Questions answered by the experts:

2:50 – How do you align Finance and Risk when introducing a new core banking solution?
4:14 – How do you ensure Finance is aligned to BCBS239?
7:01 – How can Finance departments match the level of agility at Challenger Banks and Fintechs?
8:53 – How can Core Banking Transformation lead to the dream of real-time Finance?
11:08 – Change projects can sometimes take many years. Can firms do anything to achieve early wins and avoid reinventing the wheel every time they bring a new product to market?
13:19 – Do you have any accelerators for Core Banking Transformation?
16:18 – How do you build the business case to align Finance Transformation with Core banking Transformation?
20:53 – What new business models do you see emerging in the market?

Transcription of the session:

Nicolas:
Good morning. Good afternoon. Good evening to everyone. I’m really pleased to welcome you to this month’s meet the experts event. I’m joined today by Elizabeth Sipiere, Legerity’s own Chief Revenue Officer. Hi, Elizabeth, how you doing today?

Elizabeth:
Hello everybody very well.

Nicolas:
Great. So today we will discuss the challenges around core banking transformation. Many banks are investing in new core banking environments and are transforming the process to compete against challenger banks and fintech companies. And at Legerity we are often asked about ways to leverage those changes to improve finance processes. So we’ll discuss this today with Elizabeth. And as a reminder, you can ask all your questions in the comment sections on LinkedIn, or send us ab email at info@legerityfinancials.com, and we will make our very best to answer all those questions during the event. But if we can’t, we’ll make sure to come back to you after the fact, either via phone calls or email. So let’s get right into it. Elizabeth, the first question is actually something that we get from some past conversation. And it’s how do we align finance and risk when you introduce a new core banking solution?

Elizabeth:
Thank you, Nicolas. That’s a really great question. I think one of the benefits of putting in something new is that you can do things better. So you know, our COO, is was always saying there is only one trade, there is only one account. So the biggest challenge in legacy systems is that data has been recreated in many places. You put in a core banking system, and you can put in or even, you know, partially for some of the product range, you can put in a flow of data that sends identical data to risk and finance that everybody works off the same reference data, the same transactions from the core systems, and then does the processing that they need. But of course, as long as you’ve got sort of traceability from your final risk capital, all the way back to the underlying transactions, and you’ve got traceability from your finance system all the way back, then you’ve managed to get that alignment.

Nicolas:
Yeah, very very good. Thanks. And now, the next question that we actually have been discussing with quite a few banks now is the introduction of a new regulation or how do we ensure that finance is aligned to BCBS239. So maybe you can tell us a little bit more about that kind of alignment?

Elizabeth:
You know, some of it is what I said before, but also, I think that BCBS239 Is is really it thinks the way finance think about data and possibly the way historically risk has not thought about data. So you know, it came in because in the in the crash in 2007/2008, a lot of really global banks were unable to create a consolidated risk picture across all their derivatives in you know, different legal entities, different countries, etc. And I think the principles that followed from the BIS integrating the new regulation really follow things that we’ve always done in finance, you know, we’ve always worked on complete data, you can’t get your books and records without having, you know, the whole bank in there. And we’ve always had in, certainly in Legerity, a concept of being able to have segmentation to be able to get down to legal and entities, make sure you’ve got everything, understand any differences, you know those principles that form the principles of BCBS239 are common in finance architectures. One of the differences I think in risk was that there’s always been a great need for agility. And that tended not to be the case in finance, you know, finance was often end of period at best end of day, but increasingly with streaming, you know, available both to risk and finance, we can begin to keep them much more closely aligned than we have done before. So I think, you know, in some ways, it’s much easier, because risk is now following principles that, you know, the principles of BCBS239 are all around data governance, auditability, traceability, and timeliness and completeness. And all of those are exactly how finance people think, however, you need this flexibility and agility to look at your data in many, many different ways. And these too, now we have the processing power to handle these volumes in risk and finance, I think it will be much easier to keep them aligned. However, of course, there is a legacy architecture that has to be addressed.

