Interviewed By Neeti Aggarwal
Yves Eonnet, chief executive officer and co-founder of cloud-based core banking fintech TagPay, shares his perspectives on the evolving core banking architecture, the challenges faced by banks and the strategic technology change needed, as well as his company’s future plans.
France-based TagPay has developed next generation cloud-based core banking. The company implemented core banking system at The Mauritanian Bank for International Trade (BMCI) to launch its digital bank Masrvi. Its other clients include Trust Merchant Bank, Banque Postal and Societe Generale, which is also an early investor in the company.
Eonnet pointed out that digital transformation should not be an alarming prospect for banks as this will bring many opportunities to financial institutions. He foresees that in the future, banks will need to redesign their architecture to have multiple core banking systems that are interconnected and open rather than monolithic, which exists across most financial institutions today.
It currently powers around 30 institutions in Africa and Europe.
Here are the key points that were discussed during the interview:
The following is the edited transcript of the interview:
Neeti Aggarwal (NA): I have with me Yves Eonnet, he is CEO and co-founder of TagPay, a financial technology company that focuses on next generation cloud-based core banking system and has powered several digital banks. Yves, thank you so much for joining us today. TagPay provides cloud-based next generation core banking system to banks. Tell us briefly about your company, your journey so far and what is your target market?
Yves Eonnet (YE): Our company is a typical fintech company developing technology for finance. I'm the co-founder and I've been involved in technology and banking forever. I used to be the director of innovation of the world leader in smart card business. I decided 10 or 15 years ago to leave the smart card business because I was convinced the banks were going to have to change and to evolve in the information technology (IT) systems. I met my partner Herve Manceron and he is a telecom engineer. We have put together an offer to banks that is using the latest technology of telecom addressed to the banking industry. This is what we call the new generation core banking system. The company has grown slowly at the beginning because we were a bit too early. We have developed our activity in Africa then we came back to Europe. Now we are developing mainly between Africa and Europe. We are targeting and addressing the need of what I call visionary bankers who are considering an understanding that their business is going to be transformed dramatically in the coming years and that they need to use different kinds of technology in order to address this new time, this new cycle, this new period.
NA: Bank requirements from the core banking system have evolved rapidly. There is an increasing shift towards agile and scalable systems. The architecture has changed and there is accelerated digital transformation. In this scenario, what is your opinion on what exactly is core banking today and what are the essential components of a futuristic core banking system?
YE: Core banking is very interesting as a subject, as an issue, because it really is the witness and the actual characteristic of the bank culture. In the last cycle, which we call the legacy core banking system cycle, the bank was in fact like a safe or a vault. The goal of the bank was to keep the money, to secure the money to make it grow. And potentially, of course, to give credit and to have different types of services. But the culture of the bank was to control and to close the bank to make it safe. This is what we are leaving. We are reaching a point where the bank has to evolve. The next generation core banking system is going to have to connect, to interface and to work with different actors in the economy. Some of them could be customers, could be partners that are going to help to develop the business and technology companies. Because of this new role, of this new position of the bank as being the centre of this new ecosystem, the complete architecture has to be redesigned and it has to be designed for that interaction with the outside.
NA: Do you want to elaborate on what are the essential elements of this futuristic architecture, futuristic core banking system?
Redesigning the core banking architecture
YE: I believe that there is five different characteristics that are very specific. The first one is the cloud. I do not believe the next generation core banking system will be on premise. There are many reasons for that. It's not because I love the cloud, because the cloud makes a lot of sense, and we can develop it later.
The second characteristic is that it has to be mobile centric. Mobile centric means that it's going to be used by customers and all of them will have a mobile phone and that is transforming the way we are addressing the consumer not only on the UX issue but also on the type of service that will be provided, and also the features that we're going to deliver.
The third one is going to be real time. What I mean by real time is that we, you, me, everybody lives in a real time world and the bank doesn't because they haven't evolved. They come from a time where you had two different clocks: the back office and the front office. This is over. When we make an operation, it has to be immediate and 100% processed in order to be able to have the trust of the consumer. So this is extremely important because it is not just a matter of having a reaction to the end user, it's a matter of having an organisation and process that are going to be extremely efficient and capable of managing all the banking operations without any delay.
The fourth is going to be security. You have to realise that the legacy core banking system were developed and designed before ‘hacker’ was invented. So they have to adapt but we are reaching a point where it needs to be designed specifically with the new threats that the banks are facing. One of the reasons why the banks are facing those new threats is because of the fifth element that the bank has to be open, meaning you have to be open and safe. This is simply impossible in the old world. The old purpose of this new architecture is to serve this connectivity, we call them application programming interfaces (APIs), these are tools in order to connect to other architecture, to other services, to other features without jeopardising the security.
NA: There are several core banking technology providers that includes traditional players like Infosys, FIS, Temenos, various players that are also providing core banking services on cloud. Then there are new age providers like Mambu, Thought Machine and others. Now, how does your technology and proposition differ from others?
YE: We are clearly next to Mambu and Thought Machine, we are in the same field and we do compete with those actors. It’s like in every computer evolution, everybody has a different story. Our story, we come from payment, we come from wallet, we come from Africa. We've been building our platform using the Greenfield operation in order to get from the people what they wanted and what they needed with all the level of security and features needed. Some of those come with another past, another story. But at the end of the day, we are tiding the same situation, which is how to provide banks the tools in order to enter the new era, which is the digital banking era.
NA: Comparing you with traditional players like Infosys FIS, Temenos, and others, if you could elaborate on how your proposition or how your technology is different from what they are offering?
YE: I have a lot of respect for those companies. I'm not going to say that we can compare or be better or be worse. That's not the point. The point is, you cannot compare what we do with Temenos, FIS, or Infosys. One analogy that I sometimes say is that you cannot compare the queen of England's coach, the horse carriage which is full of gold, lush, beautiful with the last generation of electric car. We are the last generation of electric car. Both are riding on the road but we don't do the same trip. So if I start to be even more precise – it's complex to compare – the old project cannot be compared with Temenos and others. The reason is that we are breaking all the process, we are reinventing the old organisation of the bank. The evolution of the bank is a little bit behind the rest of the industries because they've been extremely good to adapt and upgrade another layer, an additional layer in order to feed the latest need and they have been forcing this evolution on architecture that was not designed for that. For instance, when you have Temenos’ next-generation software when you want to make an upgrade, you work by release, so every two or three years, you change your release, and you go from release 1.1 to 1.2. For the bank, it's a major issue to have a yearly release of the software. In our world that doesn't exist, we have continuous delivery. We are upgrading 100% of our platform every few weeks, depending on the need. So we are constantly putting upgrade of the operation. We can guarantee that at any existing time, in whatever future, our customers will have the latest version every day, which is completely different from what existed in the past. But that's one example.
I have a similar address for the business model. When you install a bank with a legacy system, you need to buy first, except if it’s in the cloud, but usually you have to develop on-premise some type of facilities, but then you have to pay some setup, training, maintenance, licence. We don't do that. We are on what we call a software as a service (SaaS) and therefore we start with a very low level of investment for the bank then they can increase, depending of the number of account that is active in the bank. This is another angle that didn't exist in the past and they were bringing in the market.
NA: Tell me a bit about your target market. Are you focusing primarily on digital banks or are you also looking at traditional banks?
YE: The issue is not to create new banks because of course, in many countries, we have enough banks. In some countries, like in Africa, we need to develop new banks naturally. But around the world, there are many banks. The issue is how the banks are going to go from the legacy cycle to the digital sector. This move is a big issue for the banks because I do not imagine anywhere that we are going to decide one day, we're going to take the old system, throw it away and put a new one instead. That won't happen because imagine the stress. So, my vision is that every bank, large or small, has to consider our offer as a tool to develop new services for new targets, a new approach, and a new offer. If they do that, they're going to start to use this new type of banks that are digital, they're will get used to it, they're going to adopt it and then those new banks, new division of banks, are going to grow. After a few years, the customer of your bank will have aged, will have become older. The employees of the old bank will have become older too. The new banks will take the lead. This is how it is going to go. It’s not going to be overnight, it's going to come slowly. But it will come through the understanding of the large banks that our solutions are here to help them solve problems that they have a hard time solving with a legacy system. They can use our platforms to develop those new offers and then grow with that.
NA: How adaptable are traditional banks to this migration to new cloud-based core banking systems, given they've got a technology debt, they have got existing technology frameworks, security concerns and a whole lot of backend processes that are customised? So how adaptable or how ready are they for this transition to cloud-based core banking?
