Anton Ruddenklau, Global Head of Fintech sits down with Paul Taylor, Founder and CEO of Thought Machine to discuss how they are helping banks move beyond legacy infrastructure to the cloud.

In recent years, the banking sector has faced a storm of change as challenger banks and other fintechs have upended traditional banking systems and found ways to leverage innovative technologies to provide unique value to customers.

Faced with a rapidly changing industry, established banks haven’t remained still. They’ve invested in R&D, made corporate VC investments, and forged partnerships with fintechs. But while many banks continue to be enthusiastic about new possibilities, they’ve also realized that trying to combine and connect agile technologies with data held deep inside their legacy architecture can be a nightmare.

Recognizing the biggest hurdle for banking innovation

The challenges inherent in legacy systems is of one of the reasons Thought Machine now does what it does. “When we first started Thought Machine, we were initially thinking of doing a big data, data science, AI play on banking,” explains Paul Taylor, Partner and CEO. “But then we realized just how difficult it was to get any data out of a bank.”

Banks loved the concept of AI and big data, Taylor says, but he constantly heard the same message, ‘Our core banking engine will never do it.’ That’s when Taylor thought, “Right. Let’s build a core banking engine. Let's build it in the Cloud. Let's build it to be super flexible. Let's build it to have APIs. And let's build it to solve all these problems.”

Our core hypothesis hasn't changed at all, which is that [banks] cannot keep going on the mainframe with the legacy architectures. What has changed is that a lot of banks now agree with it — agree with us.

Getting banks on board

Eight years later, Thought Machine is a thriving fintech focused on helping banks become more flexible and agile. The company has several international clients, including Standard Chartered, Lloyds Banking Group, and SEB a leading northern European corporate bank — and is adding more every day. In September 2021, JP Morgan Chase announced plans to use Vault – Thought Machine’s cloud-based core banking system — for its retail bank.1

Thought Machine has come along way since its inception. “We're now world experts at [core banking]. We’ve learned huge amounts about how to build really excellent banks…and how to do data, how to link the various bits back to the bank, and how to do risk and compliance and security,” Taylor says. But at the same time, Thought Machine main value proposition hasn’t changed. “Our core hypothesis hasn't changed at all, which is that [banks] cannot keep going on the mainframe with the legacy architectures. What has changed is that a lot of banks now agree with it — agree with us.”

Setting sights on growth: New geographies and clients

While Thought Machine was started in London, it’s quickly becoming global. In 2019, it opened an office in Singapore; in 2021, one in New York. “The technology works basically the same everywhere,” Taylor explains. “We have particular configurations to make sure that it works in particular markets and obeys local regulations and the like, but it is essentially the same platform. When I look across our pipeline, it feels like very global business.”

The company isn’t only thinking about geographic growth, it’s also thinking about who its clients are. While Thought Machine has a growing number of Tier 1 bank clients, it is also working with challenger banks that want to move to market quickly. Taylor also sees a big opportunity to work with middle market banks, but recognizes that they’d likely take the lead from the larger banks. “They don't have the R&D budgets of the top banks and, quite rightly, they want to do something that's been tried and tested,” he explains.

Recipe for success: Having the right people

When asked why Thought Machine has become such a success story, Taylor readily points to the company’s people. “People make everything better. You can do a lot more with fewer people if you can get to the top of the talent pool.”

To that end, Taylor outlines how they got the people equation right. “Firstly, we weren't shy about paying well and we weren't shy about giving people options in the company,” he shares. Next, they focused on attracting ambitious people from financial services who were tired of working in a backwater sector in terms of tech. “Thirdly,” he adds. “We spend a lot of time on the soft side of things - on the culture and making the company a really pleasant paced at work.”

Looking beyond Thought Machine’s unicorn valuation

In November 2021, Thought Machine closed a $200 million Series C funding round led by Nyca Partners, with investors including ING Ventures, JPMorgan Chase Strategic Investments, Standard Chartered Ventures, and others. The round earned the company a $1 billion+ valuation, making it a new unicorn.

Taylor points out that the valuation is simply a consequence of success. “The thing that most motivates me is building a really excellent company,” he emphasizes. He also appreciates seeing the value that’s getting added in the banks – and the fact that they see it, too. “They really do believe they've done something good that is going to make a difference. That is a fantastic win and a worthwhile goal for us all.”

About Thought Machine

    Thought Machine was born out of frustration with the limitations of legacy core banking technology that force banks to deliver a basic set of features to their customers. This led to Thought Machine tackling the banking industry’s primary problem: reliance on outdated technology and legacy IT. Thought Machine’s team of engineers built a future-proof core banking system which liberates banks from the constraints of legacy platforms through a platform that is agile, secure, scalable and easy to deploy, giving banks the freedom to build the products they want – not the products they are stuck with. We call this platform Vault.

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To learn more about the analysis and topics raised in this edition, or to discuss your organization's unique fintech agenda and roadmap, please contact your local KPMG advisors or the contributors in this publication.



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