Lloyds Bank plc plans to deploy a new core from cloud banking provider Thought Machine in 2019 as part of a project to lower its risk and increase its innovation potential. The bank has announced it will enter the development and deployment phase of its massive core-revamping plan early in the year ahead. For this lofty project, the bank tapped its London neighbor Thought Machine, and also made an £11 million ($14.6 million) investment in the company, worth a 10% stake last month.

Lloyds’s undertaking is reflective of one of the most significant dilemmas for banks in today’s environment: Is a new core required to keep with the digital times? The argument for a new core says that banking innovation today is largely restricted because it is addressed at a superficial level, based on top of an old system.

“A lot of the innovation we are seeing now — balance checking apps, PFMs, etc. — they are great, but this is going to run out of steam after a while,” Paul Taylor, CEO and co-founder of the core-as-a-platform company Thought Machine, told Bank Innovation. “This is because they are all built on top of a legacy system.”

For instance, he explained, when a customer has a problem or complex question for their banking app, more often than not that customer gets sent to a call center or a bank representative because the underlying technology in the app rests on an antiquated system with siloed data that cannot solve that customer’s concern. This is a classic example, Taylor said, that demonstrates the downside of having a customer-facing “innovative” app built on top of a legacy system.

Another problem with such apps is that “it doesn’t help the bank on the back-end, the cost to run it is high, and the cost to change it is high, too,” Taylor said.

Lloyds is tackling the core-system issue piece by piece.

Earlier this year, the bank said it would spend £3 billion ($3.8 billion) to transform “itself into a simple and low-risk digital bank.” Its project with Thought Machine is a major part of this plan.

“We worked with Lloyds for two years on POCs,” Taylor explained. The two will start deployment next year.

Thought Machine is a core banking platform that Taylor, a former Google engineer responsible for creating Google Voice, set up in 2014 along with a group of other former Google employees. Thought Machine’s platform is called Vault, a cloud-native modern alternative to existing legacy infrastructure. Vault offers retail banking products delivered through a system of smart contracts. It uses cryptographic ledgers for security.

Of course, Thought Machine is not the only company in the core transformation business. More established core processors such as Finastra, Fiserv and Temenos, among others, also offer new cores. Bank Innovation previously reported that Wilmington, N.C.-based Live Oak Bank had tapped into the core-as-a-service platform, Finxact, for such an undertaking.

Despite the competition, it’s been a good year for Thought Machine, whuch is also working with British challenger bank Atom.

Aside from the bank deals in Europe, “we’ve seen a lot of interest from banks around the world as well as VCs,” he said. “And we’re in the process of doubling our team in the next year.”

On Tuesday, Thought Machine secured a global implementation partnership deal with IBM, which will help the startup gain access to banks around the world. 

Jesus Mantas, managing partner, IBM Global Business Services, said in a statement:

Most banks are constrained by their legacy core banking systems. Vault offers the first core banking platform built in the cloud from the ground up, massively scalable and with the flexibility to create and launch new products and services in days versus months, at unprecedented levels of cost and speed. Our relationship with Thought Machine enables us to provide a lower risk option for banks to reduce the cost of operations and increase customer service and speed to market.