Trading Tomorrow - Navigating Trends in Capital Markets

Cloud Technology's Role in Modern Banking: An Insider's Perspective

• Numerix • Episode 22

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If you’re curious about the benefits and challenges of cloud-native banking platforms, this is the podcast episode for you. Host Jim Jockle of Numerix is joined by Vishal Dalal, CEO for North America, Europe, and Asia at Pismo. Together, they explore the transformative power of cloud-native banking platforms. Vishal shares insights into the growing adoption of cloud solutions by banks and financial institutions, the benefits, including scalability, flexibility, and security, and how cloud-native systems are revolutionizing core banking operations. 

Jim and Vishal also discuss challenges with legacy technology, regulatory concerns, and future trends in cloud adoption. Whether you’re a fintech enthusiast or just curious about the future of banking, this episode offers a deep dive into the rapidly evolving world of financial technology.

Speaker 1:

Welcome to Trading Tomorrow Navigating Trends in Capital Markets, the podcast where we deep dive into the technologies reshaping the world of capital markets. I'm your host, jim Jockle, a veteran of the finance industry with a passion for the complexities of financial technologies and market trends. Because this is Trading Tomorrow navigating trends in capital markets, where the future of capital markets unfolds.

Speaker 2:

The finance industry has long relied on legacy systems tried and true technology that brings a sense of familiarity and comfort in what is a highly regulated field. But recently we've seen a significant shift Banks, hedge funds and other financial institutions moving away from these old systems and embracing the cloud. Broadridge's annual tech report highlights this change, with over 80% of executives saying they're heavily investing in building advanced cloud platforms for digital transformation, which is even higher than the emphasis on AI. In this episode, we'll dive deep into the transformative power of cloud-native banking systems, look at the benefits, address the concerns and discuss how scalability, flexibility and security come into play. Joining us to discuss is Vishal Dalal.

Speaker 2:

Vishal is the CEO for North America, europe and Asia at Pismo. He has led Pismo's international expansion since 2020. Vishal has over 23 years experience in core banking and card systems and before Pismo, he was partner at McKinsey, where he spent a decade advising clients on core banking systems and leading the technology strategy service line for banking and financial services across Singapore, new York and Sydney. Vishal is also a prolific writer, contributing frequently to business magazines like McKinsey Quarterly on core banking technology topics. Welcome, vishal. Thank you so much for joining the podcast.

Speaker 3:

Thank you for having me. It's a pleasure.

Speaker 2:

Why don't we start by introducing us to Pismo?

Speaker 3:

I think the best way to put it is Pismo is essentially a cloud-native core processing platform. Every time you use a card or you take a loan, or you ask for a statement or you buy something, there's this huge machine in the background of a bank or a financial service company which essentially does all of the transaction processing, checks, balances. It sort of puts accounting entries into place, right? Essentially, it's the heart and brain of a bank, right? And what we do is we make that very, very complicated piece of software. The context is that earlier instances of the software were essentially built using legacy technologies built to be hosted by the bank themselves, and what we've done is we've made it faster and we've put it on the public cloud.

Speaker 2:

As a cloud native and API based platform. Can you explain what that means and also why does that give you an edge?

Speaker 3:

What this means, obviously, is very simple. One is we do most of our processing right, so all of the pieces that we talked about you know, including checking balances, creating accounting entries, creating new products. We do it on the public cloud instead of doing it on premise. Now why does that matter? One is the public cloud forces us to write our logic in a particular way, right, so it has to be written in the most efficient way, typically you know, using microservers and APIs, which I'm sure your audience knows about.

Speaker 3:

What that does is that it makes it very modular. Right, I can essentially make changes to the software very quickly, whereas in earlier monoliths, what I had to do was, every time I made a piece of change on the software let's say to add a new product I had to test the whole thing because I couldn't know what would break when. And we've taken that away, right. So I think that's number one. Number two when you sort of did this processing on the public cloud or on a data center, you had to buy a whole lot of hardware earlier, right, because you didn't know how much you would expand, and so you'd have to spend a whole amount of money right up front. You don't have to do that now because, by its very nature and definition, on the cloud you only pay for what you use, and you can buy in real time, you can scale up in real time.

Speaker 3:

So that's the second edge, right? The first one was speed. You could sort of, you know, make changes on the fly. Second is, you only pay for what you use. So if there's a bank which is coming to us which says we only have 100,000 credit card accounts, you don't have to buy a giant piece of hardware. You only use infrastructure worth 100,000 accounts. And the third, obviously, is that a lot of these cloud providers like Amazon, microsoft, google they tend to be very, very good at what they do in terms of security, scaling up and things like that, and so that headache gets taken out, you know, from the bank's head, essentially Right. So those are the most important advantages that we see architecturally.

Speaker 2:

So, just out of curiosity, as the way you were talking in terms of deployment and upgrades and probably you know doing continuous upgrades, are you single tenant, multi-tenant, and how does that impact? You know the banks themselves in terms of regulatory environments, protection of that data, as well as having you know information on public clouds.

Speaker 3:

So, first of all, we offer both models, right. There are banks which, because of their size, are considered critical infrastructure in their country and so do not wish to sort of share infrastructure with anyone else, and for them we would offer single-tenant facilities. But in general, you know, most clients are comfortable with multi-tenant, largely because their data is obviously completely segregated from each other using logical segregation. So in general, that really is not a problem. We are very careful about how we treat data and we always comply to the local jurisdiction and the local regulation in the country that you know that bank is a legal entity of. What that typically means is A.

Speaker 3:

There are countries where, for example, regulators will say it's okay to be on the public cloud as long as the public cloud is on soil. So, for example, let's say country X, you can host on AWS, but that AWS has to be in our country. Right, that region has to be in our country and you cannot send it anywhere else. And we obviously let regulators audit that and say look, you know, here it is. Then there are essentially countries which say we do not want any publicly identifiable information on the cloud, irrespective. There you know, if the bank still wants to use the cloud. What we do is tokenized sort of implementation. The account number or PIN never goes out on the cloud. Instead, a tokenized version of it is used for processing and then that data is returned back.

Speaker 3:

So no PIN information would ever make it onto the cloud right, Because that is the rule. And finally, when none of this is allowed we unfortunately have to tell our clients that we cannot help until one of these conditions becomes true. Basically, so in all cases we have to comply with the law of the land and we're very particular about it.

Speaker 2:

So how many countries are you in at this?

Speaker 3:

point. At this point, we are in about seven countries, so a lot of LATAM we're live in India, we're live in Australia and we've started implementing in a few other countries as well.

Speaker 2:

Interesting and now just out of curiosity. Out of curiosity, one of the issues and I'm going back a couple of years ago at this point was the larger cloud providers were using localized data centers in those countries where data couldn't move out and there were actually performance issues associated with some of those core data centers. Performance issues associated with some of those core data centers has that improved over time?

Speaker 3:

Well, I think we've certainly not seen any problems in terms of performance. You know, most of our transaction interaction is in milliseconds, right, Not in seconds, and so you know we've never had a problem with any of the cloud providers on that front right, so I'm sure it has gotten better. With the sort of R&D budgets that these players have, they tend to just keep getting better and better and better, and obviously that helped us a lot.

Speaker 2:

Now, Pinsport was recently part of one of the biggest fintech M&A deals of the year. You know what do you think this says? First of all, congratulations. And what do you think this says about the current appetite for your technology?

Speaker 3:

Well, I think we've always been very insistent that there is a product market fit right.