YE: Well, you know the market, some are ready, some are not, which is classic in every evolution. I've been in innovation all my life, I'm always facing ‘legacy guys’ that are holding the past with them. They don't want to change because of fear. Their own personal vision of time is not that long, therefore why bother now on those kind of things that are going to slow down the banks, which is completely not just the banks, every industry is like that. The problem is that today banks are facing some threats. These threats are neobanks. We can address neobanks. They are not big threats but they exist. Then you have the telecom operators who are starting to grow in the financial industry and are starting to ‘eat’ the value chain of the bank to catch it. The third one, which is obviously the most concerning, are the big techs that own the customers. They have infinite capacity of investment, they have a culture of innovation and they are smartly looking at financial services in order to enter that world. The banks will not be able to have any type of reaction to these growth of threats if they don't have the right tools.
NA: So the competition is increasing, the threats are increasing for banks, but the fact is that they also have a huge technology debt which brings them a lot of challenges and concerns. So given that scenario, what are the biggest challenges that the banks face if they have to undertake this transition towards entirely new core banking cloud-based system, a new generation core banking system? Which probably means a whole lot of change in their entire infrastructure processes to reap the benefits that they're looking for. Second would be the strategy that they need to adopt to undertake that kind of migration to have an effective transition, which is least disruptive for them?
YE: So the decision of going digital should not be scary, it should be something that is going to happen to banks and bring a lot of new opportunities. To answer your question about legacy and technical debt, I'm not thinking that we are going to switch off the old bank. That will be kept going. I'm just concerned on how to use the old architecture to deliver new services. When that happens, the bank should consider using new architecture for those new services and to be very precise. Usually, it makes it quite easy because those new services are targeting new people, meaning software. I can give examples but the large part of the population is either unbanked or poorly banked or unhappy customers of banks. Those guys are attracted by the neobanks but those guys should be targeted by the banks in order to be served with the latest technology. And those guys are ready to open accounts and to be a customer of the new system. The old system will decrease nicely. We will of course still use a lot of services that they have for many years, with the compliance, risk management, accounting. These things will be used by the new system. We're not speaking about throwing everything away. We are speaking about having an architecture of account management, production management, user interface, APIs, real time all that are connected to the old architecture that we can use in order to develop this new bank that is going to grow. At one given point, we disconnect both.
NA: If I understand it correctly, the bank is to retain that existing core banking system, which is powering their basic loans, deposits, the core system to remain the same, but for that system to exist and coexist with you as an arm which is powering a completely digital proposition. Which means what you're suggesting is that the bank should have two different core systems, one to manage their existing operations and another one to manage their digital operations. Is that right?
YE: Well, yes, my vision is even worse than that. My vision is that they would have 10 different systems that would be interconnected. I have an image of my slides and it shows a beautiful whale. Around that big whale there are small beautiful fish that are swimming everywhere. Suddenly the whale slowly disappears and there are all those fish and each has a different customer target position in the bank. This is what I foresee as becoming the future of banking – this interaction between new platforms that are designed to interact. We’ll share data, we’ll share plenty of things that you need to do in the bank but they will not have this type of monolithic, extremely heavy architecture that is reaching a point where like a whale they cannot swim very easily anymore, because they're too big, it's too difficult. And this is a natural evolution. This is how I see every big bank evolving. And we have the technology to do that. If I take the example of Societe Generale in Africa, they have eight of our banks, eight of our platforms. Then they use them with a mother company that is managing all those things and it works very well. It's another logic, it's another organisation of banks that is open, meaning it's going to be used as a platform to manage ecosystems and this is transforming the old business of banking.
NA: Share with us some of the use cases of your implementation where you have managed to achieve what you shared with me just now, having multiple different core banking systems to power different arms.
YE: The multiple vision is a vision. It’s something that I foresee the future of banking. The BMCI is interesting because it is one of the biggest banks of Mauritania and they have a very strong position in the country. But they realised that they were unable to evolve anymore. The speed and the cost to evolve were impossible with a market that was not generating enough revenue to pay for all of that. So we met with them and what is interesting just for your information is that we met right at the beginning of the COVID-19 crisis. After four months of discussion, we have installed a new platform, they have launched a new bank, and are growing at a very fast rate in Mauritania but not to compete. They are next to the old bank. The branches of the old bank is used as an adjunct of the new bank, meaning that the overall company grows in the same direction. The customers are hosted or managed by our new generation CBS. I don't need to tell you that they're very successful. They would have been absolutely incapable of doing that with the legacy system because it's another generation.
