“Because we knew that with today’s technology we knew we could avoid the pitfalls of the older systems,” says Five Degrees’ co-founder, Bjorn Holmthorsson. The failings of existing core banking systems are well known in the market: they are heavy and high-risk to install, inflexible and expensive. They are nearly all of the same generation, so at least 20-25 years old, have become highly complex and hard-coded, and do not fit well with today’s market requirements, including cloud-based delivery.
The answer is Matrix Accounts, with this now proven at a first customer – Netherlands-based Argenta, supporting 260,000 accounts – and under implementation at a start-up bank and at a tier one bank, reflecting the ability of the system to meet the needs of new entrants through to high-end established players.
While some customers just wanted Five Degrees’ mid-office digital banking solution, there was demand from new and existing players for the back-end as well. To a degree, the fact that the mid-office layer now includes a range of services that would have previously resided in the back office aided the task of making the latter much leaner than the monolithic incumbents.
Matrix Accounts is product-centric, with no hard coding. It is based on modern design concepts, using micro services and features that means it is completely componentised. Financial institutions need only take as much of the back-end as they need, which immediately simplifies and shortens the implementation and testing. Users have control to adapt existing products and launch new ones. A change to one part of back-end does not necessitate a major upgrade, with testing required only for the components that have been modified. Automated testing along these lines significantly reduces the implementation and maintenance overheads.
Features and schemes are components and attributes that come together as a product when assembled using the intuitive product builder. This provides users with full control over the financial institution’s products. The fact that services are componentised means they are called and used as required. Examples are services for fees, charges, interest calculations and penalties. The validation rules reside within these schemes, which is markedly different to traditional back office systems, where the validation is hard-coded and tied to the screens.
The features and schemes can be used to support cash accounts, loan contracts, term contracts and FX contracts, across both retail and corporate banking. The system is completely scalable and includes multi-entity support, which might be important for tier one banks or if the system is used to support a bureau model running multiple banks.
Services that much more sensibly reside in the mid-office are kept out of the back. This includes reporting, customer data, customer validation, reconciliations, risk, CRM, business process management, document management and so on. Where appropriate, third-party best of breed components can be plugged in, such as a risk management system or pricing engine.
The initial development of the offering started in 2011/12 but the first attempt was halted because it was felt that it was not sufficiently generic. Rather than plough on and compromise the design and configurability, it was decided to start again, use the lessons from the first attempt, and this time ensure that the development was true to the micro-service concept and fully future-proofed. Development is in the hands of a high-quality team of business analysts, designers and programmers, who were able to adopt today’s leading edge techniques and combine these with their deep knowledge of banking.
“We saw banks that wanted a simple savings account but were forced to install big back office systems, most of which they didn’t then use,” says Mr Holmthorsson. “We wanted something that was lean and mean, that could be taken in discreet portions that are focused solely on what was needed. We also wanted to ensure that we took full advantage of the flexibility of cloud-based delivery so, although the solution can be taken for traditional on-site implementation, it fits very well on a hosted basis, as shown by our first live customer.”
Matrix Accounts is now generating interest from existing users of the company’s mid-office. The existing solution has allowed users to already “shrink” their legacy core systems, migrating functionality into the middle office where it is much better suited. Moving at their own pace, they can now remove some or all of the remaining legacy back-end with the much lighter, more flexible alternative. This can dramatically reduce total cost of ownership but, more importantly, can bring the competitive edge that stems from being able to react much faster to customer demands and to changing market requirements.
The market for core banking systems has been relatively lacklustre in recent years, particularly in developed markets. Banks question the business case for replacing one old back-end with another, incurring expensive, high-risk and time-consuming projects for little or no business benefit. There is a lot of pent up frustration with the existing platforms but there was no obvious way forward. Banks need to take a quantum leap to next generation operations that allow them to meet the ever more complex needs of today’s sophisticated customers for high-quality, user friendly services via any device and tailored to their particular needs at any moment in time. In parallel, of course, banks need to satisfy ever more demanding regulators. However, none of the well-known core banking system suppliers offered the solution.
That solution now exists: Matrix Accounts.
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