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/   Insights

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Fast Facts: Student Loans

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/   Insights

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The Top 10 Trends in the Digital Banking Industry

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Making Banking Fun: Gamification in Financial Services

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/   Insights

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Technology M&As: The Beats Go On

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/   Insights

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What We’re Reading

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/   Spotlight

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Small Business: Perception vs. Reality

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/   Insights

In the most recent election cycle, like most others before it, the one sector of the economy that got the most attention was small business.  This is the future, we were told by every...

What We’re Reading: Thanksgiving Edition

November 22, 2012
/   Spotlight

Below are interesting stories the staff has been reading over the past week. What have you been reading? Let us know in the comments section below or Tweet @bankingdotcom. Mobile Thursday? Plans for Thanksgiving...

Chances are you’ve never heard of Vault OS. But there might come a day, maybe the near future, when either this product or one like it is as ubiquitous in banking as Windows or the Mac. And if that sounds like hype, then that’s fine with the company behind it.

Vault OS is a platform from London-based startup ThoughtMachine. Helmed by two Google alumni and some 50 engineers, the goal is lofty indeed. The company puts modesty aside to claim that it has “solved the greatest challenge in fintech: how to replace the core software that retail banks have clung onto for decades.” By running services entirely in the cloud, Vault OS is set up to provide end-to-end banking systems that manage users, accounts, savings, loans, mortgages and even highly sophisticated financial products. Of course, everything falls into the SaaS category, which makes scaling and specific configurations technically easier.

Like other startups, ThoughtMachine is particularly critical of existing offerings. It describes available infrastructures as “expensive to run, unreliable, insecure and so outdated that bank customers never get anything like the quality and richness of service they deserve.” Modern banks, it claims, lack a modern banking engine.

Hype aside, this isn’t the only time financial services networks have been described in harsh terms. Because these systems are so complex to develop, implement and maintain, change is hard to come by. The raft of regulations governing the industry, not to mention heightened sensitivity when it comes to money matters, means that the impulse is always to upgrade rather than replace.

But there’s also another issue to consider. Even before the rise of mobile computing, and particularly after, the line between personal and business has become increasingly blurry. Today, the average tablet and smartphone, and even the laptop, contains a virtually indistinguishable mix of work and play data. The technologies supporting these endeavors have taken on those characteristics as well.

Sure, there are plenty of, say, applications for business-specific functions, but their popularity—not to mention ease of use—are judged via consumer standards. This is even more true at the platform level: Operating systems come from companies like Microsoft, Apple, Google and BlackBerry, and they cover all bases.

But now here comes a new technology platform that’s not just for work but a certain kind of work: Banking.

So what’s in this new offering? Here’s the lowdown: To run the core functions of a given retail bank, the Vault OS kernel uses a centralized, and sanctioned cryptographic ledger as a ‘single source of truth for all transactions.’ This is designed to facilitate both ownership and control; all banking products, such as deposit accounts, mortgages and credit card accounts thereafter use a system of smart contracts. It’s believed to be very easy to use—devised specifically for this industry, it can be installed right out of the box by any bank, then customized to suit specific needs.

Mindful of compliance mandates, the company says it prioritizes security, because of which the ledger has ‘blockchain-style digital signatures,’ along with ‘encryption and cryptographic hash functions to record and audit transactions and activity.’ ThoughtMachine has also upped the hype quotient, with bold proclamations—the technology is ‘100% future-proof,’—that is causing some to wonder if the reality can match the promise.

So can such an ambitious venture succeed? Or at least, can it make a dent in the existing infrastructure?

First, let’s acknowledge the obvious. This is a small startup taking on a mammoth industry with long-established protocols. . .which is exactly how most disruptive technologies get adopted. As for its own stability, the pedigreed engineers at ThoughtMachine have been hard at work, under the covers, for two years now. That means it’s got funding, though where that came from remains a mystery.

Bottom line: It’s been a long time when a technology so fundamental came along and shook the whole paradigm. It’s highly unlikely that banks with legacy systems and deeply entrenched customs will embrace such a radical change anytime soon. However, most banking professionals surely understand that the technology-driven industry transformation won’t let up anytime soon, and implementing a platform shift in the most literal sense might be an option.

In fact, as we’ve discussed here before, there are many non-traditional competitors getting in the game. They range from online-only niche players to conglomerates like Wal-Mart. In just a few years, retail banking might be an entirely different creature. Could something like this be a part of that new incarnation?

But for now, let’s just acknowledge that we don’t often get an entirely new operating system to evaluate. That’s what we’re getting here, and it’s just for banking. That’s not just a step forward, it’s a mile-long advance.


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James W. Gabberty

Gabberty is a professor of information systems at Pace University in New York City. An alumnus of the Massachusetts Institute of Technology and New York University Polytechnic Institute, he has served as an expert witness in telecommunication and information security at the federal and state levels and holds numerous certifications from SANS & ISACA.

Zachary Ehrlich

25-year-old writer, and as a native San Franciscan, I am unreasonably loyal to Bank of America, if only for their superhero-like origin story, involving the 1906 earthquake and Italian fruit vendors.

Marisa Mann

Marisa Mann brings over 15 years of experience in consulting and financial services industries to the Solstice team, working on large scale enterprise initiatives across many technologies, including specializing in the digital space – Internet and mobile. Mann is passionate about mobile and the endless possibilities for the enterprise, delivering business value through strong brand recognition and driving to excellence in the consumer experience. Prior to Solstice, Mann worked at JP Morgan Chase, Diamond Management and Technology Consultants, Washington Mutual, Inc, and Accenture.

Brad Strothkamp