The banking sector is in the midst of its greatest technology-driven transformation since the introduction of the ATM, according to the chief executive of Trade Ledger Martin McCann.
That shift is most visible in Europe, and particularly in the UK, where the combination of open banking legislation and the GDPR have helped precipitate a “seismic and very fast shift in banking,” the startup CEO told Computerworld.
In the UK, the transformation began in 2015 with the legislating of a credit referral scheme, which mandated that banks, with consent, transfer the financial information of SME customers that they had declined to extend credit to, to another institution. Late 2015 saw the European Parliament back the Second Payment Services Directive (PSD2), which forces banks to, on request, share customer data with regulated third parties via APIs. PSD2 came into force in January this year.
The UK has pursued “aggressive and ambitious targets” to implement open banking, which in conjunction with the GDPR has given consumers rights over their own data and helped drive transformation in the financial sector. It’s hard to overstate the significance for the banking sector of the UK’s open banking regime going live in January, McCann said.
And although Trade Ledger is an Australian-based startup — Australia’s open banking regime is yet to be legislated, let alone implemented — it is riding the European open banking wave, and earlier this year won the Open Innovation Challenge run by the VC arm of Barclays, beating nine other finalists.
Trade Ledger’s victory in the challenge has led to a partnership with the UK bank, which is looking at rolling out the startup’s platform for digital business banking products.
Trade Ledger has been positioned to take advantage of the “shift to technology-driven banking,” McCann said. McCann and co-founder Matt (Matthias) Born launched Trade Ledger after they identified that the B2B lending space was “probably years behind” retail banking.
“We figured that we had unique intellectual property, around how the processes and data sets in supply chains of companies worked, and that we could actually utilise that information and intellectual property to effectively create digital origination and digital financial products on behalf of banks,” the CEO said.
Trade Ledger’s cloud-based platform supports invoice lending, receivables financing, and supply chain financing. Banks can “absolutely build this stuff in-house themselves,” McCann said. However, he adds, they’re typically constrained by legacy and tend to have a “closed approach to innovation”.
“Our platform supports any type of corporate credit from a bank’s perspective, or even a non-bank provider of corporate credit, and we look at it very much from the customer’s perspective,” he said. “We build a digital journey for our customer’s customer – for the bank’s customer. Having that view of an end-to-end digital journey gives us a complete different scope and perspective on what the platform should look like.”
That, the CEO said, is combined with Trade Ledgers “intimate understanding of the bank’s customers”.
Trade Ledger can “fit nicely into that very specific spot where the banks know that they need to move quickly,” McCann added. “They know that they need to invest in these areas, and because we provide a platform delivered as a service, it’s relatively fast and low risk for them to adopt our approach to innovating on corporate credit.”
“We don’t engage in traditional integration,” the CEO said said. “What we do is we hand off packages of information via end points on the platform and we leave the responsibility with the bank to figure out what they want to do with that information in terms of importing that or not into corporate banking, or using that to run other compliance and regulatory processes in parallel.
“We’ve designed our model specifically to try and stay away from some of the slower moving aspects of banks’ processes and decisioning. Over time we expect the platform, as a core capability in corporate banking, will undoubtedly become more integrated into banking infrastructure, but we’re trying to protect the ability to move fast and deliver innovative solutions quickly in the marketplace.”
McCann said the enterprise software pedigree of Trade Me’s leadership has helped the startup’s credibility when dealing with banks. McCann and Born both have strong B2B credentials, having spent extended periods at German software heavyweight SAP in the mid-200s.
At that time, success in the B2B software space required scale and resources that seemed out of reach of most startups, the CEO said. However, by the time the duo founded Trade Ledger in late 2016, the landscape had shifted dramatically: “That market had changed significantly to the point where the velocity of technology-driven change in the B2B space was so fast that the big companies couldn’t keep up,” McCann said.
Additionally the barriers of entry have dropped significantly thanks to the growth of cloud service providers such as Amazon Web Services effectively making world-class infrastructure accessible to anyone who has a credit card.
McCann explained: “If I tried to start Trade Ledger 10 years ago, I would have needed $5 million just to get the infrastructure up and running, to start to build out the application and platform product. Whereas you can start with a ‘pay as you go’ set of services from AWS.”
“AWS means we can rapidly expand and spin up infrastructure for a new region,” the CEO said. “Our recent expansion to Europe was achieved quickly due to the excellent scalability of AWS. The mobility it provides means we can quickly gain access to the most lucrative markets in the world.”
He said the startup has been working with the AWS to adopt infrastructure as code to automate infrastructure management.
“We are working towards a self-healing infrastructure, that can automatically identify underperforming systems, and instantly commission new ones to maintain the desired performance,” he said. “In the financial industry, where small time differences can lead to significant losses, this is an important factor for our customers.”
McCann said that there’s a perception within banks that “regulators look dimly at cloud based infrastructure for heavily regulated industries — but that’s not actually the case.” (Australia’s financial services regulator APRA recently released new guidance on the use of cloud services.)
“They need some help to understand, and some guidance from the industry, about what is an appropriate level of regulation to have [around] cloud-based infrastructure,” the CEO said.
“But I think there’s an understanding that a shift to cloud-based technology is inevitable even in heavily regulated industries. And there’s different forms of cloud-based deployment which can be looked at — that’s really the discussion we find the industry’s having at the moment.”
“Banks are obviously very wary of things like multi-tenanted deployments, even though you can provide physical and logical separation of datasets,” he added. “They want more ring-fenced cloud deployments with their own physically separated infrastructure.”
“We’re starting to see a huge increase in the knowledge and understanding of how to safety and securely deploy cloud in heavily regulated industries, so I think you’ll see a much bigger investment and continuing shift to cloud infrastructure, in banking in particular, in the next three to five years,” McCann said.