Exclusive: ‘Thinking Big’ – Gareth Richardson, Thought Machine in “The Paytech Magazine”
Legacy banks have warmed to the idea of Cloud technology, but now they must go ‘native’, says Gareth Richardson, COO of Thought Machine
The announcement by Lloyds Banking Group in the middle of 2020 that it would work with Form3 on developing a Cloud-native payment-as-a-service platform was somewhat overshadowed by everything else occurring that year.
And yet it was a significant, strategic leap for a legacy bank to signal its intention to re-architect the infrastructure for a mission-critical operation like payments. Form3 is a payments processing partner to Cloud-native core banking provider Thought Machine, which had already begun work on migrating the first wave of accounts from a Lloyds division to the company’s core banking engine, Vault. It’s designed to deliver a range of banking services, including checking accounts, savings accounts, loans, credit cards and mortgages.
Being API-by-default, other functions can easily be layered on top, and banks can also use Vault to build their own custom products. Founded in 2014 by ex-Google staffers, Thought Machine follows the GAFA approach to technology building: flexibility is baked into a system that’s characterised by the use of Cloud-based microservices.
It provides a secure and flexible architecture on which to hang a modern bank – not an excuse to lift and shift existing operations from a mainframe, which only succeeds in creating new silos on a remote private, public or hybrid system. Vault is constantly upgrading, always improving – another hallmark of the Big Tech approach – and it demands a different, more collaborative mindset within the bank when it comes to technology development.
“The vision of a Cloud-native world is where everything is running with microservices and is horizontally scalable across multiple regions, giving all the resiliency that we need. And that really starts to replace that mainframe effort,” says Thought Machine’s chief operating officer Gareth Richardson.
“The configuration is such that you can write code on it, and that enables system integration (SI) partners and other technology vendors to get involved via our APIs. It’s a team sport,” he says. “So whether we’re working with Form3 on the payment gateways or even the likes of IBM and Accenture, who really know how these legacy systems work, we’re able to bring best of breed to a project.”
It’s not all about legacy, though. Standard Chartered’s late-2020 speedboat launch Mox was among Thought Machine’s most recent Cloud-born projects. One of Hong Kong’s new virtual banks, it has been entirely built around Vault. Mox shows the potential of a Cloud-native environment, which brings lower build and operating costs, plus real-time data streaming into the corporate core. It allowed the challenger to imagine new types of integrated products, says Richardson.
“We are starting to build products where you’ve a current account, a credit card and a debit card, all on the same card, with a savings account,and interest-bearing aspects to it. Then you can start doing loans through that card, too.” The Mox card, which currently functions as an ATM and debit card, has performed beyond expectations, attracting more than 80,000 account openings in its first five months and generating 1.5 million transactions. One of the biggest incentives for customers to use it is having cashback rewards instantly credited to the card.
For the bank, that’s gold dust, giving a real-time stream of data. Richardson acknowledges that it’s easier to build a platform for a start-up like Mox, shaping everything from the ground up, than it is to transform incumbents where legacy, product complexity and old ways of working present more of a challenge.
“It takes a collective effort to help banks migrate,” says Richardson. “We don’t do it alone, it’s a group endeavour with many different fintechs and other parties contributing. But once you make the cultural change, and have the speed of delivery, there’s a big payoff.”
That is becoming evident at Lloyds Banking Group where customers are benefiting from more tailored products, and because everything is built in the Cloud, development cycles are much faster and more cost effective.
“With Lloyds, we’re seeing an increase in efficiency just through new tools and techniques,” says Richardson. “That’s the result of doing things that are Cloud-native, that allow multiple teams to work independently, not tied to a silo of a single unit, which was the old core.”
While Thought Machine works across the industry, Tier 1 banks are a different beast, observes Richardson.
“Managing products at scale, for an incumbent bank, means managing potentially thousands of products. It’s complexity on another level, so you need to have engines that are totally flexible, something with the agility to drive an industry in a different way. It’s no longer about the limitations of the core, because we can completely eliminate that conversation by offering a Cloud-native solution. Costs come down, stability goes up, and we can run a platform at scale, going up or down as the bank grows and changes.”
And when huge sums are spent to keep a Tier 1 bank running – ‘as much as two or three billion pounds a year’ – that sounds appealing, especially in a low-interest environment and where traditional revenue streams are beginning to feel the heat from challengers.
“We’re entering unknown territory when it comes to fees and the level of ‘value add’ that we must include over the top for those fees,” says Richardson. “And when you get into negative interest rates, or perhaps zero net interest margins, you have to stop and think. Just having savings could become a liability. Market conditions reinforce the need for product innovation.”
Building the future
Barely five years old and Thought Machine is already plugged into an industry-wide endeavour to help banks embrace the Cloud. Last year, it joined the Banking Industry Architecture Network (BIAN), which combines leading banks, technology providers, consultants and academics, where it is part of a Strategic Advisory Group, helping to promote a common architecture for banking.
It encourages sandbox developments to help third parties integrate and tryout new products and features, and welcomes any partnership that promotes Cloud-native goals. But when working with legacy clients, it also takes a pragmatic approach, acknowledging the huge strides they must make in bridging the gaps between old and new. One example of that is Thought Machine’s payment hub, which orchestrates payments for BACS.
“Most technology providers aren’t building full-batch payments hubs,” says Richardson. “Instead, they’re building integrations. But for the next few years, banks will need batch processing, so we built a hub to meet that demand. That said, if the mainstream banks still want skin in the game, they need to get their heads around product agility.
“That means bringing together fintechs, but also the different cores, which enables you to start thinking in a different way,” says Richardson. “If you’ve no silos between any of these products, you can take a different approach. You can launch products really quickly and start testing what’s going to work. Is it good to be able to put investment alongside a savings product targeted for a high net worth, for instance? Things like that are possible when you can move seamlessly between different areas of the bank and settle really easily at the back end.”