The Main Scoop, Episode 02: Is Your Financial Institution Prepared for Digital Disruption?
On this episode of The Main Scoop cohost Greg Lotko, SVP and GM, Mainframe Software at Broadcom, and I are joined by Joao Bezerra Leite, Fintech investor and former Itau technology executive. We discuss the impact of Fintech on traditional banking institutions and the mainframe’s vital role in banking transformation.
Our conversation also covered the following:
- A dive into the global trends that are impacting the financial sector
- A look into the tech trends that are driving change
- The evolving role of the mainframe in digital transformation
It was a great conversation and one you don’t want to miss. Like what you’ve heard? Check out Episode One of The Main Scoop and be sure to subscribe to never miss an episode of The Main Scoop series.
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Greg Lotko: Hey everybody. Welcome back to the Main Scoop. I’m Greg Lotko, SVP and general manager for the mainframe software division here at Broadcom. I’m joined by Dan. I’ll let him introduce himself in a moment. Today we’re going to be talking about trends and directions in Fintech. Think about what’s going on. Even in tech organizations that are in large banks. Talking about how these trends are impacting traditional financial institutions and how you tie that to the mainframe’s value in addressing these trends, the digital transformations that are going on and agility. So welcome back, Dan, introduce yourself and we can dive right in.
Daniel Newman: Yeah. Hey everybody. Daniel Newman, founding partner, principal analyst at Futurum Research. Happy to be back here with you, Greg, it’s almost as good to do these on zoom or video as it is to do these in person, but sometimes the ability to get the great minds all together at one time is just easier done with all this digital transformation and technology here. So a topic near and dear to my heart, what’s going on in the financial industry, Fintech, DeFi. And of course the technology behind it, which I think is what we really want to get to here, is that there’s some really important technology that powers all of this transformation and innovation that’s going on.
And boy, is there a lot going on in this space, but maybe we start off first that we’ve sort of hit this inflection point, Greg, this moment in the world. We’ve got inflation, we’ve got interest rate hikes, we’ve got broken supply chains. We’ve got the R word perhaps going on with recession; although, I did see the definition on Wikipedia being updated yesterday. So I’m not sure we’re in a recession, but overall financial markets are in a bit of disarray. And I think barring the fact that we had a fairly decent week to end July, we had one of the worst starts in financial markets in history. So a lot going on here to set the stage for a conversation on Fintech.
Greg Lotko: Yeah, for sure. I mean, I got to tell you I’m much prefer being in person, but I agree with you. It’s much more important that we keep the conversation going. Even if we have to do this in the virtual world, it is amazing what’s going on. I mean, we were in heady days, just a couple of quarters ago. I mean, with things going strong, despite the impacts that we had had of the pandemic and it’s all this stuff that drives uncertainty, but it also drives opportunity.
It drives the need to adjust to the environment, to react to it and to create opportunities to differentiate yourself relative to the competitors out there, there’s increased competition. There’s less money to go around. So everybody wants to get that share of the wallet and they have to find ways to create revenue opportunities. I mean, beyond worrying about the R word, right? It doesn’t matter what you call it. We see interest rates going up. We see mortgage rates going up. Housing sales are slowing the prices that they’re commanding is coming down. And that’s really saying that businesses have to find new ways to differentiate themselves in the marketplace.
Daniel Newman: I heard another great podcast. Someone a show called All In that I really like. And they said that winners of the next few years are going to be those that can compete on Alpha. And so hopefully here on The Main Scoop, when we talk about technology, what I mean by Alpha are those that pick the right investments, that are in the right categories, using the right technology, that are really truly differentiating. And Fintech is a really interesting one because we’ve entered a generation of people who want banking, but don’t want banks. And so we’ve seen the banking industry who have for the longest time, been able to corner the market, corner debt, and help companies. And you own a home and you buy a car and you need a bank. Well, suddenly you can do a student loan without a bank. Suddenly you can buy a house without a bank. Suddenly…
Greg Lotko: Without the brick and mortar, without that common, tie my accounts all together.
Daniel Newman: Without even a banking charter.
Greg Lotko: Right. Shop around and go and do the optimal financial engagement wherever. And that’s also driven on lines by comfort, and security, and stability. How comfortable people feel interacting that way. But let’s expand this conversation. Let’s introduce, we have Joao Bezerra Leite joining us. Joao has more than 35 years of experience in the technology, payments, and banking industries in Brazil. He’s served as managing director Itau Unibanco, where he held several executive positions. He holds a bachelor’s degree in electronic engineering from the Instituto Maua de Tecnologia and extension courses from Columbia Business School, Wharton, Swiss Financial Institute, and Singularity University. I mean, he’s gone to more schools than I attended classes, I think. Now he’s currently a Fintech mentor and an investor and serves in several advisory boards. So Joao, thank you for joining us today. Let’s pull you into the conversation. What’s your perspective on all this? What are you seeing, trends and directions and in these large tech organizations that you’ve interacted with.