Nicolas:
Yeah, no, definitely. And actually, this is a very good way to just have the next question, which is really about when you embark on a transformation project. Really what you try to do is to compete with challenger banks and new fintechs, and how do you stop finance from holding you back? And how can finance departments have the agility to compete again, so challenger banks and also those fintechs?

Elizabeth:
Yes, we’re working in a number of projects, with really large banks that have got legacy architectures that are introducing new core banking elements or solutions to try to match the agility of the challenger banks. And I think it’s actually really difficult to keep finance aligned. What I see is that the whole business case for competing with the challenger banks tends to be the customer journey, the customer experience the front office, and sort of misses out on what you need to do in your finance department to really get that agility fully reflected and coming through in managing the P&L, managing each department, etc, on finance-accurate data. So really, the ideal is to make sure that finance and finance architects and their IT people are part of that whole strategic direction and business case, when you first think about how you’re going to compete with challenger banks and build something that is not only innovative, but is as close as you can get to in real-time and is sort of financially you’ve got really close management of what’s going on, and whether you’re actually making profits and you know, monitoring your decisions, perhaps, perhaps not too originally.

Nicolas:
Yeah, no. It’s a very, very good point. And you actually touched on the real time finance, which is really something that’s quite a challenge. So how can you know, call banking transformation lead to this dream of real time finance?

Elizabeth:
You know, we’ve had a few of the projects we’re looking at at the moment, one of the things that has been in their initial requirements is streaming support for finance solutions. You know, 10 years ago, people weren’t really asking for that, maybe a little bit in product control, or areas like that in trading, but certainly across a whole bank to begin to think that finance can actually start collecting the numbers in real time, which is much better and much more aligned to what the business is doing, what risk will be doing. And also gives you, sort of, you’re not doing this batch processing that creates all these delays, and people don’t have data till, if they’re lucky, the next morning, you know, it just removes all those headaches. And it means that finance is using the data as it comes in. And if you’ve got issues and errors, they’re identified immediately. So historically, you know, technologies used in finance didn’t allow for that they tended only to operate in aggregate. Whereas now we’re beginning to have the opportunity, you know, we use in-memory grid processing, which traditionally in investment banks has been used for risk and Monte Carlo simulations and Value at Risk and very, very intense processing. The fact that these technologies have become economic for finance, and for real-time data is quite a magnificent change for us in finance to be able to deliver better for the actual business.

Nicolas:
Yeah and it’s definitely, this performance, I know from you know, discussions with customers about how you can sometimes start a process and you just have to come back two days later, because everything is done in batch at a specific point of time. And now, as you say say, bringing you all those technologies is just making everything much more therefore agile, because you can do things in real-time. This is this is really good. And actually, it sounds a little bit like a very big transformation. And therefore the question is, you know, when something like that will take so many years to get there, how can a firm, do can a firm, do anything to achieve early win, and avoid reinventing the wheel every time they bring a new product to the market? Or anytime they try to do a change? How can they look at that in the most efficient way?

Elizabeth:
You know, on the last question, we were discussing touching on performance, you know, I didn’t think to mention, of course, the cloud and linear scalability and open source has made it so much easier to achieve early wins. You know, when we do a project, the minute we agree with a client, whether it’s just a POC, or the first phases of a minimum viable product, it’s all there, we put the software in the Cloud, they do a four week sprint, they’ve already got something to look at. So the paradigm, the old waterfall implementation, you know, with a seven year project, it’s disappeared, hasn’t it. We now choose the things that add the most value to the bank, you know, where they’re feeling the most pain, I looked at one bank, and you know, they’re losing maybe 3% of their mortgage business, they don’t want to, you know, they’re moving it losing it to challengers. So start there. And then you started to build certainly, if you use something like Legerity FastPost, you’ve built a prototype that has got your core reference data, it’s got your processes, your interfaces, you’ve built something for the piece that really is causing you the most difficulty and competitive loss of competitive edge, you build that, but actually, you’ve got a prototype to simply step into the next product and the next product and the next product. And actually, it gets cheaper, you know, because the the first few you’re building that infrastructure that reflects the shape of your bank, and possibly, you know, you might do your new mortgages in the new system, but you’ve still got to integrate your legacy mortgages. So you’re starting to bring in the whole of the bank as you go on your journey. And of course, then it gets cheaper, which works for those products or lines of business that actually, you know, can’t afford the cost of some of the bigger projects.