Implementing cloud-based core banking system
NA: How many banks have you implemented your core banking system in?
YE: We implemented to banks, to payment service providers, to electronic money issuers, those people that are managing accounts. Some of them do loans, some of them don't do loans but globally, we have something like 29 or 30 of them.
NA: Have you also implemented in traditional banks with existing large operations? Or are you focused primarily on digital banks?
YE: We have done both. Let me tell you how we evolved. We started by early adopters and they were all new banks, new actors, entrepreneurs and people that wanted to change the world. They were using technology to transform with a lot of vision and enthusiasm. That was until 2014, when we met with Societe Generale and Trust Merchant Bank (TMB), two accounts. Those two banks are leaders in their countries and our vision was exactly their vision of the way where they had to go. Societe Generale invested in our company because they were so excited about our capacity of making a new type of bank. They became our shareholder at the time. We have installed with them eight banks, mainly in West Africa and Madagascar. And TMB was the same idea. The vision was with the old technology we will never be able to grow, we will stay with the part of the population that can bring us massive return on investment because the cost of the banks, the process and the branches were too expensive. We are not in a time where people want to pay the bank. The commissions are going to disappear, the interest rates are going to stay low. The banks that have to find new ways to make money and it is mandatory for their life to find ways to manage and to run their bank at a very low cost. The legacy system is just not adapted to that. We bring not only the new features but also the new cost, which is extremely low. That's what TMB and Societe General did.
The last one, which is probably most significant, is the Banque Postal in France. What was very interesting was that they had that vision that they had to have a computer platform, an IT platform that was going to bring to the group the agility, the reactivity, the low cost and the capacity to develop new services they needed. They had purchased a legacy system and they installed that but at end of the day, it didn't work. It was impossible because there were no flexibility, there were no openness, the cost was very high, the time to market was crazy. Then they met with us. They put our platform instead and we have now 15 different services that have been developed with them. These serve all the different operations of the group each time there is a digital innovative financial service to be delivered.
NA: We see a lot of emerging technologies coming in and blockchain is one of those. I want to also get a perspective on how feasible is the application of blockchain to reduce the operational processes in institution or to improve the efficiency within the bank in their backend processes. Give us your views on this.
YE: Blockchain is an interesting subject. I'm going to give you my view and then I'm going to give you my opinion on blockchain. My view as TagPay is that we are committed to use blockchain anywhere in any situation where it can bring a plus in the banking processes. So we identified a couple of them. The first one would be the smart contract. That should be something that banks should be interested in today. We don't have any demand yet but we are working with specialised companies who are dealing with these solutions that are going to bring to the banks the ability and the strength of the signature of those specific contracts. The second one is the crypto money which is something that is being analysed and sometimes developed by many central banks that are looking on how to use the cryptocurrency in order to help change or be part of the of the monetary ecosystem of the country. Naturally our platform is adaptable to all of that. There is no debate. The design of this new generation of computers or software makes it, I don't want to say easy, but extremely fast to adapt to any new request that would come from the market, especially on that field.
Now, if I speak about more about the cryptocurrency and the blockchain approach, there is a trend to mention blockchain everywhere in order to be in the hype. So if we need to, we can. But we don't think there is any urgency in our platform to push the blockchain as a solution. First, it's a tool that is extremely interesting, but we have to keep it to a place where it's useful.
NA: But blockchain is finding application in areas like transaction banking and then other areas payments, and of course, smart contracts that you already mentioned. So there are various areas where blockchain is finding application. But I wanted to get a perspective from you in terms of the backend processes. If you're seeing the integration with blockchain, if that is making a difference to some of the institutions that you've been working with, or if you are yourself integrating with that as a technology to improve or to speed up the efficiency or the transparency in the processes.
YE: We're working on a project but we don't have any actual operation using blockchain yet. But again, we'd be very happy to do it. It's just a matter of demand. The demand for our customers today is not really there. It might be the next step.
NA: What are the biggest challenges that a bank faces when they are moving towards newer backend technology from their existing technology? If you could just highlight some of these? Even in your own implementation, what were the main challenges that you faced when you were doing it for an existing bank?
