Ben Metz: Outdated banking software hinders innovation

Key takeaways

• The venture ecosystem often overlooks local businesses, despite their substantial economic contributions.
• Many US dollars still settle on outdated software, creating challenges for modern banking.
• Traditional banking systems struggle with digital transformation due to their outdated design.
• Heavily customized banking systems without version control complicate new platform development.
• The slow pace of innovation in banking hinders technological progress.
• Building a layer on top of existing infrastructure can accelerate banking innovation.
• Smaller financial institutions face regulatory and operational challenges competing with larger banks.
• Replatforming core systems enables financial institutions to innovate more rapidly.
• Financial services have lagged in innovation due to a lack of disruption and funding.
• The advent of mobile devices spurred an API revolution in financial services.
• Understanding legacy systems is crucial for modernizing banking infrastructure.
• Regulatory and compliance challenges are significant for smaller banks and credit unions.
• The slow release cycles in banking contribute to the industry’s sluggish innovation pace.
• Venture capital has historically been slow to fund disruptive financial startups.
• The complexity of existing banking infrastructure poses significant modernization challenges.

Guest intro

Ben Metz serves as Chief Technology Officer and Chief Digital Officer at Jack Henry & Associates. He joined Jack Henry in 2014 following the acquisition of Banno, where he previously served as Chief Technology Officer. With over 20 years of experience in technology and digital transformation, he leads efforts to modernize banking infrastructure for community banks.

The venture ecosystem’s oversight of local businesses

• The venture ecosystem does not adequately support local businesses despite their significant contribution to the economy.

  — Ben Metz

• Local businesses like Viking Pump, with over $100 million in ARR, lack support from big banks.

• There’s not a single big bank involved with any of this and there’s a lot of entrepreneurship.

  — Ben Metz

• Local businesses are a vital part of the economy but are often ignored by venture capital.
• The gap in venture ecosystem support for local businesses is critical for economic growth.

• The venture ecosystem doesn’t support the company across the street here.

  — Ben Metz

• Understanding the challenges faced by local businesses is crucial for economic development.
• Local businesses contribute significantly to the economy but struggle to access capital.

Challenges of outdated banking software

• Most US dollars settle on outdated software that was built before the internet.

  — Ben Metz

• Banking software’s pre-internet origins create significant challenges for modern systems.

• It’s a Sahara desert of edge cases that was hardened over thirty to forty years.

  — Ben Metz

• The historical context of banking software development impacts current financial systems.
• Outdated banking infrastructure is a foundational issue for modern financial limitations.

• Software built before the internet creates significant challenges for modern banking.

  — Ben Metz

• Understanding the legacy of banking software is crucial for modernization efforts.
• The limitations of outdated software hinder the financial system’s evolution.

The struggle of traditional banking systems with digital transformation

• Traditional banking systems are not designed for modern digital usage.

  — Ben Metz

• Legacy systems face significant operational challenges adapting to digital solutions.

• The system just isn’t designed to sustain it.

  — Ben Metz

• Integrating modern digital solutions with outdated systems presents critical issues.

• The first time I connected what we had built at Bano, it took down all the core systems.

  — Ben Metz

• The limitations of legacy systems impede digital transformation in banking.
• Understanding these limitations is essential for successful digital integration.
• The struggle to adapt to digital transformation is a major operational challenge.

Customization and version control issues in banking systems

• Many banking systems are heavily customized and lack version control.

  — Ben Metz

• Extensive customization complicates the development of new banking platforms.

• A lot of these systems don’t have any version control.

  — Ben Metz

• The lack of standard practices in legacy systems hinders modernization efforts.

• They’re tremendously vertically customized.

  — Ben Metz

• Understanding software development practices is crucial for addressing these issues.
• Heavily customized systems pose significant challenges for banking infrastructure.
• The absence of version control in banking systems complicates innovation.

The slow pace of innovation in banking

• The slow pace of innovation in banking is a significant barrier to progress.

  — Ben Metz

• Banking’s rigid release schedules contribute to its inability to keep up with advancements.

• We have effectively two releases a year but pretty much they only take one.

  — Ben Metz

• The annual release cycle in banking slows technological progress.

• Pace of innovation is insanely slow.

  — Ben Metz

• Understanding typical release cycles is crucial for addressing innovation barriers.
• The slow pace of innovation frustrates efforts to modernize banking systems.
• Banking’s inability to keep up with technological advancements is a major issue.

Building layers on existing infrastructure for innovation

• Building a layer on top of existing banking infrastructure can enable faster innovation.

  — Ben Metz

• Layers can abstract complexity, allowing a faster pace of innovation.

• You can build a layer on top which in theory could abstract all the complexity.

  — Ben Metz

• This strategic approach highlights potential for modernizing banking systems.
• Understanding the challenges of outdated infrastructure is crucial for innovation.
• Building layers offers a solution to the limitations of legacy systems.
• Faster innovation is possible by abstracting complexity in banking infrastructure.
• This approach enables financial institutions to adapt more quickly to changes.

The competitive landscape for smaller financial institutions

• Smaller financial institutions struggle to compete with larger banks.

  — Ben Metz

• Regulatory and operational challenges are significant barriers for smaller banks.

• If you’re a CEO of a bank or a credit union, the challenge you face is now you have a new compliance team.

  — Ben Metz

• Compliance and security requirements create a huge operational overhead.

• You have a giant expense and a set of overhead that becomes just a huge challenge.

  — Ben Metz

• Understanding the operational landscape is crucial for smaller institutions.
• The competitive landscape is challenging for smaller financial institutions.
• Regulatory challenges hinder the ability of smaller banks to compete effectively.

Replatforming core systems for faster innovation

• Replatforming core systems allows financial institutions to innovate at a much faster pace.

  — Ben Metz

• Breaking out wires is a step towards a new pace of innovation.

• The first thing we did was break out wires.

  — Ben Metz

• Replatforming enables institutions to adapt more quickly to technological changes.
• Understanding the challenges of traditional core systems is crucial for innovation.
• This shift allows financial institutions to operate more efficiently.
• Replatforming is a significant step towards modernizing financial technology.
• Faster innovation is possible through replatforming core banking systems.

Historical lag in financial services innovation

• Financial services have historically lagged in innovation due to a lack of disruption and funding.

  — Ben Metz

• Venture capital has been slow to fund disruptive financial startups.

• The disruption didn’t come because the capital markets hadn’t converged.

  — Ben Metz

• Understanding the historical context of venture capital investment is crucial.
• The lack of disruption and funding has slowed the evolution of financial services.
• Venture capital plays a critical role in fostering innovation in financial technology.
• The historical lag in innovation is a structural issue in financial services.
• Funding serious startups aimed at disrupting financial institutions is essential.

The impact of mobile devices on financial services

• The advent of mobile devices triggered an API revolution in financial services.

  — Ben Metz

• Mobile technology has significantly influenced the financial sector.

• What really caused it was the advent of this device.

  — Ben Metz

• The API revolution is a key technological shift in financial services.
• Understanding the impact of mobile technology is crucial for the financial sector.
• Mobile devices have spurred significant changes in financial services.
• This technological shift has provided a clear cause-and-effect relationship.
• The API revolution has transformed how financial services operate.