If you ask a child to draw a bank, they will most likely draw the teller window and the bank’s vault. After all, that is how most of us see a bank. The teller window is where we deposit or withdraw money, and the vault is where the bank keeps our money safe and sound.
Today, you might not need a teller window to withdraw or deposit money because you can use an automated teller machine (ATM). You may not even need your bank card to withdraw money. However, the need for a vault is something that has remained constant. Vaults represent safety, accountability, and responsibility, and banks and consumers alike probably believe they will always be a fixture in the bank.
From the steel to the mainframe vault
The vault has slightly changed over the years. During the industrial revolution, the typical bank vault was made of steel and concrete, submerged several feet underground and protected by thick concrete. These kinds of vaults still exist today, but as we progress to a world of increased digital cash usage, a new type of digital vault has emerged.
The vault eventually became the digital core of the bank and was hosted on mainframe computers. We call this the age of the mainframe. During this age, the vault served an additional purpose; to keep track of all the money flowing to and from the bank, records daily banking transactions and post updates to accounts and other financial records.
During the age of the mainframe, there were little developments in terms of product diversification and the customer experience stayed the same. However, this was okay, as these early core banking systems fulfilled their purpose. Even today, many of these systems are still in operation.
Mainframe vaults take flight
Recently banks began to develop new products and services. Drivers of this recent development include the ubiquity of the smartphone, the rise of fintechs and challenger banks, and customers expecting better, more compelling experience with their digital and analog providers.
However, as they embarked on this journey, they uncovered that their early core banking systems were extraordinarily rigid and hard to change. This led to the development of product silos and created multiple issues. Every change was becoming more complex, more time consuming, and costlier than larger teams required to support and maintain the systems. But banks needed to make these changes. They faced a hard reality; continue to struggle to react and run a significant risk of losing existing customers and failing to win new customers. Banks needed a solution, and fast.
The vault in the cloud
The solution turned out to be a cloud-native core banking system, specifically designed to run on computers as part of a secure global network colloquially referred to as the ‘cloud.’ During the age of the mainframe vault, banks could only rent, manage, and secure massive data centers on-premise. One reason the cloud was able to become a solution was because of the likes of Amazon, Google and Microsoft. They offered cloud computing technology within reach of all businesses, big or small. The cloud provides virtually unlimited computing power with the latest tech stacks that are securely locked away in modern data centers. Users of the cloud rent the power and storage they need.
As banks migrated to the cloud, we witnessed the next stage of the vault. This vault was a massive improvement of the mainframe era. Banks could now use agile development, deploy new features, quicker, and iterate better or more frequently on products. The problem of innovating fast and keeping up the external factors threatening the banks was one step closer to being solved.
Grounding the vault
Vaults may be designed to keep money safe, but they must be flexible to enable access and innovation to other parts of the bank. Banks want to deliver more than just a safehouse for funds; they want to build memorable banking experiences. These new experiences take the form of a mobile app or web experience. When banks need to extract data from these digital experiences, such as local data, or digital receipts, a flexible cloud-native banking system makes this a lot easier.
Thinking about how banks create apps, the vault plays a new role. The newly created apps deal with lots of different systems, and a lot of data flows in-and-out. The vault keeps this data secure and helps with the compatibility in the other systems.
The new wave
The new wave of banking is closely linked to the new era of the vault. Customer-facing businesses such as Revolut or Monzo have upped the game on the front-end, but the winners of the new wave will thrive in layers of banking. Innovators and winners will be new core banking platforms built without technology debt, and architecture that responds to the age of digital-first, cloud-native, and super-agile businesses.
Part of this core banking revolution is Thought Machine, a start-up founded in London in 2014. Their core banking platform, Vault, was designed and written from scratch and can run any type of banking product, from mortgages to current accounts.
Going beyond just the core, we at Vacuumlabs provide teams of software engineers and product designers with years of experience building fintech, online marketplaces and digital products. We have collaborated with Thought Machine on a number of digital banking products.
At Vacuumlabs, we recently teamed up with Thought Machine to help our clients build future-proof banks. We created a guide on building a future proof digital cloud-native bank with Thought Machine at its core while building a world-class customer experience with help from Vacuumlabs.
You can download the document here: