With this fourteenth episode of SME Banking Conversations, I continue the series of inspiring interviews on SME Banking, digital transformation, and people making innovations happen in the industry!
The recording of this episode took place on November 29 in Kraków (Poland) during the CEE23 SME Banking Conference. We talked with Nelson Wootton – CEO and Co-founder at SaaScada – a tech company, entering CEE markets, about the core banking platform, about how to make the change of the core banking system less painful (migration from monolithic IT infrastructure to microservices became a must-have) and how the core system in general can be different from the existing ones on the market.
Read my conversation with Nelson below or hear it on Soundcloud:
Let’s start our conversation. And I think the first question to you will be about SaaScada because I guess this will be new information here in the CEE region. What is it about?
NW: SaaScada is a core banking platform. We like to talk about doing all the boring pieces of banking. And it’s worth unpacking that statement because it sounds a little frightening, and investors go “What? “. If we think about banks, intrinsically, banks have an awful lot of things in common with other banks. They have accounts that are addressable locally and sometimes internationally that you can send money in and send money out. They may well have called products associated with those accounts. They may well have an exchange for foreign currency or some other asset to be brought into those accounts. They will always have ledgers for all of their customer accounts and often for the bank’s own accounts for treasury management, liquidity, vostro, and nostro accounts. And of course, banks have products. So, they have a product engine, a product suite that kind of defines the kind of offering that they give to their customers, and that could be a transactional current account offering, it could be deposit accounts, it could be lending accounts. This is what Saascada does. We do it all in a box. We provide APIs at the top to allow banks to build differentiators on top. And I’ll talk about what those differentiators are. And at the bottom of our system, we plug into the local payment systems to provide transactional in and out, we’ll plug into card processors, if the bank wants a card product and we’ll plug into any exchange to bring those assets through and onto the platform. What we the reason we focused on that is that’s an incredibly common aspect in banking everywhere in the world. And what differentiates banks is all the stuff that sits on top, right? This is kind of their customer service, online banking, mobile banking, loan origination, and credit risk decisions. These are all things that make banks different from other banks, the customer segments they want to focus on. And we believe that banks should not spend money on this boring bet at the bottom. It’s commoditized. It’s the same every single time. The money needs to be spent on the differentiators that the bank has. And that’s what SaaScada focuses on.
Tell us a little bit about yourself. What is your path to SaaScada?
NW: It’s a good question. So, I’m a techie. Sorry. That’s true. I’m the techie. I love technology. I got into technology around the mid-nineties. I’ve got lots of gray hair when the Internet really started gaining traction. And I’ve had a series of different companies in that space for many, many different years. And a good friend of mine, my co-founder in SaaScada, approached me back in 2013. He wanted to launch a bank in the UK and asked me to come and help him do that. And we did. And doing it helped us understand how almost unfit for purpose core banking systems are. They are very old, the technology is old, it’s very expensive to deploy, it’s very expensive to change and it restricts some of what a bank can do. And having built the bank and scaled it and subsequently sold it, we decided to take everything we’ve learned and build the core banking system that was fit for purpose, that would enable banks to be agile, to offer a full wide product suite and to be genuinely innovative about the kind of products they launched and took to market. So yeah, it’s my co-founder, Steve Round, he’s the banker of the two of us. I’m the techie.
So, you came to Krakow. Do you consider the CEE market as interesting for you?
NW: Absolutely. There are a few things that we do slightly differently as a business, and I’ll touch on that now. We obviously started in Western Europe; we started in the UK. The Swiss market is also a big market for us, and we are in the process of expanding out across Europe and we are looking at different territories in Europe as well as globally to take our product to. Eastern Europe is absolutely one of the critical markets. We see lots of innovation here, we see lots of the similar challenges that Western Europe faces, particularly around SME banking. And we believe we’ve got a really, really good product fit to market. So, we’re here to build relationships, and to understand who’s operating in this market. We are only one piece of the puzzle. I think it’s really important to be clear about that. We do this boring at the bottom. You know, when we talk about the differentiators that sit on top, those are also localized for the communities that they serve. There are often different regulatory restraints around that as you move from one country to another, which is why it’s important that we focus on this bit here and build relationships to help us take the product forward in different markets. But yeah, we’re really excited about this part of the world. There’s kind of a number of issues that we saw when building a bank ourselves that we sought to solve with SaaScada. So, the first one I think is around how products are constructed in a bank. So typically, we see that the functionality of an account and the code that runs is tightly coupled, meaning that those things are very tightly interlinked. And typically, core banking systems will often start with lending because banks make money from lending money. It’s a very, very important thing,
They used to, I would say, and this is not a story anymore, and I guess will never be. So, what happens is lots of core banking systems start with lending and the code that runs the products and the products systems, the accounts themselves are very tightly linked together. And they’ll often go off to capital markets to raise money to start off. Later, down the line, either through changes or regulations or appetite in the business, they then start wanting to attract deposits. And that core banking system that product is kind of pulled out and it’s stuck over here, and it’s turned upside down. So that now it earns interest instead of charging interest and it’s okay, it’s all great. So as good as the lending that was, but it’s a kind of okay, further on down the line, they get into transactional banking and this piece is taken and they pull the kind of interest piece off and go, here’s your transactional account. And again, it gets slightly worse. And what happens in that scenario is this code base is now enormous and it becomes very, very expensive to change. It becomes very expensive to maintain and it also becomes very expensive to deploy. So, what we did at SaaScada was we looked at all the little attributes that make up financial services products, interest earning, interest-bearing, fees, payments, all those