Robin Smith is vice president of North America for banking software provider, Mambu. Robin has been in the fintech space for over 30 years, leading teams at Oracle, FIS, and Fiserv.
Robin’s got a wealth of experience and knowledge over what’s happening in the core banking software industry, and at banks in general. Our conversation spans current trends, banks’ challenges and opportunities with going digital, the partner ecosystem Mambu has built in the US to support its customers, and more.
Robin Smith is my guest today on the Tearsheet Podcast.
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The following excerpts were edited for clarity.
Evolution of banking software
When I look back 30 plus years ago, when I got into this business, most of the financial services technology was centered around traditional regulated financial institutions. And most of the technology innovation was driven more by regulatory type activities and banks trying to streamline and be more efficient in their operations.
I think what’s evolved and most significant over those last 30 years is the shift between what the banks have been trying to accomplish versus what consumers are driving. Consumers have forced a change in the way that banks operate, the way the banks utilize technology. So on the one hand, 30 years ago, it was all about efficiency, and how do I do things faster – better – with computers versus with people? And today, it’s how do I use my technology to help improve the customer experience and drive growth in my markets, as well as be more competitive against the non-traditional players that have come into the market?
Where banks are with digitization
I think every bank acknowledges that they need to improve. But in many cases, it’s an academic acknowledgement – they recognize that they need to improve, they need to advance, they need to create a more seamless digital experience for their customers. But I’d say only probably 30% to 40% of the institutions that we encounter out there really have a plan or a mechanism for doing so. They are at various stages of that evolution, some more so than others. And I think that’s where there lies both the challenge and the opportunity, right?
For Mambu. It’s an opportunity for us to work with clients that already envisioned where they want to be, and help them get there faster, help them get there more efficiently, through our cloud based offerings. And for institutions that are just beginning the journey or are stuck somewhere on the journey, a chance to engage with them and show them new ways to accomplish getting to that end state.
Picking sales opportunities
We operate in four distinct geographies between North America, Latin America, Europe, and the Asia Pacific region. So depending on which region we’re talking about, you have different states of maturity. I would say that, you’d find the most mature digital thinking at banks in the Asia Pacific region. A lot of that is driven by the influences coming out of China and out of the other economies in Southeast Asia. Second would be Europe in terms of its movement along the digital path. That’s primarily being driven by legislative action. I’d say Latin America is a mixed bag: you’ve got 26 countries in Latin America. A lot of people like to think of it as one big place that all speak Spanish, and that’s not really the case. So depending, again, on the sub geographies, you see a different degree of maturity.
North America is a unique animal in itself, in that it’s the largest financial services marketplace in the world. And so everybody loves the fact that there are a lot of financial institutions and non financial institutions in the financial services business in North America. But, there’s a very, very strong grip that four or five competitors have on the market in North America, which makes it very difficult market to penetrate. So again, depending on what geography you’re looking at, it’s going to dictate what your go to market is and what your approach to the market is going to be.
Building an indirect sales and partnership ecosystem
For us, we’re not only working directly with our own team to address financial institutions’ needs, but then we’re also very heavily involved with a partner ecosystem that assists us in that. Look at partnerships we have with firms like Deloitte, where Deloitte brings not only technology expertise with Mambu to the party, but they can also bring the consultancy itself, that consultative advisory type work to those institutions that need help on that journey. So we’re leveraging both in terms of our software assets and work we do as a software provider, as well as working with this partner ecosystem to bring consulting and advisory type services to our potential clients.
In terms of partners, you’ve got to have four categories of partners. You’ve got folks like Deloitte, who are traditionally referred to as the Big Four. So it’s Deloitte, PwC, Accenture, KPMG. They tend to do not just the technology enablement and systems integrators, but also provide these advisory and business process type services. They tend to be very, very attractive to large institutions. It’s kind of the Good Housekeeping Seal of Approval – if I’m working with Deloitte, nobody’s going to push back on that. So we have relationships with all of them. And in some cases, they have built assets that contribute to their ability to implement Mambu. So, for instance, Deloitte has a Mambu Center of Excellence in Portugal. That’s 150 trained Mambu resources that, coupled with their management consulting capabilities, are able to do those large scale projects for organizations that are looking at transformation exercises and those types of things.
There’s another set of consultancies that we have relationships with that I call more of the boutique type consultancies. In our case, you look at companies like EPAM, which is a global company, Persistent, and True North. In most cases, these are folks that you find very attracted to fintechs, the rate structures are a lot lower,and they tend to be more hands on keyboard, meaning they tend to be more of the people that are actually developing stuff for an institution or for a financial technology organization in a much more contained fashion as opposed to a big bang transformation type exercise. So those are kind of the two consulting categories.
The third and the fourth types of partners are also really very important. One is the cloud providers themselves. So in the case of Mambu, we operate on all of the commercial clouds. Those cloud providers become a very important part of our partner ecosystem, in that they are touching a wide variety of clients – everything from retail to financial services, and everything in between. So we leverage them as a partner network, as they engage with clients of all sizes.
And then the fourth category is the ISVs, what I’d call the product partners. And these are people that basically do things outside of what Mambu does. One of the classic examples that we have is a European based company called Backbase. Backbase is basically the digital front end, the digital customer experience. It’s the tools that a client would use to actually create that unique experience for you, Zack, when you come into the bank, either into the bank or through the digital channel. They facilitate that digital journey for the client. There are other product partners in that area like Brim or Total Systems, which are large players in the credit card/debit card space.
