Loraine Lawson
Good day and welcome to The Buzz, a Bank Automation News podcast. I’m Deputy Editor Loraine Lawson. I recently spoke with Anand Subbaraman (Ah-nand Subar aman) the senior vice president and general manager over Cloud, Core and Digital Banking at the core provider, Finastra. He explained the three strategies that financial institutions should embrace to become next generation organizations.So the first strategy that you think banks and other financial entities need to do to become a next generation organization is to increase their product portfolio, spanning lending deposits, current accounts across sectors geographically, what he was more specific a little bit about that, what do you mean by expanding their product portfolio?Anand Subbaraman
Sure. And so at Finastra, we work with a variety of financial institutions across the globe. And what we have been seeing, and then I think I’ll talk about both in the US and as well as outside of the US, we are starting to see the financial institutions in order to grow, have to look at their product portfolio, which includes all kinds of products, the payments, lending, deposits to make sure they offer a complete holistic view for an end customer to essentially grab as much of the customer’s banking as possible. For example, in some or, let’s split it, for example, in developing markets, really, the linchpin is really around payments. And if the financial institution becomes the control hub, or the control tower for the end customer to do payments, the chances are that they can convert them over to be customers of other services, be it mortgage products, be it deposit products, and so on, become much, much higher. But mostly in developed markets, the hook could be your mortgage, it could really be around the deposits. But to make it much more sticky, or to offer much more sticky, faster payment products, for example, like what a Zelle does, either in partnership or natively. And that really allows for the customer to stick with the financial institution, both in terms of transaction volume, and in terms of average, which really ends up becoming a differentiator for the financial institution itself. Financial institutions across do not do that. The pedal is very clear, you just become a very irregular source of information for the consumer who’s doing their transactions elsewhere. And so you get limited ability to grow. And that’s really why the portfolio growth becomes very critical in many times the geographical expansion also becomes critical.Loraine Lawson
Are these solutions you say, across geography too which, you know, can be challenging for credit unions or regional banks, why across geography?Anand Subbaraman
I think it’s two segments, right. I think in the low segment, I do agree with you that for a credit union or a community bank, it will not perhaps be by geography as much. But as you go into the upper tiers in the USA, tier three, tier four, or across international in a lower tier, across geographies start becoming a differentiate. So yes, while it is a little more guarded in the lower tiers in the US in the community bank, credit union segment, but even there, there could be some m&a play that comes in and so on. But the rest it’s going to be straight out an expansion play that can happen.

Loraine Lawson
I know there are a lot of, you talked about payments, there’s so many payment solutions these days, especially with the FinTech sort of craze that’s going on right now payments, they’ve been getting a lot of funding. How are they supposed to tell the difference between all these products and evaluate where they need to partner or where should they look for their solution?

Anand Subbaraman
A great question. And if I were a financial institution, I would start with what is my end customer profile? and what kind of transactions to do they do and start from there and then work out what should be the payment strategy. And you obviously have some easy ones, for example, bill pay, peer to peer pay, all of that become quite the easy ones where you could either do it natively, or you could have a provider that you integrate with. But then you can go up the stack a little more and say that, like, do I want to be I have a lot of SMEs? who are my customers? Do I want to add more merchant solutions? What do I want to add more solution to them? Do I need to have a square iand stripe and the partnership with those. So you’ve got to work your way from your customer base and institution and decide the d? and supposing you are a regional bank that’s got a lot of people, for example, catering to some overseas community, you might look at more international payments, cross border payments. So I think a lot of this segmentation has to come from your customer base iand where you want your business to grow, and then focus on the right payment solutions to address them. And I do agree with you there’s a complete payments craze out there in the FinTech industry. And a lot of it is fair a lot of it is also I would call it a smoment of hype in the industry as well. And that’s just ,but but natural. But you got to look at it customer segmentation and draw your payment vision roadmap.

Loraine Lawson
One of the other recommendations was to embrace new technology like crypto and blockchain, I just wondered what what that entails for banks to embrace crypto. But I also wonder particularly about blockchain if there are uses, I think we associate blockchain with crypto but actually it’s its own technology and has other uses. Do you? Do you see situations where — where should banks be thinking about blockchain as separate from crypto?

Anand Subbaraman
Yeah, so I think it completely agree with the blockchain and crypto. I mean, Blockchain is a it’s a foundational technology, crypto happens to be a use case, which uses blockchain. But there are plenty of other use cases that do use blockchain, for example, smart contracts, you could have a long running mortgage contract, going back and forth between multiple providers using a blockchain. You can have, for example, a KYC check. Though it’s we’ll call it perhaps is a little more using a sledgehammer force for a simple nail. But that again, could be used case of using your entire contract through a KYC check through a blockchain itself. It could house supply chain finance instrument go on in the blockchain, you can look at a complex lending product between two or three multilateral prop parties that could be a couple of times, it could also involve a couple of companies on either side, and perhaps a governmental institution that cross blockchain. So there are plenty of financial use cases that span blockchain well outside of crypto, and I would call it perhaps not as applicable in the lower tiers of financial institutions. But as you go about, and if you go into a specific trade segments, sophisticated lending segments, there is going to be a lot of contracting segments, there will be good use cases for blockchain. Crypto on the other hand, it’s it’s very interesting. I mean, as we all know it if the valuation of crypto companies has just crossed $3 trillion, so there’s definitely a big, a big consumer demand for crypto that’s happening globally, in especially the US look at what’s happened at Coinbase Ethereum. And everything else. And time will tell right, how there does that land up, right? Obviously, it’s not going to be there is going to be some moderation that will happen in the crypto space, but it’s a very interesting instrument that will provoke conversations on the entire financial institutions. So the next decade or two, and that’s what has happened. But again, it remains to be seen how the regulator’s look at it. How banks look at it, too. I think JP Morgan did mention that and most wanted, will play with it. It’s it’s an interesting instrument, which I think every financial institution has to play with. I think time will tell how that goes up with them.