different things, and we started building all these little attributes together and we allowed our customers to pull those together to build any kind of account on our platform. So, we do not sell to our customers a lending module and then later on a deposit module and then later on a current account. Once you’re on the platform, you can launch any kind of account and we would encourage you to launch any kind of account. It’s the first thing we do really differently. The purpose behind that is to create agility for the bank. As they see new opportunities and new products they want to take to market or variations on their existing products, it shouldn’t be an IT challenge to get those to market. Clearly is still compliance and regulatory concerns and reporting not dismissing any of those things that a bank must do. But it shouldn’t be IT that gets in the way. It should make that stuff happen, not stop it from happening. The second thing we did really differently is how we manage data. One of the big challenges we saw running a bank is reporting. Reporting hurts. It’s time-consuming, it’s super expensive. Typically, our research has shown that 10% of a head office banking cost is based on reporting and that reporting is late. It’s not real-time. It’s a month, two months later than you want it to be. You’re always on the back foot with where you are when managing your bank. That’s very frustrating. So, we used another turkey for an event-driven system. And to kind of create reports in real time it’s worth unpacking that a little bit as well. So, what happens inside the SaaScada core platform is we manage and process transactions as unstructured data. So, when we get payments come in from the bottom of our platform or card transactions or exchange transactions, we capture all of the raw data that we get from that system, and we keep it inside our platform, and we process the transaction and we store all those transactions as raw, unprocessed data. We have a venting system that sees those transactions happen, grabs the transaction, and creates a structured data view that could be regulatory reports, it could be management information reporting, it could be anything you like, it could be rewarded cash back for customers who exhibit particular behavior if you like. There’s no restriction to that. The ridiculous example I gave is if the CEO woke up one day at a bank and said, “You know what, I’d like to understand what the weather was like when any transaction happened in the bank”, you can go into our venting system and you can enrich the data with whether a time and location and build instantly a brand-new report. And you can apply that report to all the historical data that SaaScada processed for you. So, your ability to look at your data, turn it around, and ask new questions, and new questions again is really powerful, and it happens in real-time. So, you can have an infinite number of these reports. And every time a transaction happens, all these reports will be populated with the results of that transaction. Unlocking that power for a bank and changing the way they think about data is critical for what we think of as the next stage of banking, which is much more personalized, a much deeper understanding of what a bank is doing and what the customer is doing with that bank. Clearly, the regulators also looking at this, and pushing banks to be much more responsible with the products they offer clients and show understanding of what those clients are doing. And so real-time data to enable you to see what’s happening on your platform within with your customers is a critical component.
Part of the banks here in the region started the process of change and the old core systems, these monolithic ones, to microservices which we allow to embed the different products and maybe even partnerships, they cooperate with fintechs. So, some banks started this journey already, and some banks planning to start this knowing from my banking background that the changing of the core system is a really painful process, from your experience, how to make it less painful?
NW: Yeah, it’s a very good question. And you’re right. It is terrifying for a bank to change its core banking systems. It is probably one of the biggest decisions a board will take and one that they’ll seek to mitigate risk more than almost anything else they do. At SaaScada, what we tend to do, is we look to work with banks that are trying to launch new products to market. And really the reason behind that is we would talk about a bank being at risk in their appetite at this moment in time. So, if you’re looking to launch some new product to market, you’ve already identified a potential opportunity that may or may not play out. We don’t know yet. And you’ve got an appetite to try something new and in fact, that is a really fantastic opportunity for someone like SaaScada to come in alongside everything you’re doing now and work with you to deliver that. The reason for that is that the SaaScada platform is going to be cheaper to deploy than changing your existing core systems to deliver that new product. And we are deliberately targeting the market. There are some really good reasons why we’re cheaper. Firstly, you know, we are absolutely lovers of everything cloud. The platform was built for the cloud. It wasn’t, we didn’t take an existing piece of software and put it in the cloud. We wrote a cool banking system using cloud technology. And what that actually means is if no transactions are going through the platforms off, which means we’re not paying for that service and our customers are paying for those service transactions come in, it wakes up, does all the things it needs to, and goes back to sleep. That ability to scale is fabulous as far as volume is concerned, but it’s also super good for cost. So being able to deliver a core banking system at a lower cost than you can change your existing core is a key part of this journey. Because of how we manage data, we can fit in with all your existing reporting processes, right? So, we can just build data views that fit in with all your existing management information, and regulatory reporting. So, the friction of running two systems side by side, we start to remove. And once we’ve launched that product with the bank, what we typically find happens is they go, this is quite nice, this new technology. You know, would it be possible to move some of the other products that we’ve got across? Absolutely, yeah. And that that then starts looking like it, then it will vary. So it might be that you run down the loan book on your old platform and run it up on the SaaScada, the same with deposits, particularly if you’re doing term deposits, you know, as, as the year expires and they come maturity, you open new accounts on the new platform. You know, we think it cannot be underestimated how critical migration like this is. It’s incredibly frightening for a bank, we talk about is open heart surgery while the customers walking around you know you don’t even get to the customer to sleep and operate on them. You’ve got to be transacting all the time. This is happening. And so, finding ways of mitigating that risk is absolutely critical for us. This is one of the most successful ways of working with a bank to take a new product to market. So, they’ll see our platform alongside their old one and then they’ll slowly migrate products across and eventually turn off this old platform.
