The hindsight of Venmo represents a microcosm of what banks are doing well and the challenges they face. I knew Venmo’s founders when they launched the company. What Venmo did well was to uniquely answer a market need. In hindsight, we know it was a huge need because of Venmo’s historic adoption rate. Banks do a great job of listening to the market, and banks are still where we trust to hold our most personal information and the bulk of our liquid assets – but the challenges Banks face make it difficult to answer even the loudest market demands.
The difference between Venmo and banks is that Venmo was free from the burdens of regulation and constraints of legacy systems. I know this because I advised them early on to hire quickly and wisely to address the compliance and regulatory issues that they would face as they grew and would need in place to be acquired. Fortunately for Venmo, there were apparently no breaches and an early acquisition by BrainTree who was then acquired by PayPal gave them what was needed to harden the service, making Venmo more secure and compliant.
Today, many banks are engaged in launching new initiatives. Some banks run these new initiatives in parallel and coexisting with legacy operations, while other banks are launching entirely new brands as “Parallel Banks”. In all cases these Parallel Innovations are addressing attractive market opportunities – what banks are good at doing when they are free to innovate.
Like Venmo when it launched, Parallel Innovation offers the market a fresh approach, a new story, and novel capabilities. But unlike Venmo when it was launched, the new “Parallel Banks” have a distinct advantage since they are backed by established banks, making them more secure and compliant out of the gate.
The key to Parallel Banks, whether it is a new or existing brand, is that banks are finding ways to innovate and be agile in response to market opportunities. At Finxact, we know that much of this is being driven by a new core banking architecture. Just as Salesforce did when it created an entirely new architecture for CRM, the new core banking architecture is allowing banks to transform the way they innovate. Since the core is the heart of the bank, this transformation provides the platform that breathes new life into the digitization taking place at the edges.
Whether it is attacking a new market, launching a new product, or creating an entirely new brand, Parallel Banks provide more than just near-term innovation. The modern core banking architecture scales from the smallest proof of concept to large scale banking operations, supporting not just current products and operations but future products, services, channels, and future scale. Therefore, the value of Parallel Banks is more than just near-term innovation – it becomes the proof of concept platform for migrating existing operations for banks looking to convert their existing legacy systems. The risk and cost of a “Big Bang” can be career limiting, whereas the Parallel Bank is an innovation platform for prototyping, testing, proving, scaling and eventually – migrating.
I am a runner, and when I ran my last marathon, I hit the wall at mile 20 like most runners. It was only my will to finish that forced my heart and lungs to fuel my muscles. I wish I had my 20 year-old heart back that day. Fortunately for banks, they can replace the heart of their operations. Without a modern core architecture at the heart of the bank, it is kind of like trying to run a marathon hooked up to a heart-lung machine.