Speaker 3:

The market likes this sort of technology and we like to think that, you know, the M&A deal was a good vindication of that fact right, which is, you know, there is significant appetite for this sort of technology, largely because A the technology is very, I guess, universal. Apis are becoming the universal language of communication in the world of e-commerce and banking. B we're sort of starting to democratize a whole lot of this. Earlier, if you were to implement a core banking system or a cards issuing system, you need very careful planning and thought, and now I'd like to think we've democratized it to the level where a fintech, you know, which basically just has a credit card, can just come to us and say set this up for me and we can do it Right. So we're democratizing it and I think there's significant appetite for that. We also see it in the increasing acceptance by large banks. We're starting to sort of enter very fruitful conversations where people like what they see and we're able to make significant headway in educating people as to what this technology can do for them.

Speaker 2:

I think you know, as an industry, we've all started talking about cloud in 2011, 12, somewhere. Where do you think we are on that hype cycle at this point in time and the reception to cloud technologies from the banking industry?

Speaker 3:

Well, I think we're still at the very initial stages, right? If you disregard the hype for a moment, I'd still say that about 99% of the world's banking infrastructure is still on legacy technologies, and that's a fact. We're barely starting to scratch the surface in terms of starting to hit the potential. So, I would say, just in terms of any cycle, this is still very much right at the beginning and I think, as a lot of what I would call public facing parameters start to progress for example, you know, we're able to configure a product in weeks instead of months right, we're able to add a feature, like we can, for example, today, in a matter of hours instead of like weeks or days. As those stories start becoming more and more common, I think, at least for the foreseeable future, right, the trajectory is upwards right at least the way I see it, what would you say the current trends are, you know, in terms of cloud adoption?

Speaker 2:

you know, and how is it accelerating with banking? You know, it seems that you know, as we're moving into, you know, the path of enlightenment, if you will.

Speaker 3:

Well, I think, to be fair, banks are already pretty smart about using cloud right. The typical adoption cycle for a bank used to be first, they used to sort of, you know, dip their toes into the public cloud gingerly, then, you know, just to see what it was all about. Then they would start, for example, taking the simplest use cases right let's say, internal information, not customer information, or test data right, or analytics right, just to sort of see what the art of the possible is. So they've been doing this for quite some time and you know there has been no letdown.

Speaker 3:

What has changed with what has changed with, you know, adoption of, like public cloud, native core systems like ours, is that banks are now starting to feel comfortable putting core data on the cloud right.

Speaker 3:

So, you know, core banking data or core cards data uh, that's where we are starting to get to right, and I see that percentage increasing purely in the you know, purely from, based on the number of calls that I get every day saying hey, you, we'd like to, not necessarily saying hey, we want this now, but you see the upward trend in terms of boards calling and saying hey. Could you just come over and educate us as to what this is. Could you just have an honest conversation with us about this and then typically some banks will essentially oh look, we like what we see. Could we do a small proof of concept? If you really think you're that fast, here are our most difficult business challenges. Could you do a small proof of concept and, for example, show us that you can configure a product in one afternoon or you can sort of set something up in a matter of a week? Those types of conversations are sort of significantly on the uptick and that gives us a lot of hope.

Speaker 2:

When I think of the objections of banks, you know, going back 10 years, it was security, security, security. You know the cry is cost, cost, cost. Today, you know. So what would you say? The primary benefits are in terms of moving these operations to the cloud, but, at the same time, how are you dealing with, you know, the same objections that I hear as well?

Speaker 3:

Yeah, so no, I think that's a great question and I'd like to see this in terms of three benefits, right? One is obviously the speed of innovation. So normally and again, you know, I think legacy systems have been very, very useful, you know, in terms of what they've done, but you would normally, we normally hear banks saying, oh, it takes too long to, you know, deploy change. So, for example, if you're talking about a new product family, on average we hear numbers like three months to nine months, right, uh, you know. Or sometimes even more, right? Um, and I think, for something like us, something like that, we've been a disruptor.

Speaker 3:

Uh, last year, we deployed 5365 changes into production, right? So if you think about that, on a good day, that's 11 features every day, right, 11 features every day. That is blistering in terms of what's possible. So I think that's one that sort of is important. Second, obviously, is the scale up. Right, you know, you don't have to buy the hardware and so, most importantly, in terms of just basic volumes, you're just paying for what you use, right? So you're not sort of paying for peak usage, right, you know, because the cloud automatically lets you scale up and down as needed without intervening.

Speaker 3:

So for the last three or four Black Fridays that we've had, we haven't had to touch the system, right.

Speaker 3:

It automatically sort of ramped up and then ramped down. So there's the whole sort of cost element of it as well, right, and the third one, which I think often gets overlooked, to be fair, but we find it matters a lot, is what I call the talent risk. A lot of legacy banks built their technology when I was a young kid and I'm already past 50 now, so you can imagine how old they are, and so the people who serviced it are close to retirement age, right. And a lot of these did not have uniform documentation mechanisms, so there's only typically five or six people who know where to hit the spanner in case something sort of starts working. Right, the really young engineers want to work on this, right, they sort of see this as exciting, and that's starting to take away some of the talent risk problem. Right, you know you're not going to have to worry about, uh, two or three people carrying all of the risk and not being there when fingers crossed you know, uh, or you know, god forbid anything goes wrong.

Speaker 3:

So, solving those three pretty important things right and and I think it is a bit difficult to you know, this is going to be a very gradual education cycle because you have to remember that the people who are evaluating us when they're taking a buying decision come from that world typically right.

Speaker 3:

So when they last evaluated a system, they were used to evaluating a system that worked like that. So there is this education process where you essentially say please look at us very differently, right, we're sort of built very differently. This is what good looks like in terms of evaluating us Right, and that's an ongoing process. But, as I said earlier, the number of conversations is going up every day and it's very encouraging for us to see.

Speaker 2:

I remember going to the bank with my passbook. You know getting so excited and seeing my little balance and my little passbook. And if I was going to go out with my friends on a Friday night, I better make sure I got to the bank by two o'clock on a Saturday Exactly the good old days. So I guess one of the questions that you make me think about. Obviously you're tackling legacy technology, but also in just traditional core payments and core banking. But you know we do have emerging asset classes that, like you know, for example, like crypto right and what, and we're seeing an entire infrastructure grow in a siloed way. What kind of opportunity or challenges does bringing the two together into core banking, especially as we're now starting to see the institutionalization of crypto, regulatory barriers come down, but also different technologies in terms of blockchain? You know, how do you see all that coming together?

Speaker 3:

Well, I think that's a great question, and I'll be very honest.

Speaker 3:

You know, I think it's still, at least to my basic mind it still feels like there are stages, right. So I don't know if and when and I think that's a decision we'll take, depending on and we'll be led by the market If we ever decide to become like a completely decentralized ledger, which is almost the end state evolution, I don't know where that's going to happen. I think we're going to reach there in stages. What I see right now is there are central banks which are sort of starting to in a few cases, I think six or seven of them starting to sort of, for example, experiment with CBDCs, central Bank Digital Currencies. So for me, the most logical route to start off, to sort of start dipping a toe into this, would essentially be doing the basics, which is, at least support that currency type.

Speaker 3:

Today, you know the platform will support usd eur, all of the basic currencies. But the first thing we have to do is now we have to start dealing in those currency types, right? So start creating the currency codes for those platforms, right? That's the most logical thing, because if, for example, a country evolves a real-time payment system using just those currencies, right, that's the most logical thing. Because if, for example, a country evolves a real-time payment system using just those currencies, right, and we are called. We have to be able to at least handle that. So to me that's the first basic logical thing to do. Right, if it goes there, then essentially, you know, the idea is to basically get embedded right and sort of start handling what I would call decentralized authorization. Now, if you think about it, that at least to me in some way, and I don't know where this is headed but I think the authorization speeds still do have to catch up.

Speaker 3:

I think current authorizations, if you think about it, are still at the nature of milliseconds we typically get about 200 milliseconds to respond to an authorization request, whereas uh, confirming a transaction on any of the local blockchains is still, at this point, measured in minutes right, and for some of the newer blockchains, sometimes even more so I think, uh, my sense is, a lot of the engineering will have to first be done at that level to sort of speed it up, uh, but then obviously the advantages are there.