Joao Bezerra Leite: Thank you very much, Greg. I know this, and I know I have been working for a bank for 36 years, so I’m sorry. I could not shorten this spiel. I didn’t have time to shorten this.
Greg Lotko: It’s impressive.
Joao Bezerra Leite: I guess I’m a mainframe technology, but we have to make this question. Is why do banks exist? So banks exist to help, to support development financing basically. But I always say is that the business model of banks was designing for physical distribution of paper in the localized network of, through buildings and humans. And then us from technology. Technology was then implemented to cement that extra infrastructure in place. In fact, this business model is broken. So that’s why we have so many Fintechs in there.
Greg Lotko: So when you say it’s broke, you think it’s broke because nobody wants physical money anymore, or that there’s not enough physical money in the world?
Joao Bezerra Leite: The problem is that when you talk about transformation, about digitalization, modernization, usually you are in many case, you are digitizing many secular processes. So I guess that happened with banks. We have to make digital, many of the old fashioned process. And you have to write this again from the scratch, and I guess banks did not work there. Because what’s the problems with the successful banks? The success. So they don’t change. It’s very difficult. In banks, they have a…
Greg Lotko: You get complacent, right? You think, “Hey, this model’s been working for years. Why should I have to change? Are these startups really going to start making a dent?” And by the time you start realizing they’re making a dent, you’re behind the eight ball and you got to catch up, right?
Joao Bezerra Leite: That’s right. So I mean, technology helped, but technology is not helping anymore because what we did was we grew to concentration, to acquisitions. Most of the banks, big banks, successful banks. And then they build these spaghetti banks. It’s very difficult to rebuild. And now the banks, they are just coming up, incumbents, they’re challenging those banks. They are kind of “Lego” banks, joining pieces. So they are composable banks. It’s much easier. So to remake this spaghetti banks, it’s not easy and technology is not ready because the banks are, they are flying. I mean, fix the banks during the flight.
Daniel Newman: It’s interesting. You’re saying that I moved to Texas to Austin from Chicago and I moved here and I’d been a long time with one bank. And I won’t mention any specifics, because I don’t want to get anyone in trouble, but let’s just say it’s one of the largest us banks, not the largest. And it had grown through acquisition. Exactly as you said, and it acquired and it acquired and it acquired. And there was no version of the bank, that I was with Chicago. But then when I got here to Austin, which is a really fast growing city here in the U.S., they acquired a bank that was very present here. And what you mentioned hits me so close to home. Is that so they opened a bunch of branches that had the name of my old bank, but I had none of the technology.
So when I was able to go there, they’re like, “Yeah, we can deposit, withdrawal, but everything doesn’t work. None of the systems are connected.” And now we’re a year later and the bank still has all these disparate systems. And I have things where I’ve got a loan on a home and a business bank account, and I can’t automatically have the bank draw the line. I need to actually withdraw money and pay the other account, even though it’s all part of one company. And I think Fintech companies have to be looking at this and saying, we can do this so much better. And you got to wonder about the big banks, why they’re not trying to fix this fast or is it even fixable?
Joao Bezerra Leite: Yes. Well, I guess what a second point that just mentioned is that banks, it’s very difficult for them to attack very personalized segments, [foreign language 00:10:10] because that Fintechs is just fulfilling this space because Fintechs are doing, they are doing good because they are spectacular in making the process frictionless when the bank, maybe it’s not a priority, for the bank because it’s so big that it has many priorities that cannot do this, as for the Fintech. This segment, it’s a survival point. It’s different for a bank. So they are taking advantage of that. And then we have a Fintech merging, another Fintech and two, spectacular things merge together. Then we have a third one, the fourth one. So what am I seeing, is that some Fintechs are becoming larger than banks because they have been able to build something much more composable than the banks.
So it’s much easier. So that’s why transformation is so important in the banks. So it’s about to reimagine the process. See right from the scratch. Because banks, they try to care. They think in the design, by analogy, as I do, because I’m an engineer. I like to make any process better, but in some cases, so to improve, to enhance the money moments. But the point is that if we get China for instance. So even in Brazil with the pigs, I say, we do not care about the current money moments I just have to use technology to make these money moments invisible. I don’t care. So finance should be on the net. Finance should be invisible and a big part of it. That’s why we have this open bank that became open finance. And now it’s becoming open everything, open energy, open insurance, open health, and to reduce the information asymmetry.
So I think banks have to rethink about everything, and not just about the banks, because I, myself, I’m guilty of that because I worked for a bank for 36 years. I wrote something that make you, Greg, and them to entering the bank the way I want, not the way you want. You come to the mobile. It doesn’t matter if it’s good or not. If it’s frictionless, but it has a virtual door. The way I ask you to come. So what I have to rewrite this and should be, I should not have to offer a product. I should just make it happen.
Greg Lotko: And I feel it’s about access points, right? I mean, it’s not, when you say rewrite or you re-architect or whatever, it’s not about having to throw out everything that you had. It’s the paradigm shift. It’s the idea of the entry point and the access point to get to the data and to perform the function the way the customer or the user wants to. Versus thinking the journey has to go through your systems in an order. It actually doesn’t mean that you have to rewrite everything that you had. You just have to allow those access points, those interrupts, those APIs and get to the data and you’re right. You can become a victim of thinking in your old paradigm or your own process when it really should be about the data and the function that the end user or customer wants to perform. And there may be different things that they want to interact with and different systems and entities that they want to share information across.
Joao Bezerra Leite: I mean even Fintechs and banks, they are now waking up and trying to understand they have to be partners, not competitors. Because Fintechs, when they were born, they were like: “I’m gonna kill banks.” Yeah. “I will not respect your regulators.” But this is very naïve, you know? Now banks should banks and Fintech should focus that the next five years going to be going to have those everyday technology embedded experience.
Daniel Newman: I think you’ve got a symbiotic relationship. That’s going to need to exist between banks and Fintech. And you’re actually seeing some of the organizations and banks worldwide. That’ll probably have the biggest chance of being disruptive. You’re seeing, they’re actually making lots of acquisitions with Fintechs, or they are announcing strategic partnerships with Fintechs things like how they’re going to handle digital currency in the future. I don’t think it’s an if they’re going to need to handle it. I think it’s a pretty well understood that these companies will need to handle it and those transactions and being able to deal with these block chains.
These are all things that they’re going to have to deal with. And I think Greg and Joao, we could spend a lot of time here, but for the main scoop, we always do want to come back to the critical technology. Now you said early on you are a main-framer in more or less words. Let’s talk about that because at the core of almost every bank in the planet are a lot of mainframes and despite this is not going to change, this is not going to change. So talk about from your experience, the way you see the world, talking to financial institutions all over the place, how is the mainframes role evolving in this modern banking, financial institution, regulatory, and then of course, disruptive Fintech environment.
Joao Bezerra Leite: Right? Well, in fact, I seen that most of the time when people think about the cloud, they think of replacing mainframe right way. So it is not like this. So evolving technology is not big bang. So even a brand new system becomes a legacy after first, very, data production. So I guess most people, they confuse Cloud with DevOps. So DevOps comes because you have to doing faster, doing in small sprints. I mean, to doing that with more quality. In some cases, if you come back to your mainframe, you see the first virtual service who are mainframes. So we can do every single mainframe if you want. But the problem is that most of people like fashionable technologies like Cloud. And I guess when it comes to mainframe, when we went to banks, they have this large, I mean, mainframe base that can be used for very specific things.
And they can be connected to where Cloud is really needed. The point is that banks, large banks, they have so many priorities. They have to choose. If it has to choose to move to the Cloud in large bank, I would choose front end, the front end segments and maybe integrational layer segments and leave all those huge amounts of data to the mainframe. So that would be my choice that was use it to be my recommendation. The point that I have a problem is that many of the people that work in the architectural segment, they did not understand mainframes. So there is a gap of knowledge that have to fulfill again with people that understand mainframes. And really, when you talk about mainframes, you do need much less people than we need for the Cloud segment because it’s so purposeful, so dispersed that you have too many people to develop it to code, to control. And the mainframe word is if you think that way is much cheaper. In some case, if you really put this in the spreadsheet.
Greg Lotko: And cracking this code is really about having this conversation. I mean, of course, whenever the next new technology comes out, it’s sexy and everybody thinks this is the answer to everything, but having this conversation and then displaying with education with working with customers as partners and showing them how you can open up the core mainframe environment, you can serve up that data. You can preserve those processes. You can use modern DevOps practices and then leverage whatever is the most current technology for its strength, whether it be in the front end or edge or Cloud or whatever, connect it through and display. I mean, honestly, that’s what the leading and most successful financial institutions are doing. They’re leveraging their investments of the past. They’re opening up and connecting not only to the new services and offerings that they can bring the market under their own brand, but connecting through to the Fintechs. So bringing their kind of financials, their base, their reality and presence in the market and tying it into those new ways of interaction, that’s the marriage made in heaven.
