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Reinventing the whole vehicle

Digital-only banks—where developer talent meets banking

Ed Boyle
digital banks
© Shutterstock / Golden Sikorka

Traditional banking is often held back by outdated technology and a lack of innovation. However, digital banks are on the rise in the UK, Germany, and parts of Europe. How do digital banks differ from traditional solutions, and why should developers be taking note of this up and coming financial institution?

For most developers, working in financial institutions has never been particularly appealing. However, a new crop of digital-only banks are gaining rapid popularity in the United Kingdom, Germany and other parts of Europe — and are starting to grab the attention of developers everywhere.

Consider the following: while developers typically account for less than 5% of the workforce of traditional banks, they account for as much as 80% of the workforce at digital banks. As these new, challenger banks begin to obtain licenses and expand in the United States, it’s only a matter of time before we start to see even more talent migrate away from Silicon Valley fads and make the all-important transition into systemically important business.

Dated solutions

So, what has historically kept top developers from wanting to work in traditional finance? Part of it is outdated business models and flawed processes, but it’s also an uninspiring career-building environment.

It’s common knowledge that banks employ dated systems that require dated solutions bogged down by heavy bureaucracy and bloated infrastructure. Big banks might spend big money on tech but 73% of banks’ IT budget is going toward maintenance, not innovation.

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On the flipside, digital-only banks put almost all of their tech spend into innovation and building. Cloud-native and containerized for continuous deployment, these new banks are disruptively more agile than the incumbents. And, we know developers want to disrupt banking — just look at the growing blockchain community.

Digital transformations

Most traditional banks are running the same legacy tech plus their acquired technical debt is an albatross around their necks. In the pursuit of progress, companies can either update already flawed processes or undergo a seemingly massive “digital transformation” — both of which are costly and inefficient.

Imagine that a bank wants to enable online account-opening. Because they have dozens of systems tied into their traditional process, you can’t start from scratch and build what a modern-day customer wants. No, you need to digitize the old process so your “new” process integrates to the remainder of the old systems.

First, you’d convert a paper form into a fillable PDF and get it to dump the data into some massive database before you write an ETL script to somehow push it into some green-screen mainframe system. Seriously.

     
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Meanwhile, a dev at a digital challenger bank starts with an empty white-board designing UX then building workflows to capture minimally invasive datasets to post via API into web-based decision engines. For some of the most tech-forward digital banks, they are developer-first, leading not with forms but with their API.

Why does this matter?

Because banks are, for better or worse, crucial to the functioning of the world today. The impact of their role in the 2008 financial crisis is still fresh in the minds of the world, and many continue to make headlines for laundering money or preying on customers.

It’s a narrative that challenger banks are actively trying to change: building their business around what customers need, rather than selling the most financial products a bank can sell. While their business model is fairly new, developers have a unique opportunity to make a significant impact on our financial ecosystem — a fact that’s likely to be enticing to aspiring minds hoping to make a positive change in the world.

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For a long time, social media platforms, ridesharing companies, food delivery apps, and others have lured top developer talent with promises of becoming the next Uber, Facebook, or Amazon. Fintech companies like PayPal and Venmo also received a great deal of funding and talent, but outside of a select few major companies, Fintech has largely failed to gain adoption in the United States due to the regulatory operating constraints.

Digital banks offer a similar draw for developers, but their banking licenses could give them greater staying power. If that’s the case, we could see the next migration of top developers.

Reinventing the whole vehicle

While Fintech continues to reinvent the wheel, digital banks are trying to reinvent the whole vehicle. The industry may still be in its beginning phase, and its impact is still not completely clear to customers, other banks, or developers.

But, what is clear is that the number of people banking with outdated institutions in the US is so large that any fundamental disruption to the banking industry would be one of the most impactful technological shifts of our time. With the right talent in place, this could have an even bigger influence on saving, spending and borrowing worldwide — some of the most critical things in your life and the economy — than tech companies have had on things like food delivery, television, music, and personal transportation.

Author

Ed Boyle

Ed Boyle is the co-founder and CEO of Medici Bank. A payments and digital banking expert, Mr. Boyle has over 15 years experience in varied product and marketing roles at American Express. After serving as U.S. Managing Director of Fidor Bank (Germany), Boyle brings a deep customer orientation and knowledge of banking technology and partnership development to create more open and efficient solutions.


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