Core Banking Radar
The Irish manufacturer Leveris has built a new core banking platform from scratch. This platform, which is presented here by the Core Banking Radar of Swisscom and the Business Engineering Institute St. Gallen (BEI), puts banks at the core of digital ecosystems, thus paving the way for new, data-based business models.
Text: Matthias Niklowitz, Images: Zense, 23 august 2018
For many less affluent customers, the account management fees are one of the most important arguments speaking for or against a banking relationship: In these times of low interest rates, customers are feeling the impact of these fees, and consumer protection organisations and broadcasts also regularly focus on this topic. From the bank's perspective, the income generated by the account management fees must cover the costs of customer acquisition and customer retention. Quite often, these fees can also replace the income lost on interest operations.
But the latest developments are blowing up this connection, paving the way for a new solution to the problem of high fees chasing customers away: The targeted (and hopefully discreet) use of customer data as a source of revenue.
This does not refer to the kind of data usage exercised by Google and Facebook, but rather to the management of customer data within a bank and customers' explicit participation in the usage of their data, which is handled in compliance with the most recent European regulations and data privacy obligations.
It is becoming clear that the introduction of systems such as the Leveris solution will allow bank customers to choose whether they wish to be compensated for the usage of their data with a lower account management fee. If the databases are exploited in full, it might even be possible for bank customers to earn (small) amounts in the form of additional interest or digital vouchers for selected offers.
That Swiss banks are not yet actively focusing on the usage of their data in order to create a new business model is not necessarily due to a lack of motivation or understanding of the opportunities on the part of their top management teams. Rather, they often do not have the IT systems they would need for such a step. Open API approaches can solve some of the immediate technological challenges of linking powerful data processing and analytics systems to a bank's core banking system, ensuring the basic technical viability of the kind of data usage described above against suitable compensation for the customers. But there are still fundamental hurdles when using common core banking systems, such as time- and resource-consuming release cycles, taxing innovation projects, expensive upgrades and scalability restrictions.
The selected strategic challenges facing manufacturers of core banking systems in further developing their own systems to meet the needs of their customers' future business models include the following:
Leveris, a provider of core banking systems from Ireland, has its own approach to finding solutions for these challenges.
Keeping TCO down: For example, Leveris reduces the operating costs by consistently processing transactions in real time, which eliminates the need for batch processes. The decoupling of modules in the Leveris architecture and the continuous software delivery process eliminate expensive release and regression tests.
Modernisation: Leveris follows the approach of a lean core banking system offering the most important core functions while all other services are provided via APIs. This even applies to near-core functions such as securities handling, which is done by freely chosen peripheral systems. The core itself and the peripheral systems offered by Leveris have a modular structure, while a microservice architecture ensures that they are decoupled from one another.
Market positioning: The Irish company, which by now employs more than 150 people, defines its role as an enabler for banks, which should be made the centre of digital ecosystems and market places. Through its central data storage Leveris enables hook-ups with customer journeys or the actual ongoing activities of customers and the direct interlinking of end customer requirements. To this end, banks' cooperation with other banks and fintechs should be simplified across the industry. The bank at the same time retains one of its most valuable assets: Access to customers and their data via Leveris's data lake – sort of a large data pool that integrates internal and external data.
Leveris processes internal and external data from its data lake.
The main features of the Leveris approach are implemented via five modules in the retail banking suite:
These five modules can be freely combined in accordance with the bank's wishes and requirements, but the core is always part of the solution.
For the Core Banking Radar, the Business Engineering Institute St. Gallen and Swisscom Banking compared the Leveris offer (without peripheral systems) with the systems that were investigated in spring 2018. They identified some functions where the Leveris solution is further ahead than other providers. These include:
The Leveris solution (without peripheral systems) compared to the systems that were investigated in spring 2018.
The following are below the average for other providers:
In general, Leveris specifically favours the docking of peripheral systems in areas where it currently (and partly also in future) does not offer its own modules, (also) because these do not promise any added value.
Users of Leveris solutions therefore have to accept that some topics are covered by third-party providers, which makes it more difficult to compare the total costs of the solutions offered by the different manufacturers. This in particular includes the investments module, as Leveris with its system designed for Anglo-Saxon retail banks does not anticipate the in-house processing of securities transactions.
