#407
Dino
Published:
Oct 02, 2021
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Legacy banks are often referred to as “dinosaurs”: they’re big (in the US have $20t in assets), slow (to innovate), on-premise (think vaults and aisles of servers), and smaller ones are facing the threat of extinction.
The “underbelly” of the beast is the core banking technology - for retail, this software allows banks to communicate across branches/ATMs, open and manage bank accounts, perform loans and payments, and operate their mobile banking platforms.
Most core banking software was implemented in the 1970s and 80s and has not been upgraded. While 70% of banking executives are reviewing their core banking strategy, only 5% of banks modernize their platforms each year, partially because the perceived risk of failure outweighs the benefits.
Banks spend about 1-3% of their assets under management on technology (over $500b a year) and half of that spend goes towards maintaining and developing the legacy core banking software. A move to a modern cloud-native banking platform can save up to 50% of those costs.
Last week, Thought Machine (a fintech startup building cloud-native core banking technology) recently won the JPMorgan Chase retail contract. That’s a platform that serves 57m customers. Chase will now (finally) have the ability to launch new products much faster than their (legacy) peers and compete in a fast-paced consumer fintech market.
No one else has quite replatformed at that scale. While banks are slowly starting to “get it” - they’ll have to move quickly if they want to avoid getting beat by fintech startups...
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Dino
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