Going for the core: A story of a changed bank
* Some of what follows is fiction. Descriptions of the business model, banking processes, time frames, however, are real and actually happened with one of Tuum’s clients.
My name is Alex. I’m a 38 year old Head of Business Development at Imaginary Bank, based in one of the Nordic countries. I travel way too much and spend too little time with my kids. Some time ago, when my youngest kid was born I wanted to take my 6 months parental leave. However, as I had just recently joined the organization I wanted to do something truly valuable (and easily measurable) for the company before focusing 100% on my family. That’s the personal side. On the business side, the following happened.
Imaginary Bank was established in 1846. It’s one of the largest in the region, we serve 3 million customers annually and make tens of millions of transactions per week.
It looks more or less OK from the outside. I mean, we are based in the North, we cannot and have not ignored digitization our customers expect from us. However, it looks much worse from the inside. The process of launching new products is intolerably slow and ridiculously laborious. Due to outdated systems (hey, we’re still running on Mainframe from 1976!), competing with nimble and flexible new era fintechs is definitely a challenge.
And you know what, it’s more or less the same for all traditional banks. For people who have not seen the insides of that kind of organizations have no idea how complicated and multi-layered undertaking is changing core systems in a bank. Absolutely everything can go wrong and no sane manager would even ask their risk assessment team for blessings to start such an overhaul.
Now, what makes us pretty unique is that we are directly facing towards and collaborating with accounting software providers. Inevitably then, they take care of the acquisition and marketing costs. Over the years this model has worked rather well for us. So, some time ago I got an idea for a completely new line of services — offering factoring to our end users, that’s mostly regional SMEs. If factoring is not your speciality, you can believe me that there’s plenty of room for innovation. In most cases it is a pretty tedious process which involves several visits to the bank office together with extremely limiting contractual conditions and manually sending invoices for factoring. Additionally, quite often you can only factor a certain amount of the total invoices and have to pay and additional fee for even using the service.
For my factoring idea we got the plan and budget figured out pretty fast. After all, it was a completely new product and a nicely fresh income stream. We took on the arduous process of choosing the right vendor for the technical solution. Or at least we thought it was purely technical. When we had finally reached the decision, I obviously stressed out if it actually was the best one.
Surprisingly for us, from signing the deal to the end of the development processes, it took around 5 months. That included three major changes to the business plan that was at the centre of the whole development — the final model was a mixture of factoring and line of credit. In addition, during the whole process we realized that a big part of our core banking now also needed a fix — customer onboarding, credit decisioning, group accounts to support virtual IBANs and payments for faster credit transfer.
Unfortunately our inhouse processes took twice as much time to make us work in unison with the new system. We found ourselves in a position where we were simply not ready to make decisions as fast as our vendor wrote code. For example, we got a much more functional back-office solution than was initially planned simply due to the fact that our vendor was waiting behind us to get access rights to production environments and wanted to use time more practically.
- Shorten the time used for business customer’s KYC procedures from 5 days to 3 minutes (that included automatized background check to the person and well as the company from different registers and public web)
- Reduce the cost of KYC process from 300 euros to 15 euros
- Issue credit against invoices as collateral
- Predict the net present value and payment likelihood of invoices
- Offer our customers a dynamic line of credit that they can use when they see fit
- Allow customers to fully factor their invoices and only pay interest on the borrowed amount without any additional fees at all
- Create all needed accounting entries in real-time without any manual work
- Have a plug-and-play factoring solution that several different accounting and invoicing platforms can connect to
- Monitor our business in real-time
- Issue virtual IBANs to the customers