Loraine Lawson
Do you see cores offering a solution there for crypto or or blockchain?

Anand Subbaraman
Absolutely right. One of our cores, Essence, actually offers crypto a a multi currency wallet we have integrated with coinbase in return with a solution called Liquid out in the Attsia Pacific region. We can we can do that right account as well it talks to that. Yeah. And so you can have a multi currency with a US dollar account, you can have a crypto account either in a Bitcoin or Ethereum so we have that today. So I think cores will have that have to have it as a currency just like you’d have US Dollars euros and so on. And what is more interesting would be over time force will start defining what kind of use cases they would like to offer crypto itself. And that meant not just using it as a currency transacting instrument. But essentially, like, Can I can I change some of my banking workflows? If I do any payment through crypto? How do I have the balance? How do I use the conversion to feed off to another system, right? What happens to fees? What happens to deposit – so there’s a lot more that can happen with crypto over time number definitely course are key to an overall proposition on this

Loraine Lawson
And the third thing you talked about is embracing regulatory challenges that bring Risk and Compliance onto the same platform. What do you mean by embracing regulatory challenges in a platform?

Anand Subbaraman
I think that’s a good thing. Right? I mean historically, and I think a lot of this stems back from the fallout to the financial sectors in 2008. A lot more focus happened on compliance and regulatory challenges from banking systems globally, and especially if you take a look at the US or the UK, or the more developed markets in terms of what the bar was in terms of liquidity ratios, BASEL compliance, every single area of scrutiny was done by the regulators, right. And as a result, you go back to a bank and you ask the chief operating officer, risk and compliance became probably the number one source of their investment of technology. And that happened historically the last if I were to go back in time, about 10 years back, it was before the 2008 financial sector itself. Right. So there’s more to because the regulator’s told us we are doing these compliance it was more of a stick approach. What’s happened, I think, and especially in what will happen, the next few years is regulated technology has also shifted, morphed. I mean, there are many, many more true regulatory challenges or risk challenges emerged. If I take a look at acting, the take a look at the amount of digital transactions passing through the economies, it’s far more than what happened 10 years back. You look at the emergence of crypto itself, the wild fluctuations it has, all of this is adding a lot of business risk and challenges back to the COO as against a government led risk and challenge approach that was there in respect right? So as you become, a financial institution, today, you got to have regulatory technology RegTech that allows you to do both right. One is to satisfy the regulator’s, which is fine. But more importantly, from a business perspective, how do you look at that risk profile and threshold itself with these new things going on, either in terms of security and hacking, either in terms of the emergence of wild crypto, or in terms of more more fluctuations in market rates and so on, right? And how do you look at the risk, the risk on your books? How do you look at that piece? And what’s the RegTech reporting implication of all of it. And to that end, there’s definitely and the availability of data, if you look at KYC systems, you look at fraud transactions, and all of that coming together. I think reg tech is going to be very, very crucial as we move forward this decade. And it’s in the financial institution’s best interest to pick it up as a positive.

Loraine Lawson
We’ve talked a little bit about what you think financial entities and banks need to do but what about the clouds? What can we expect from cores in terms of becoming next generation say, over the next year in supporting these goals?

Anand Subbaraman
The first of all, I think from the cores from a technology point of view and look at our own financial cores is really around platform and becoming a microservices cloud architecture. That’s, I think table stakes at this point of time, we have done that and other cores are following suit. The reason for that is pretty much agility, I would like to have a micro service pronto. That means I can keep my current core on and just add this thin little layer called crypto, which solves a very specific use case, helps the financial institution helps the agility immediately, I have a platform by which I can onboard new FinTech speed as quiet with a stripe with anybody else, moving those decoupled components to banking as a service. This is really what I think the decomposition of the core into all its enabling services to allow for that agility, I just want to have a deposit as a service, I can do that. I just want to have card service I can just do that, I think that’s going to be where the course will start going towards the many of the cores, including Finastra has already started moving in the direction quite rapidly. Now, the other piece is really about how the mesh of data and transactional systems come together. And this is very interesting. New technologies allow for, essentially for streaming information to a regulatory system, which allows you to detect fraud real time, not after the fact, which was really the older model. Very importantly, same thing for any kind of reporting purpose, and also for data crunching on what kind of products you want to offer. Real time integration to exchanges. All of this is what I would want the core to kind of get to offer. That means the financial institutions just offers a set of services back to the end customer. The core is decomposed into that. And that’s the most important thing the core can do today.

Loraine Lawson:
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