Scaling a challenger bank from the back to the front

Challenger banks start from a pretty grim position – most of them don’t have any customers. So how are they scaling? Well, whatever they do, it’s important they consider the word scale from both a backend operational perspective and a frontend on-boarding perspective.

My view is the most brilliant challenger banks won’t look at either in isolation. In today’s world, scaling a challenger bank relies even more on the tech at the frontend working hand-in-hand with the tech at the backend. If they don’t, then what is promised won’t be delivered. And with switching bound to become easier and more prevalent amongst consumers and businesses, failing to execute here will be a challenger banking death knell.

Scaling the backend – the engineers view of the world

I’m not an engineer, but I’m around them enough at Tyro to know that a microservices approach is helping unlock scalability at the backend.

For the uninitiated, microservices allow companies to build software applications made up of many individually developed components. Proponents of the architecture point to the increased resilience of the overall application – should one component fail it can be replaced, without the need to redevelop the application as a whole.

Challenger bank Monzo (formerly known as Mondo) in the UK are fairly vocal about their use of microservices in the technology stack. Anyone interested in learning about their story should read Building a Modern Bank Backend.

Tyro in Australia are also big microservices advocates. Graham Lea talks about Tyro’s journey in Microservices at Tyro: An Evolutionary Tale.

Microservices champions also point to the fact they are truly reengineering the banking core, rather than prettying up the UX only. This is not a trivial matter, as only when you attack the core and its native extensibility can you actually build product that is truly disruptive and different.

A must read from Dave Tongue on this topic can be found on Medium. His article, ‘Why Mondo will blow Atom out of the water’, takes a look at the UX-ing banking approach verses the re-imagined backend approach when comparing these two challenger banks side by side.

The reality is, no one knows the future, or what services banks will need to build to remain relevant. So building what you think people will want in 5 – 10 years is redundant. Instead, you’re better off building a stack on which you can respond to what people want and need as it arises. Today microservices is one of the best shots you have of being able to achieve this.

Scaling the front end – the on-boarding approach

Scaling at the front end can’t ignore the unavoidable reality of banking – KYC and risk assessment. Today many banks are unprepared to do anything with a customer until they are fully KYC’d and they meet a minimum risk benchmark. This can create a high barrier to full product adoption and the banking equivalent of ‘cart abandonment’.

Smart challenger banks might look to offer lightweight versions of their services or products depending on the degree of KYC achieved and/or the customer’s risk profile. If the backend (which stores this information) is dynamic and in-sync with the front end (which on boards customers), then a truly reimagined banking experience can be delivered to a prospective customer.

Dreaming up fabulous marketing campaigns isn’t hard. On-boarding is. If challenger banks are weak here, then an on-boarding bottleneck will become the biggest throttle on growth.

For me the biggest ethos change that challenger banks will herald is that customers will come to expect banks to deliver products that truly serve their owners. Products that serve up helpful information in a timely manner, and that respond dynamically to economic environmental changes in a consumer or business owner’s life. But shifting market expectations means challenger banks need to scale fast in order to move the ethos needle and force the hand of incumbents to up their game. Not all challenger banks will win in this regard. But those with a laser like focus on making scale a core feature of all their systems will be in a good position to outrun their competitors.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.

One comment

  1. Onboarding bottlenecks – yes. It took ages to get a Monzo card. The proof will be when a fully functional current account is offered. Until then there’s nothing special about a debit card with a few fancy interface gimmicks. Presumably it will be like ING Direct though – you can only open if you fund initially through a UK bank account, placing the account opening KYC firmly in someone else’s domain. Let’s see.

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