Can you bring us some examples of your customers and implementations?
NW: And of course, of course. So, this is an SME Banking Conference. So, let’s talk about the UK’s fastest growing business, which happens to be a bank that happens to be focused on SMEs, which couldn’t be a better fit than that. Alllica Bank really, really great example, a great example of agility. And in fact, the story that I’m talking about here. Allica Bank approached us a couple of years ago. They wanted to launch a current account for SMEs. Some of the challenges they saw there, I don’t know if it resonates with this market, but as a business owner, if you’re very small, your current account is pretty fit for purpose and as a business owner, if you’re really big, your corporate bank account is fit for purpose. If you’re anywhere in between the two, you really don’t get a very good experience. It’s a challenge. We ourselves have got at SaaScada and Allica helping us address that. As you start to grow your finance team, you want finance people to be able to set up payments and your CFO to approve those payments. And that kind of workflow doesn’t really exist in most bank accounts. It’s great here, it’s great up there, but this piece in the middle doesn’t work, so we help them launch a current account with a debit card. They also built a loyalty program around that, so you get 1% cash back on any card transactions. They use a data projection to capture that data. So, as we see transactions happen, we can calculate in per account the amount of cashback that each account earns each month. So, all sits on that side of the platform. And having done that, they also wanted to launch a savings wallet inside that account. So, one of the things about the SaaScada platform is you can have multiple ledgers inside an account and typically we experience that with our Revolut style product where you hold multiple currencies, but you can have multiple accounts within or ledgers within and inside the account. So, a savings wallet in this case for them is a current account. And then underneath this is a little savings area that you can put capital into, and it earns interest. So, we’ve got a current account with an overdraft and a savings wallet inside that that earns interest. Really, really cool business products. Great. All right. With all the approval processes that an SME business needs. Initially, they were seeing lots and lots and lots of take up for this account, but not so many transactions. And that was kind of puzzling. And on deeper understanding, it turns out that everyone really loves the savings wallet that was bearing interest for a business account. And so, they then started the process of launching deposit accounts on our platform and raised a staggering amount. And in fact, within ten days it was billions of pounds that we’ve raised. And it’s a really, really good example of how a bank is, with agility, the ability to kind of transform a move what you’re doing as a product in response to what you’re seeing is customer behavior. And IT didn’t get in the way of that, right? We just we were there to enable them and help them on that journey. And again, they are the UK’s fastest-growing business, which is an incredible accolade. It shouldn’t be big, dismissive, you know, there’s an awful lot that goes into making a bank agile and they are an incredibly clever team who are winning awards all over the world. We are just one small part of that journey. You know something we’re incredibly proud of is those two businesses we’re very aligned in that need for agility, you know, your ability to spot what is working and what isn’t working and change a move and take that to market really rapidly. The pace of change in all of our lives is getting faster and faster. The reality is that is coming from banks too. And thus, the winners are going to be those that can adapt and develop and move with that pace of change.
What are your plans for the next year?
NW: Yeah, great. So, we are it’s a really super exciting year for us. So, we will be opening offices in Switzerland in the next year. So, it’s a big market. It’s been a really big market for us. We are now looking for new areas of the world to move into. So, I’m here to build relationships as we touched on and start looking at this as a market to operate in. I think commercially it’s going to make a lot of sense for organizations in this part of the world to work with a company like SaaScada. We will be looking to do a fundraiser towards the end of next year, and then we’ll be looking for further markets to take the product to. There’s a whole world of opportunity out there for us and we’ll continue to build and develop and partner with our customers. It’s really important that we do that. They are right at the front of what’s happening and what they need and that relationship with our customers and them feeding back to us where they need to see change and new things happen is a critical part of what we do as a business.
Thank you very much, Nelson, for that conversation.
Watch the conversation below:
