EP1019: Beyond Core Banking: The Rise of the Modern Bank Operating System

I'm Pujas Sharma of IBS Intelligence and you're listening to the IBS IBS podcast with me is Bhushan Dengachari CEO of Finsley. A Fintech company based in Charlotte, USA is banking and payment technology company that helps financial institution modernize their infrastructure through a cloud-native platform. Known for its unified payment hub, Finsley enables banks to manage multiple payment trails, improve interoperability and accelerated transformation while supporting evolving regulatory and customer demands. Today we are diving into how evolving ACH regulation that is automated clearing house a US electronic payment network that moves money between bank accounts. A real time payment and modern banking infrastructure are shaping the future of banking. Welcome to the podcast, Pujan. Thanks, Pujan. Nice to be here. Pujan, the industry is increasingly talking about the rise of modern bank operating system. What is driving this shift and how does it differ from traditional core banking model? So if you look at the banking, the bank has been using the technology that has been there for the last like 30-40 years. Nothing much has changed, right? Banking is always the banking. Like in a banking industry, things in general. They received deposits, they lent and they moved money. These are the three major functions of the bank and these functions cannot change, right? If you look at the history from paper ledgers, they went to a system ledger, right? And then after that digital banking, online banking, then mobile banking. So at every revolution, what happened was the systems, the cobal, mainframe systems, it just remained the same. And banks continued to create layers and layers on top of that. So every time they want to do something, they will create a solution, they will create a layer. And what happened was, what we period of time, all the systems became so complex to manage. Layers and layers and fragmentations. So they will create solutions and assemble it. And even if they buy a vendor solution, the vendor has bought from like five other different mergers and acquisitions. And it created complexity. You know, banks couldn't move, right? So what we all started seeing is that, FinTech started evolving. Hey, you know, banks are not doing anything. Let's do, let's do that job for you. So FinTech started doing the banking services and used banks as a backend, yeah, utility. And you know, that solves some problems and players like Squares, SRIB, you know, modern Russia. All these things, it became a better solution for businesses because banks were still doing the same things they did for several decades. And now what you are seeing is that FinTechs are becoming banks, right? Now almost every FinTech in the US, that is applying for banking short, and they're all becoming banks. Now the question is, what is the future of the banks? Right? That's where the interest, the banks are at this point. In the FinTechs are becoming banks, banks are still banks. How can we bridge that gap that Fincely is addressing that gap? Right? How can we enable banks to stay ahead to compete with the FinTechs to recapture their, the business of receiving deposits and moving money and doing that business the way they used to be? And that's exactly what the interest needs because banks, you know, the communities, the countries needs banks because banks are very highly regulated. And you know, if I ask you, where do you want to keep your money? Would you like to keep it with SRIB? Or would you like to keep with your bank? You know, you'll say, it's a bank. So I think that's that's very, very, very important and it is very important for banks to address that gap, quickly address that gap because, you know, the kind of technical debt they have created over a period of time, it's too much. And the key is, how can they address that gap faster so that the gap doesn't in continue to increase and start to compete and start to grow their business and start to earn more revenue? I think that is more important in today's economy. Banks have spent years modernizing their technology stacks. Why do many still struggle with legacy constraints and where have previous transformation efforts fall in short? You know, I think if you look at the way the banks have operated, right, they totally rely on a core platform. And they built around that one. In a lot of time they get constrained with, you know, some of the course they have like very ridiculous contract agreements. Then if you do business with them, you cannot do business with anybody else. You cannot buy anything else from, you know, any other provider, right? And, you know, some of those constraints and when they don't have such constraints, they will have a commercial banking solution from a vendor. And then they will have a consumer banking solution from a different vendor. They'll have a mobile banking solutions may be created in ours. So all these things, you create like, you know, layers and layers, like you create multiple solutions. All of these things are doing one thing, right? They are not trying to solve the customer's problem. If you look at banks, banks are, you know, they want to seriously address what is important for their customers, consumers and business, right? And when they want to address those problems, when they look back and look at the technology providers and they're like, you know, they're not going, they're not delivering what the banks needed. So they are in a position where, hey, I need to deliver what my customers want. And I have these limitations who can help me. There will be some players. They will just solve one problem and they will go and say, hey, come and solve my problem. Three months later, there'll be different problem. Who can solve this problem? Let's bring them, let them address this problem. So over a period of time, they ended up having like so many vendors, so many point solutions. And what happens is, if you touch one thing, there are like 10 other things is going to fail. It's that's the reality today, okay? And nobody want to touch anything. So they just keep it as it is because they don't want to do stir customers, right? Because, you know, you may want to keep some customers happy and you touch it, you're going to make someone else unhappy. And that cycle, they don't, they don't, they don't want to avoid that. That makes them just stay straight as go, right? The thing is, the demands of the customers doesn't change. They keep demanding more and more because you know, the fintechs are moving at the speed of technology, right? Banks, they're moving at the speed of their people who are laying on and that gap is a serious problem for them. So as they look at these specific problems and what we tell them is, this is one of the reason why Fincely, I vote for banks and I'm a technology and I couldn't see these problems continuously troubling the banks the way they can, they have to modernize and innovate. And we decided, a banks need something a radically different solution instead of just continuing down the same path. Why don't we just think fresh, like not apply for principles? Think about what is available today in technology? Because, like technology is so advanced, right? There is no reason why banks have to get stuck with this kind of problems. It's like unbelievably bad. So we said, like, no, we have to rethink re-imagine and let's think about what we can do, right? One is the legacy systems are going to remain like and they don't, nobody wants to touch that one because it is so fragile, nobody wants to touch that one. And I want to address what my customers need. And we said, hey, let's create a parallel operating system, let's create a parallel bank operating system where banks will be able to add new solution just like, you know, you want in your iPhone, you like an app, you install it, you use it. Why don't we give that similar solution for banks? With a bank as a problem, if there is a solution, just add it, test and start serving your customers. And I think that philosophy, that concept, shape the way Finnsley is built, right? So we build that operating system, that is everything, your banking system needs, compliance, audit, documentation, communication and all that, all that stuff. So we build all that stuff. And then on top of that, we created galaxies of solutions. So, you know, we have payment galaxy to address payments specific challenges. So if you go into the payment galaxy payment systems, on the other side, the legacy systems, you have ACG system, ACG team, ACG experience, wire system, wire team, wire experience. And banks have like six, seven different payment rights. You have that many teams, that many vendors, that many systems. And basically banks were continuously pushing this products to the customers, rather than giving them an experience of money movement. Hey, let's start with what the customers want. They just want to move the money. Like, you know, when you go to FedEx, you don't have to tell them, "I want this to be shipped by flight or by train or by track. I just want to move the money. Just tell me where you want to move, how fast you want it, and then here is the fee. That's all the customer cares about." So we started from there and then we created that the Galaxy, which is payments, ACH, wires, instant payments, international payments, all of them got one in that payment Galaxy. Next, we looked at ledgers. You know, we created accounts galaxies for everything that you want to keep track of, debit, scripts, balances, all those things, went into the ledger galaxy. And then for an exchange trade, they come another, the treasury capabilities, the advanced customers, the corporate customers they need, it all went into trade Galaxy. And then we have token Galaxy for blockchain. So at the end, what we did was we created the solutions. So banks can assemble all these galaxies, create the stars and create their own universe. Because every bank, their needs, their business is different. And we decided, "Hey, let the bank build their own universe, build their bank the way they wanted." So that's how our bank operating system is helping our banks to compete with any players. Right today, even a regional bank can compete with JPEMode. That's unbelievably great thing that's happening. And we are extremely proud of what we are building here. That could ideally be a poll code. AI adoption is obviously accelerating across banking. What role will AI and agentate capabilities play within the modern bank operating system? Yeah, I think AI is, you know, is very important. Right today, nothing is going to be great without AI. And I think what I'm excited about AI is, few things, right? One is how AI can help bankers do their job better. In a, for example, how it can accelerate some of the payment investigations, reconciliation, and in a general operations work, right? Because tomorrow, let's say you want to triple your payment volume. Are you going to add that many number of people to support that volume? Or you are going to use AI and start doing more intelligent work and use that intelligence to enable your bank operations. And when you do that, I think one of the most important thing is, how can you still stay compliant? Because when the bank regulators come and question your processes and in a general workflows and other stuff, you cannot tell, "Hey, AI made the decision." You know, that's not a good answer to give to regulators. And you need to be able to ensure the AI is doing its job correctly. So it is important that whatever that we are doing in AI within the bank is compliant and regulated, you know, banks are still taking accountability and take responsibility for the decisions made by the AI. It is just only going to get better, right? So that part is going to help primarily banks do their job better, enhance their operations capabilities. And then the next angle in AI is, how can bank help their customers do better business with that? How can if a customer wants to connect from cloud to the bank and then, you know, do some enquiries and data investigations and create a summary or, you know, anything that any alumnus thinks that they want to do, they should be able to do it from cloud or chancey PD or any AI agent they have, right? So that angle is becomes important. And when you do that, now the question is, how do you know it is the customer is doing their job? Because now AI agents are doing it and, you know, the customer is going to say, "Hey, I didn't authorize this one." And how do you prove that they are the one authorize the agent, do the job? So it becomes really important for the banks to kind of ensure that there are controls and auditability and traceability. Everything is in place so that they can ensure that the AI is helping their customers better. And I think the way, you know, if any bank is not on AI, I think they are going to be falling behind further. And I think, you know, it is important that the every bank has an AI strategy for their own operations team and for their customers. Many banks want to modernize but are very of large scale core replacements, right? How can institution transition to a modern operating model without taking on significant migration risk? Yeah, so I think that's one of the common problems that we see across the banks, right? Because, you know, as I told you before, the systems that has been created over