Joao Bezerra Leite: I mean most of those banks, which have those large mainframe installations, they should really trying to integrate this on the cloud and really strategically focus the plans for migration, the ports to the Cloud on the front end and the integration layers. Because mainframe are not out of the game. So leave the core of the processing to the mainframes, where it’s needed. A high volumes of processing transactions and simplifying the monolith legacy systems, live there what’s really needed for those huge amount of data. And also if you have a huge amount of data that can’t be left off offsite for regulation reasons or whatever, you probably need something that looks like a mainframe.
Daniel Newman: And I mean, if you tie it all together, you kind of hit on it. There, you’ve got the data issues which require compliance, card data sovereignty, require data security. I mean the resiliency, the scalability, there’s a reason the mainframe is going to be in there. And we joked offline prior to the show, companies will say, we’re going to replace it in the next one to 50 years. And the reason it keeps going out further and further from when the actual process is gone is because the Cloud offers a lot of tremendous value in different businesses and enterprises, but there are specific workloads where to date, there just isn’t a better approach when it comes to all those things, resiliency, scalability, security. And until there is the mainframe will continue to be one of the critical components, especially in highly regulated industries.
Joao Bezerra Leite: That’s easy for you to say, Dan.
Daniel Newman: It’s easy for me to say, I practiced it all night. So just kind of trying to summate, because I think we’re coming kind of to the end of our time here, but you sort of reiterated. And so this is big challenge though, is typically a lot of your Fintech and DeFi come in, very born on Cloud, but as it gets closer to that highly regulated data, that privacy and compliance data. And then of course transacting, whether that’s on a blockchain or whether that’s on some other sort of transaction processing technology as the money moves, because it’s not cash. We need a system that does it very secure. Tracks and traces handles everything from security of a transaction to anti-money laundering. Being able to implement things like AI on top so much going on here, and to be short as an analyst, looking at the market, nothing better than the mainframe has been built.
Greg Lotko: Well, look, it’s a constant, across all technologies. You should be leveraging the best technology to perform a specific function. And then if you’re bringing disparate technologies together, I mean, we can keep using car analogies. Maybe you’re getting your breaks from this company, your transmission, from this company, your tires from another, the ultimate result is how you integrate all those pieces and have them working in concert and communicating across. So that there’s an awareness of the overall environment, and that’s why you see these big customer or these big companies still leveraging mainframes.
Joao Bezerra Leite: That’s right.
Greg Lotko: But pulling in newer technologies, connecting them with Fintechs, with Cloud, whatever, with different interfaces. And that’s how you get to the best of all worlds. So I agree. I think we’re at the point where we need to wrap up, we said we were going to keep these to 20, 30 minutes. It’s been a fabulous discussion, thrilled to have you here, Joao, Dan, we covered a lot of ground. I mean the only thing I think we missed on is the other financial resolution. At least in the U.S., We could all go out and buy a lottery ticket right now and have the wealth of a small nation, if one of us would hit it. But we’ll leave that for another day. If you don’t see any of us on the next session, it probably means we hit it big. Dan, I’ll give it to you for final thoughts to wrap up.
Daniel Newman: Greg. Even if I hit it big, I love what we do. I love this technology and this business, I think would you and I, we would keep showing up, but having said that there is so much so change, we’d probably show up in a faster car. We’d probably do these in person because we’d have a faster way to get to each other. And if we didn’t, we would pay for it. But in the end, all these transactions have to happen on something. None of the technology runs on air. I’ve said it many times before semiconductors will eat the world. And then of course the software on top of them or what makes all experiences possible in a world, by the way, where we just had the chips act pass, where we’re going to see more investment in supply chain resiliency. We are in a place where digital technology is driving the world. And at the core of that are many financial institutions, including banking and Fintech.
And today’s conversation, Greg was really great. Joao was a super good guest, excited to have him. And of course, if you’re watching the show excited to have you back. So hit that subscribe button, join us here for more episodes of The Main Scoop for Greg Lotko and myself. We got to say goodbye. Greg, let’s say goodbye.
Greg Lotko: Awesome. Take care. Thank you folks.
Daniel Newman is the Chief Analyst of Futurum Research and the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. Read Full Bio