The Future of Finance breakdown 3(a): TradFi Applications
This week we continue building the reference architecture across both TradFi and DeFi, with section 3(a) that describes TradFi Applications.
This denotes a set of modern technology components that have been digitized over the last decade in response to disruptive innovation and competition, including:
Digital and cloud-native business technology
Neobank and digital challenger banking models
Leading TradFi technology
Here’s another refresher on the landscape that we see playing out, keying in on where we will focus in this post:
Figure 1: the future of finance shows the TradFi Application components that comprise the customer facing, digital native experience of today
… and the following image shows a view of the respective vendors and projects building out the DeFi Platforms of the future:
Figure 2: some of the major players in TradFi Applications include leading TradFi organizations that are heavily invested in digital and tech modernization
TradFi Application component 1: Digital and cloud-native apps
In response to the many threats of neobanks, FinTechs, and DeFi players, most TradFi’s are well on their way, or have even completed their journeys, to digitizing their products and customer journeys for customer facing applications. This generally includes digital wallets and mobile payment web, app and mobile experiences.
Capital One also has a well documented cloud journey story here on Amazon Web Services as one of the first and premier Financial Institutions case studies for public cloud adoption.
In 2020, Capital One left its data centers behind and moved to the public cloud to create exceptional banking experiences for our customers. The agility, scalability and elasticity of the cloud are helping Capital One build the bank of the future.
While many edge and customer facing applications are digital native today, and cloud-native and often public cloud hosted, the vast majority of core TradFi business systems still reside on-premise today. So, while the customer experience is modern and digital, more often than not the back end of ledgers, core banking systems, transaction processing, and other systems of record (SOR) are most often residing in the data center.
However, there are signs of this finally starting to shift. Some core systems are starting to become part of the overall public cloud strategy of financial institutions, and are cloud-native by default in many software vendor offerings, such as FIS. This is evidenced by many interesting moves and progress made in TradFi in 2022.
TradFi Application component 2: Challenger banking models and neobanks
As many TradFi’s have gone digital with its primary web, app and mobile channels, a number of digital-natives have attempted to disintermediate incumbents with greenfield, digital first offerings. These are often referred to as challenger banks (TradFi offering its own digital service), and neobanks (completely independent, new banking institutions and digital products and services).
Some great examples of neobanks include: SoFi, Chime, Acorns, Revolut, Monzo and Wealthfront.
This space has not had quite the level of disintermediation as once predicted. For example, N26, a neobanks, has recently shut down its US operation. In the challenger banking space, Marcus by Goldman Sachs is a notable example that actually has recently cut back from its retail banking foray and will be stopping its offering of personal loans.
TradFi Application component 3: Leading TradFi technology organizations
JP Morgan is publicly known for its high technology annual spend and investment at over $12 billion per year, as well as its deep foray into blockchain technology, largely with respect to private blockchain tech.
Additionally, a number of TradFi organizations provide public API’s in support of Open Banking as well as open sourcing a variety of technology
Capital One has launched a B2B software business called Capital One Software. Capital One Tech also features contributions to a number of open source projects.
JP Morgan also has an open source page and its GitHub can be found here.