the last few couple of decades is kind of layered, layered, fragmented and complex. Nobody wants to touch that. And if you want to touch it, you're going to break it. And if you are replacing that means it is like, it's impossible. So I have seen banks who have taken over 10 years in the core replacement, right? You know, like think about, you know, you start this project in 2016. And now you are completed that one by the time you're done, the industry has moved so much. And there are so many other advanced technologies. And now you're again, you know, catching up, right? So that is never the right option. And what we do is we recommend our banks to take this approach. Surround the core. Shrink it. So, surround the core. You run your parallel bank operating system. And let it do what you want to do to your customers. Now, how you want to help your customers? If you want to launch a new product or you want to launch any capabilities or you want to launch a new segment of the customers, start doing that in this parallel operating system. Right. You know, some banks, they say, you know, I want to start offering this new APA capabilities for payments. Okay, start there and then migrate the other, you know, other channels to fail. And then migrate the incoming way. So there are different ways that you kind of slice and dies. But the core idea is start as a parallel code. And then start moving one piece at a time. Now you are kind of slowly shrinking that one. And then you can exit out of that legacy system. So surround shrink and exit. So that's the, that's the strategy. Bank should adopt. When they want to modernize their work platform. Looking ahead, how will emerging innovations such as real time payments, tokenized deposit and stable coin, shape the future of. Bank operating system and the broader banking ecosystem. Yes, so real time payments is not anymore modern right that most of the countries they have real time payments. And you know, yes, it's different. Okay, it's one of the largest economy. If you ask, has there been a real time payments kind of, you know, we have had sell, we have had, you know, the debit card is always a real time. If you look at other economies, they never had such thing and they moved from, you know, check cash to directly to real time payment systems. So the real time payment systems today in the US is addressing some new use cases right that that is very important. Now almost all the banks, they know they need real time payments. But what is happening is more than the real time payments. What's happening beyond this traditional payment rates is that blockchains and stable coins and tokenized deposits right at that. Yeah, like all these things are making a so much of difference. Think about tokenized deposits and stable coins. I think, you know, there are significant difference between both these digital assets, right. Stable coins are really good when you want to transfer money from, you know, one country to another country. Like it's a, you know, the money is collateralized and it is reserved and kept in pressure. So the your money is there, right. And the money is going to move from one place to another place very quickly and you without any intermediaries or anything. But the problem is the money is going to stay with the Treasury that cannot be used for the money cycle that is generally created by the banks when you deposit $100 at the bank. And you know, they receive that take the deposit. There is a ratio that they have to keep it as a reserve. But the remaining money, let's say for every $100, they can lend $80. They keep that $20 and the remaining $80 they can lend, right. They earn interest on that friend. Now that money they are lending, it is good to come back as a deposit, maybe in the same bank or maybe as some other bank. So that cycle continues, right. But with stable coin, that cycle is broken because you deposit, that's it. It stays as a collateral. So banks were very concerned about the stable coins, you know, like there were like over a trillion dollars of money is moving on the end of that one. and several billions of dollars has has. has been stored as stable coins. And that means this much of money is moving from the banking system to to a trussion which is going to be just earning some interest but not going to help the banks to do their business. So banks came out with this tokenist deposit which is awesome. Now they said, hey, I'm going to give you the similar character strings of a blockchain payment or a stable coin payment. But I'm going to continue using this money cycles. The $100 deposit is still $100 deposit instead of keeping in a traditional ledger, I'm going to keep them in a blockchain ledger. I can still lend $80 to other customers and that money cycle continues. But at the same time, it brings the characteristics of the stable coin. So there are several consortiums of the banks in the US. There's a carry network, a cell network, and then there is a carry house network that is coming in. And there are like, there are there's one more for credit unions. So all these consortiums, what it's going to do is, the deposits that is received as a tokenist deposits can be moved to any account in the network through this blockchain instantly. So the real-time payment capabilities comes into this blockchain network. The next step, what I'm more excited and interested solving the problem is that how can we connect all these networks? Because let's say, I'm in one network, I'm in one consortium, you're in a different consortium. How can I send money from my bank to your bank instantly through the same blockchain, tokenist deposit network? That is going to be the interesting development that is going to happen. But I think the tokenist deposits, stable coins, here to stay. I was not a big fan of the crypto. But I think once the tokenist deposits develop and start it, I got more excited. I think that is going to be the biggest difference. And it's going to encourage more adoption of the additional asset and blockchain money. Moving on, obviously, he's also looking for geographical expansion. Would you want to talk more about that? We have built a great technology, right? And if you look at the US market, it's the most regulated and very competitive and highly demanding market in the entire world. So if you are solving the biggest problem, then you can solve any problem anywhere in the world. So we are always very ambitious to grow further. But I think we are, you know, we are looking at various options, you know, we don't have a clear plan or very exactly this, but we'll be growing outside of the US very soon. And you can start seeing as more in different parts of the world. Bhushan Rengachari, CEO, Finzli.