Let them eat cake

Written by Tom Bentley, Thought Machine
12th November 2020

So here’s the deal. As part of #LedaWritesWithFriends, Tom wrote an article. Not some notes. Not some thoughts. Not a little rant (which is usually how I start). An article that says what it needs to say in a way that I can’t, for the life of me, improve upon much as I wanted to have my name linked to this.

So settle in, get some cake (trust me, you will be craving it halfway) and read on. Only make sure you have enough time to go to the top and read it again once you’ve finished.

Not because you will need to.

The message is loud and clear.

But because, just as you get with a delicious slice of cake, it’s so good you will want a little bit more.

Leda Glyptis

The pay-off in building a bank for the future is worth every single bite

“Let them eat cake”… and transform their core

During this pandemic I have been thinking a great deal about cake.

The birthday cakes left unsliced. The wedding cakes that had to be shelved. Perhaps it’s The Great British Bake Off returning to our television screens? I just can’t escape it.

This isn’t a bad thing. The word itself always takes me back to raucous birthday parties as a child, wonderful family celebrations and toasting colleagues to their next adventure.

So why do cakes and core banking matter?

In parallel to contemplating a career as a pâtissier, I have struggled to explain my job in core banking and why it matters. As my friend Leda details – plumbing isn’t easy.

Is core banking an IT job? No-ish.

Are you a banker? No. Full stop.

Ah – so you’re in fintech – building apps?

You see, explaining core banking to a friend who gives zero strudels about banking-app plumbing is a delicious art. One best explained through the metaphor of cake.

Imagine a fresh cupcake. The icing is delicious. The shape is perfect. But take a single bite into its exterior and a nasty surprise awaits. Each bite of the cake becomes harder to stomach. The taste quickly sours.

Core banking in the digital era is exactly this cupcake – full of promise on its buttery surface but susceptible to disaster if the essential ingredients aren’t balanced. With that in mind, allow me to offer a few of the delicious yet dangerous cake-based archetypes of core banking:

Mud Cake

Mud cakes are smothered with lashings of chocolate without any sense of care. Your mind is telling you it’s everything your body should reject yet you can’t say no. They are irresistible.

For a short period – you won’t want a second helping unless you are Bruce Bogtrotter from Matilda.

If eaten correctly, they will create a mess and cover your tablecloth in the kinds of stains that don’t come out. Want to put the cake away? Think again.

This is the problem with trying to transform the whole of the bank in one bite – there is far too much legacy to consume and it can be very messy.

Banking architectures are complex beasts, each part of the puzzle needs careful consideration. Sliced and trimmed into digestible parts that, whether big or small, deal directly with the foundations of the product ledger.

Take real-time data as an example. Implementing solutions with this ability will affect your other downstream systems. Know your customer (KYC), regulatory reporting, business intelligence (BI) and more, all have implications for the rest of your systems. Before you know it, you’ve ended up with the “legacy spaghetti” you were so carefully avoiding, rather than the neat architecture your team had originally envisioned.

Victoria Sponge

The classic Victoria sponge is a tried and tested cake which has persisted across the years – neither offending nor delighting anyone. Just plain enough to merit the occasional new garnish (smarties instead of strawberries, anyone?) but too plain to turn heads.

A “model” approach works in the same way.

Banking products are treated as unchanging, traditional silos. They get the job done and move you onto new systems – even if you need to migrate to the cloud (or clouds). But they don’t protect you against new disruptive models.

They are by far the easiest approach but to me they carry the heaviest risk of being labelled as “legacy” in a small number of years. These foundations can’t address the dramatic changes taking place in retail banking today. Real innovation is bottom-up, not top-down and needs a firm foundation for success.

Fairy Cake

Ready in less than 30 minutes and “pretty and pink” on the outside. You end up having one, and then another, and maybe one more, until you realise you should have bought a bigger, more substantial cake to meet your needs.

The calories and cost start to add up.

The neo core can spin up extremely quickly to rapidly onboard business. As a concept it works and is spot on for neo banks who need licenses fast, or for small lenders looking to mature existing products and processes. While the magic of these solutions is in their simplicity, they don’t look deeper at the inherent problem of migration and integration when you start to scale or innovate.

Red Velvet Cake

The red velvet is the holy grail of baked goods. It’s a unique marriage of buttermilk, vanilla and a little cocoa. The chemical reaction between these ingredients, creates a deep maroon colour unlike anything on this planet. It isn’t boring, messy and you can’t bake one in less than 30 minutes.

Each layer takes time to perfect while maintaining a surprisingly light core. Banks could learn a lot from the process of baking a red velvet.

Banks are looking to transform their infrastructure for the next ten years and seeking out platforms which offer the ability to build on these layers.

Breaking down applications into interconnecting microservices through APIs allows for change over time without the burden of “unbundling” or retesting. This creates agility in delivery. The ability to scale individually – expanding and contracting – ensuring no part of the “cake” is wasted.

As you expand outside of the core this approach allows you to flex appropriately to target specific markets without having to lift and shift the whole stack. You can mix the ingredients to cater specifically for the country, the regulation and the target customer – decommissioning or swapping components that aren’t the right fit without being held prisoner.

Transforming your core banking platform is extremely difficult.

There are many cheat codes and easy routes to landing “neo” platforms which on the surface look great. However they soon start to crumble with the pressures of manufacturing and distribution.

The pay-off in building a bank for the future versus the short-term gains of playing it safe is worth every single bite.

By Tom Bentley, sales director, Thought Machine
#LedaWritesWithFriends

Leda Glpytis