YE: For me, the biggest risk that the bank is facing is to do nothing. If the banks don't move, I'm worried. So this is important. The number one challenge is the human challenge. The banks have a culture and there is nothing negative in what I say because it was mandatory, and I was a part of that. The culture is to make sure we don't allow anybody to have a new idea. We don't want to be in the norm. The norm is the norm and we follow norm, the rules are the rules, and you follow the rules. The innovation comes from the evolution of regulation. So it's not a bank issue, it's a central bank issue. Now, the culture. They know now that they have to get out of that culture, they have to develop creativity, develop initiatives, develop risk, and they are doing it but this is the challenge. The challenge is to find the banker, meaning the guy who is in charge of a bank, who has the vision, that it is mandatory to transform the operation in order to be more efficient, more flexible, and therefore more profitable. This is big for me because I meet customers every day. And inside the organisation, which are big and very conservative, are the compliance and the risk management that are extremely powerful. It's extremely difficult for them to get out of this culture of absence of evolution and absence of creativity. This is huge.
NA: Tell us also a bit about your business and financial growth and revenue growth. So are you financially sustainable now?
YE: Yes, we've been sustainable for two years. Our evolution is interesting. We’re early adopters and we developed from getting the knowledge from the customers. Then Societe Generale came in and they invested in our company. So that gave us enough resource to grow. With Societe Generale, we have learned enormously about security, compliance and risk. They are doing an audit in our organisation once or twice a year. We are inside their organisation as a risk management and compliance program. Honestly, we've learned a lot we were not at the right level when they arrived and in six months, we succeeded to get everything green lighted and we were fine. So that was a big step. We needed some resource and some expertise. So now we've done that and we've grown with the Societe Generale and Banque Postal.
YE: Last year because the market was growing, because of all those new actors that are coming in, we have decided that it was the right time to have a bigger investor to come in order to help us to grow to the next step, which is to become a major actor in Europe and in Africa, and maybe the rest of the world. We are active in many different places but our target is really Europe, Western Europe and Africa. So Long Arc Capital in New York met with us and they decided to invest in our company. They invested $30.6 million (EUR 25 million) in December. Now we have these American partners that are extremely interesting for us because they bring us the other expertise, which I would call the process expertise, the industry expertise, the professionalism expertise.
NA: So how are you planning to invest this? What is your future roadmap from here?
YE: So we have different priorities. The first one is we're going to invest in sales. We have a very small sales department. We have now an organised sales department with a structure and dimension to address the market that I mentioned. The second one is we are investing in what I call banking expertise, meaning we will have inside our team some real banker experts that are already there to influence our specification and to make sure we stick with the need of the evolution of banks. The third one is the development the product itself that is going to evolve forever. We need to have the resources even if it was designed to be immediately multilingual, multicurrency with multi-regulation, so we’d know how to adapt to all those regulations, all the language extremely easily. But at the same time, we have a lot of new things to develop including our own ecosystem where we will partner with many different fintechs or other solution providers or technology providers that is going to bring us their strengths and a very powerful product.
NA: Because you are targeting various different geographies, you mentioned Africa and Europe, and every country has a different regulation, is there a certain amount of customisation or a change that needs to be done in your system when it's implemented across different countries?
YE: That worries everybody and it doesn't worry us. That's why I mentioned it is a matter of the original specification of the product that was designed to be adaptable to all those different issues. So we looked at all the different rules. There is not one different rule for each country, or group of countries that have the same type of rules. So when you have included in your early architecture all the tools, all the connection, all the data that you might need for a given geographical area, the adaptation is not a big deal. We haven't faced any problem with our architecture, which is not the case if it's a legacy system that was designed for a given legal regulation area.
NA: Are you looking at the Asia Pacific region as well?
YE: Of course. I can't wait. The decision we took was that we cannot open immediately worldwide, it's too much. We need to focus on some geographical area. So our plan today is to really get some success in Europe, confirm our success in Europe, a continual regrowth in Africa. We are speaking to customers in Asia but we are not actively prospecting. But we will soon.
NA: And how big is your team size?
YE: We are 50 now. We were 30 in December. So we have hired 25 people or something like that, since December.
NA: Thank you so much Yves. You gave a lot of insight.