Nicolas:
Okay, okay, that’s very good. And actually I just received a question on that. Do we have any accelerators for core banking transformation?

Elizabeth:
Well, that’s the most important thing, isn’t it, you really don’t want to start with scratch. You know, our role is to receive the sort of transaction data, we think of each product and line of business as a series of lifecycle events. So our role is, you know, mortgage initiation, interest payment, capital, repayment, etc. So we think of that, and we come pre-prepared for each product set in banking with those events. And then with the debit and credit patterns that you need for the accounting that fall off that and very granular, sort of sub-ledger type chart of accounts for this slicing and dicing activity, plus the aggregation up to the GL. All of that, you know, means that you’ve got accelerators in terms of business events, accounting events, but above all, you’ve got a banking data model. And that, you know, there are a couple around but one of the joys of finances, it always goes across the whole bank, you know, and it goes across both the lifecycle activity and the kind of accounting standards. So you get a data model that is probably wider than you see elsewhere. In other banking data models. While you were talking, I was also thinking you know, the accelerators, they have to enable alignment to BCBS239 and the bank itself. So some of the other characteristics of our data model and and FastPost are this ability. First of all with BCBS239, to kind of have a self-documenting data model that’s really, really important that people don’t use the data fields in 20 different ways. So having the metadata about the data model, and having the ability to use JSON to add whatever the customer needs to add to that data model to achieve whatever they actually need to achieve, and then tied into that, you get accelerators, but everybody does something slightly different. And historically, you know, you probably have some embedded sequal that was doing some calculations. Here, what we’ve got is low code, no code rules. So then you add on top of your accelerators, all that agility.

Nicolas:
Okay. Okay. Now, that’s, that’s very interesting. The, the local, no codes, yes, it’s, it’s a very good way to, to make all those rules owned by finance, and, and enabling them to just think about what they want to do and make it happen without all the hassle that happened in past legacy type of architecture. Very, very interesting. And now, maybe as we have a few last questions, you know, we see core banking transformation as often taking one of the big parts of the project and the budget sometimes. And so people are often wondering, how can they build a business case, to align finance transformation with the core banking, transformation, and getting the right budget in order to drive those projects?

Elizabeth:
Not easily, I think, you know, I said earlier, when, as you start to think about core banking transformation, the customer journey is the purpose. But the overall management in the bank is is an important part of the result. And what we have found is many banks, the decision making is, is sort of based around one group one line of business. So, frankly, you’ve probably got a political issue, you know, you want, if embarking on a core banking transformation, the decision making needs to be sufficiently high, to be able to see the strategy of the bank, and to have that long term vision reflected in your decisions. Otherwise, we’ll do again, what we used to do in legacy implementations, you know, one powerful, in my life, often one powerful trader would put in a system that they’d used at a previous bank, regardless of the fact that you had something similar already. And then you’re starting to replicate functionality in different systems, you’re probably fudging a few products into something that wasn’t designed for that. And then you’ve already started to get data flows, that make everything very, very difficult in finance and risk. And you perhaps have enabled somebody to manage the front end of the business to do their business and make some profit. But you’re starting to erode it, as you get through the process of actually aligning to finance and risk and of course, you you put BCBS239 compliance at risk. So I think the business case, it needs to stack up at the department level, but it also needs to take that strategic view in order to get sort of the right decision making and the right trade offs.

Nicolas:
Yeah, and, you know, if I can just go back to some of the things that you were saying about being able to start small and avoid reinventing the wheel and being able to scale your your project so that if you if you think about the core banking as the as the main first project, but you have this vision for finance transformation, and you can find early wins during the core banking transformation and saying; we know where we want to go from a finance transformation perspective, but a priority is core banking, and so we will, I would link to the core banking, small projects that will help moving along, and in the long term during the financial information. I think that’s quite, quite relevant. And therefore, it’s really in this understanding where there is important connection between finance and the core banking transformation and how you can bring those into small projects that can work in parallel.

Elizabeth:
Yes, and I think most people know that in finance, the greatest risk is Excel, and user computing. I met somebody recently who calls it end user development, and the architects tend to know and I think that’s one of the good things. We’ve got better overall architectural views now of our organisations, largely due to, you know, the crisis and the mandated, you know, alignment of data across banks, certainly for the very large systemically important banks that there is a better view, but that finance knows what needs and you go back to BCBS239, it requires automation, it stated that this is necessary, otherwise you’re introducing risk. And finance very clearly knows where they’ve got those risks. So if you bring together your banking transformation, and your finance transformation, you can achieve much more.

Nicolas:
Yeah, yeah, no, definitely, I think Excel, it’s something we discuss. We mention it, at least at every once at every Meet the Expert event, it’s always one of the big challenges of finance. They love it, but hate it at the same time.

Elizabeth:
You know, it’s no surprise that the Legerity FastPost no code logic uses Excel-like logic. Everybody in finance is comfortable with that.

Nicolas:
Definitely. So I have actually one last question for you. And I think after that, we had a lot of great insight from you. What new business models do you see emerging in the market?

Elizabeth:
You know, it’s very interesting, I think, Apple and others have taught the value of ecosystems, I’m thinking about the App Store and things like that. And, you know, we’re doing some work with thought machine who are streaming, sort of smart contracts based new core banking system. And the first thing they said to me is, we’re all about ecosystems, you know, we want providers to provide the finance element that complements what we do. And I think a lot of banks are beginning to think like that, you know, sometimes I can own the whole value chain. But sometimes I might have to give something up. Historically, what people didn’t want to give up is the customer. I know, Nicolas, you’ve been working with some banks on the whole concept of embedded finance. And you know, there that the bank is providing the balance sheet, the regulatory compliance, but they’re not necessarily owning the customer. And I think if you work out that you’re going to compete better if you are complementary to someone else, then in each line of business, that’s the strategy.

Nicolas:
Yeah. No, that’s, that’s very good. Thank you very much. I think that brings us to the end of todays Meet the Experts session. So Elizabeth, I just want to say a very big thank you for your insight. Maybe do you have any concluding thoughts of you, for our viewers today?

Elizabeth:
I think it’s a really exciting journey. I think the technologies have, you know, moved over the previous years to you know, we didn’t talk much about open source. But together with that and the cloud, you know, you’ve got much lower costs to enable you to just get started and get moving. You don’t have to think enormous. You just have to start moving. And then you know, the results start flowing. And actually, the business case kind of makes makes itself, but I think it’s been a really interesting topic. So thank you for having me.

Nicolas:
Thank you very much. It’s been a pleasure to have you so really, thank you very much. Now, just to finish a quick word about Legerity FastPost. So FastPost is a next-generation Accounting Rules Platform designed and developed for large volumes of complicated data and processes. As a cloud-native, ultra high speed performance, it’s been built on the latest open source technologies, as we just mentioned, and if anybody wants to discuss their own core banking transformation, or finance transformation, or how to align those two, as we discussed today, we really invite you to contact us on our website. So we have an easy button to click on. Or you can send us an email at info@legerityfinancials.com. I also invite you all to follow us on LinkedIn so you can get access to our latest webinars, content and other live events on LinkedIn. Thank you very much. And to everyone have a great week. Thank you.