Speaker 3:

Right, I don't want to crystal gaze, but I think I'd like to think that we'll keep watching it and we'll keep making baby steps to get there, starting off with currencies, then checking if the speeds are there, then saying how do we get ourselves in, and hopefully then evolving.

Speaker 2:

What would you say are the key areas of focus for Pismo's future product development and how do you anticipate these developments are going to impact the fintech industry?

Speaker 3:

I think at this point you know the way we've characterized ourselves.

Speaker 1:

We've drawn some very clear red lines around ourselves right.

Speaker 3:

So we are essentially what I would call the high-speed, high-resilience transaction processing engine. We're not a risk processing engine, so we don't yet, for example, underwrite, right. We don't sort of take risk decisions. Our job starts when the decision to open an account has been made, and then we sort of step in and basically do whatever it takes to process transactions, do accounting. So I think the first thing that we will do is essentially obviously strengthen our product offering right. So, for example, doing many more complex types of loans right, we didn't do lending earlier now we do so, you know managing many more complex types of loans, you know, managing mortgages and things like that.

Speaker 3:

So that's one axis. The second axis is, you know, sort of getting ready, for example, for a bewildering array of local payment rails. So you'll see, for example, countries like India, brazil, like, going very rapidly down the path of account to account payments, achieving huge, you know, adoption rates, to the point where it's changing the very nature of the economies, right. So us getting ready for those sort of rails, right, is, I think, basically the second thing. The third is, you know, obviously, as I said, we do something and we do something very well, right, well, right.

Speaker 3:

So the third thing is we're going to sort of increase the array of partnerships, right. So, for example, you know, we will always be on the lookout for sort of great partners, for example, let's say, and a lot of that now is coming because of our acquisition by visa, right, these already has it. So, you know, great sort of partnerships in terms of aml, kyc systems, in terms of collection systems, uh, in terms of, you know, the new products that Visa has launched, like, for example, flex, right. So, integrating with our partners. I think those three things should sort of, you know, keep us busy for quite some time.

Speaker 2:

Sadly, we've made it to our final question of the podcast and we call it the trend drop. It's like a desert island question. So if you could only watch or track one trend in cloud and banking, you know what would that be?

Speaker 3:

My favorite trend is, I think, the one that you mentioned right. I sort of again in my own time, actively track the usage of CBDCs. Right, it started off, you know, five or six years ago with just two or three very small countries, but I see a lot of countries now moving towards it. Doing pilots right, and the nature of the pilots is very different, right even the reason for them is very different right some of them are sort of going at it right from first principle, saying we want to decentralize everything.

Speaker 3:

Some of it are basically just doing it because they want to lower transaction costs and pass on those costs, right and and take away those costs from customers. Some of them are basically just doing it because they want to see how far the technology would go. What can they tokenize, right? Could this be the beginning of something which changes the entire nature of the economy? So I enjoy tracking that and, you know, in my spare time, just trying to think of what it means for us, right, and it's a very fun exercise, I can assure you right.

Speaker 3:

And it's a very fun exercise, I can assure you right. I wouldn't mind being stranded on an island, at least for some time, just to do that.

Speaker 2:

Vishal, thank you so much and I'd be remiss if I didn't mention you're a prolific writer and thought leader in the industry. Where can people follow you and engage with your writings?

Speaker 3:

A lot of what I do now is on LinkedIn, but you know, there's a whole lot of papers I've sort of written in my previous life which I think are floating all over the net. Once I manage to find some time, I think I'm going to get back to some more regular writing on Medium or something, but right now it's basically LinkedIn and a whole lot of other papers around this area.

Speaker 2:

right, that's all I really know.

Speaker 3:

And that's what I've really stuck to.

Speaker 2:

Well, I'm going to be sure to follow you after this call, vishal. Thank you so much. Congratulations, and you know we wish Pismo continued success.

Speaker 3:

Thank you so much. That's very kind and it's been an honor, thank you.