US and Europe
Everybody loves the US market when they look at it from a financial services perspective, because, if you take banks, credit unions and non banks, you’ll come up with about 12,000 potential buying units within North America. Compare that to someplace like Vietnam, where there’s 20, and you get a very different picture, and you start to say, gosh, if I could get 10% of that market, I’d be that dumb and happy and I could retire.
But like I said, there are three factors that become important when you’re addressing the North American market. One is the competitive landscape. 87% of all financial institutions right now are serviced by one of five providers (FIS, Fiserv, Jack Henry, CSI and Finastra). Those five basically consume 87% of the existing buying units, and 90% of the existing buying units, when they make a change, go to one of those five providers. So everybody else, while the population is huge, everybody else is fighting over a very small pool. So that’s one factor. The second factor is there still is a pretty heavy regulatory burden on doing business in North America. It’s probably the most regulated financial services environment in the world. And it’s complicated by the fact that there’s federal regs and legislation, but then there’s also state legislation, too. So you have to be prepared to meet those regulatory requirements.
The third piece is functionality. We still write a lot of checks in North America. And in fact, in last quarter’s earnings announcements from one of the major tech providers, they actually indicated that check usage had gone up by 9%. You just shake your head, right? I mean, everybody says checks are going away, everything’s digital, but we’re still writing more checks. You look at things like mortgage lending in the United States, and it’s very different than mortgage lending in the UK, or in Israel, or other places that you might think of. And that’s where, for us, that partner ecosystem comes back into play, in order for us to address all of those types of issues, and to be more competitive in this market, we’re very, very dependent on having a very strong partner ecosystem from both a functional, regulatory, and deployment perspective.
Finserv after 30 years
What’s different today than it was 30 years ago is that there’s such greater knowledge about what the capabilities of technology are than what people had 30 plus years ago. When people started off on this journey, the vendor held all the knowledge. The mystery of the mainframe computer in the black box that surfaced, everything was still in the back office, and you had a handful of geniuses that knew how all that worked. You roll the clock forward to today and my 18 year old daughter probably knows about as much about technology. Our generational changes, so that they’ve grown up with technology, the digital natives, and the people that are very comfortable with their usage of technology has just expanded the knowledge bases. So, we deal with a much more educated consumer today, a much more educated bank, with banks that are in their second or third generation of computer automation. That’s been the most significant change to me: the primers that you did 30 plus years ago on what something meant don’t apply anymore, because people have run past that.
So to me, it’s just the level of knowledge, and it’s a double edged sword, right? On the one hand, you’re walking into situations that are pretty advanced. But on the other hand, it’s nice to deal with people that understand the language. It’s not like you’re teaching something new to everybody you talk to.
Mambu’s go to market
We try to work with institutions, whether they be regulated financial institutions or fintechs, that are looking to create something unique. And to create something unique by building out an ecosystem, really a best of breed type approach. While we have product partners, ISVs, that we work with that do certain things, we’re very much inclined to work with an institution that wants to create a special experience for their customers.
When you look at our five major competitors in the North American market, most of them provide a very closed end to end solution. They’re providing a very closed ecosystem that’s either made up of products they’ve built, or most of the time, products they’ve acquired and subsequently integrated. And they sell that as an all inclusive vacation type of plan, where you’re buying their digital experience, you’re buying their core processing capability, and you’re buying their capabilities of moving money via the payment system, and you’re buying that for one price.
We work with customers, like a client in Nevada that wants to build out a specialty bank that deals in nothing but digital assets. And even though there’s been a crypto crash over the last, it’s a digital asset bank that realizes that to be able to support that, a traditional banking system that’s an end to end, contained, closed loop type of scenario doesn’t work. They’re assembling a stack of technology, 34 different components, of which Mambu has four components of that stack. We do probably 50% of the heavy lifting. But again, we’re four components out of their whole technology stack. That’s our ideal profile: somebody that really has a vision for a target state that either positions them competitively to grow, gives them a more delightful customer experience,to go after untapped markets, and know that they need some specialization to be able to do that. Those are the kinds of institutions that we’re engaged with on a daily basis, and that we continue to focus on.
Economic headwinds put pressure on investment ROI
I don’t think it’s business as usual. I think that everybody out there from Jamie Dimon at JPMorgan Chase down the food chain is predicting that we will go into some type of a global recession in 2023. What I see and what I hear in the marketplace today is that the investments banks are making in technology against that recessionary backdrop is really about how they maintain margins. How do they increase efficiency? How do they use the current state of technology to be able to continue to grow, but also to be able to continue to be more efficient in how they grow.
The days of a 36 month payback in terms of return on investment are gone – what they’re looking at is, how do I get there in six months, nine months, 12 months? Where I start actually realizing return on those technology investments, so I think speed of technology investment is key. That’s where I think folks like ourselves that are cloud native, that make it easy to implement, and to do so in a timely fashion, have an advantage over some of the legacy providers that are still trapped in those long term implementation efforts.
Small business banking
Talk to any financial institution, and somewhere in their top five initiatives will be something related to small business banking. Small business banking is a huge go to market for most financial institutions, because it’s a sticky relationship, a relationship that enables them start on the credit side. But then they are also able to drag other relationships with that: deposits, treasury, other types of activities that make that relationship very sticky.
And so, small business is a great example where we see institutions that are saying, I don’t really like what my existing core system does for small business banking. I’ll stand up a small business bank to specialize in small business banking, and the speed with which you can do that with some of today’s technologies and the cloud really makes that a viable prospect, versus what you could experience if you were trying to do the same thing with a legacy product.