However, Leveris is working with a large solution provider to develop an integrated investment solution.
At present, Leveris is earning a financial income from implementation and software-as-a-service fees. In future, fees should also be earned for the integration of third-party products (for the marketplace approach) and the monetisation of data.
According to its own statement, Leveris will earn revenues in the lower double-digit millions in euro this year, and this is expected to more than double in 2019. The first two implementations of the Leveris system is a P2P platform in the Czech Republic and a mortgage platform in the Netherlands.
At present, a digital private bank based in a country in Western Europe which intends to expand into five further European markets after it goes live in Q1/2019 and an Austrian digital private bank are being implement. Leveris is also working on a fully digital loan and mortgage application process for the UK and Irish markets. More banks are showing great interest.
According to its own statement, Leveris has global ambition and wants to become one of the top ten providers of core banking systems. Its target groups include all banks (incumbents, challengers, neobanks). Customers can choose whether and how they operate their Leveris solution (e.g. on premise, in private clouds or on the public clouds of Amazon Web Services (AWS) or Microsoft (Azure)).
The adaptation of the Leveris system to the specific requirements of Swiss customers is not very advanced yet: At present there are no developer resources or reference installations in Switzerland (or the DACH region). Because of its flexible and open architecture which simplifies the modular integration of local solutions as well as the experiences made with three nationalisation projects to date (EU / SEPA countries), Leveris itself expects manageable additional expenditure for tailoring its core banking solution to Swiss requirements. Leveris is also actively marketing its product in Switzerland and indicates that discussions with prospects in Switzerland are in an advanced stage.
Outstanding features of Leveris.
This allows the following conclusion: From the perspective of Swisscom Banking and BEI, Leveris is a promising upcoming provider of a core banking solution that convinces with a mix of innovative technologies (microservices, real-time system, open API and data lake) and traditional approaches (Oracle and PL SQL technologies). The consistent integration of third-party providers is a forward-looking approach in view of a possible future development where ever more functions will be covered by peripheral systems and the core banking system will primarily be a posting system.
A unique feature is the importance given to the data level, which is expressed by the storage of data at a central point and the event-based real-time integration options in the customer journey. With this new campaign management organisation, Leveris wants to help banks take centre stage in the digital world as an integration platform rather than having to play a subordinate role as processor on the outskirts of digital ecosystems.
Other strong points include the modular approach which allows a fast pace of development and the acceptance of various future banking concepts, e.g. a marketplace bank or a mobile bank. It should be noted, however, that the integration complexity has to be actively managed here if the targeted low total cost of ownership (TCO) should not be jeopardised by a high degree of architectural complexity.
The open architecture means that the bank must have an expanded architectural perspective and IT expertise in order to manage the interfaces. This also includes knowledge of the processes and developments in the digital ecosystem outside the banking world. This is the only way in which a platform like this one developed by Leveris can be meaningfully exploited in full.
The establishment and management of the end-customer relationship will become ever more important for a bank's business success in future. At present, a tool such as Leveris cannot replace any existing core banking system in Switzerland on a one-to-one basis.
However, Core Banking Radar recognises two scenarios where this solution can be used effectively: First, to replace some functions for current banks, which could initiate a progressive change. And second, for a new bank or some business lines in the form of focused new start-up business models, expanded by incentives for the progressive migration of the customers to a neobank.
Core Banking Radar will keep a close eye on future developments.
More than 150
Other development sites:
Prague, Czech Republic and Minsk, Belarus
Integration, licence and service fees
2014 to 2017: Development
2017 to 2019: Various B2B implementations
From 2019: Scaling by implementations in strategic partnerships with typical system integrators (B2SI)
Privately owned company
A serie-A round took place in 2Q18
Swisscom and the Business Engineering Institute in St. Gallen (BEI) have been in partnership for many years within the framework of the "Sourcing in the Financial Industry" expertise centre. The centre works with topics such as ecosystems, digitalisation, transformation and matters pertaining to the future structure of the financial industry. Along with its research activities, the BEI runs projects designing and implementing innovative, cross-industry business models.
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