 | THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY

SIMON EACOTT, HEAD AND OF INNOVATION BUSINESS DEVELOPMENT, NATWEST PAYMENTS, balance between pushing the boundaries of innovation but maintaining safety maintaining and but of innovation boundaries balance the between pushing with up the can keep you and issues can be solved legal The security customer. the for way we operate can the changing barriers and cultural the overcoming but technology challenge.” be a big We also have to understand the risk and liability involved. So we need to find the the So to we need find liability involved. and to also understand risk have the We “ Technology won’t be the problem.” be the problem.” won’t Technology modern consumer rather than a corporate market. There is a more specialised is a more There than market. rather a corporate consumer modern online seeing are we now But market. the corporate required for knowledge treasury I think fintechs. services by this area developed massively will evolve years.” the coming over be may systems this as legacy and expected, area technology evolve Should they battle be the recruitment may banks’ it the least of worries. Instead the next studying five maths over will with face “Anyone industries. other will “There Ramsay. be a HSBC’s says yearswill valuable,” be incredibly use AI to want that all write and theseskills companies algos. of for shortage “For example, a 25-year-old ex-Google developer may be more attuned a to be more may developer ex-Google a 25-year-old example, “For

[email protected] , contact , contact @finextra , follow , follow www.finextra.com 09 ABOUT or call +44 (0)20 3100 3670 3100 call (0)20 or +44 Finextra’s unique global community consists of over 30,000 fintech fintech 30,000 over consists community of global unique Finextra’s banks inside financial and specialist working institutions, professionals and service organisations and consulting providers, application fintech Finextra The mainstream actively community providers. technology of the evolution on comments and in posting opinions their participate to Finextra data surveysand information contribute they addition, In fintech. reports.and moreFor information: Visit This report is published by Finextra by Research.This report is published specialist leading financialtechnology Finextra Research is the world’s fintech 100,000 over source. Finextraoffers news information and (fintech) www.finextra.com. to visitors to items features TV and news, content Finextra in Research all 1999, covers aspects financialtechnology of Founded banks, involving vendor and institutions operation and innovation retail within and cards banking, and organisations the wholesale payments sectors worldwide. Finextra

26 | THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY 27 | THE INNOVATION GAME: ESCAPING LEGACY WITH NEW TECHNOLOGY . www.finastra.com banks use Finastra technology. visit Please Finastra unlocks the potential of people and businesses in finance, businesses creating and Finastra people unlocks of the potential Misys of the combination by in 2017 Formed innovation. open for a platform financial of services portfolio the broadest software provide we in D+H, and retail today—spanning banking, and transaction banking,the world lending, mission deploy to customers enable treasury Our markets. solutions capital and Our scale geographical and in the cloud. or premises critical on technology orsize of regardless their can effectively, means we that reach serve customers banks to financialcommunity global institutions, and location—from geographic are customers solutions, secure reliable and open, our Through credit unions. growth, risk continually and optimize accelerate cost, mitigate to empowered 100 top the world’s 90 of customers. their the changing needs of meet to evolve Finastra ABOUT Finextra Research Ltd All rights reserved. 1 Gresham Street No part of this publication may be reproduced or transmitted in any form or EC2V 7BX by any means, electronic or mechanical, including photocopy, recording or any information storage and retrieval system, Telephone without prior permission in writing from +44 (0)20 3100 3670 the publisher. Email © Finextra Research Ltd 2018 [email protected] Web www.finextra.com