finnCap Tech Chat | Goldilocks and the Old Fashioned Bankers

Cyber security practitioners aren’t permitted to name their clients, typically, but you can tell when you meet those who work in UK banking. They shake a little more; they sleep less well. The digital “doors” to the bank are old and hang on rusty hinges. They may not even realise some doors are there and leave them unlocked as a cybersecurity company I know discovered, on behalf of a privately owned managed services business recently, when they reviewed their network that had been assembled through acquisition.  While all the known “doors” were being protected, multiple unknown and hence unprotected “doors” popped up on the first network scan through the tool (link).  If the cyber specialists are nervous, I don’t how banking ops directors have ever slept. 

In the same way, the big-name high street banks use banking systems established over the years and through M&A, which, in some cases, still rely on a mainframe in some part. No one can be sure what will happen when you switch it off.  So, best not. I recently opened a business account with NatWest, whom I’ve banked with since 1983.  It took 3 months, as there were lots of humans involved.  Again with NatWest, a family business account which we’ve had since 1956, the bank suddenly closed it without notice in October, because a post code was recorded wrongly. To my aged-father's significant distress, it took a whole 9 days to find out what the problem was: a computer had shut it, and a human had to figure out why (eventually) and open it again. 

As a consequence, we are moving the account to Tide.  Opening an account with them took about 15 minutes, with no humans involved. I now have a problem with them but there are no humans to talk to, just automated emails. I think one day I should establish a “Goldilocks Bank”, not too human or too automated, but just right. To take one example of where this is true, take a look at LendInvest (LINV), a non-bank mortgage lender that uses a mix of automation and human intervention to speed up decision making and improve the customer experience. The advantages of LendInvest’s tech platform being rated elite across categories by the all-sector Google State of DevOps report, with comfortably top quartile tech and an excellent communications ranking from the Mortgage Lender Benchmark, speaks volumes about why the platform will scale share in the coming years. The move into regulated products with the launch of the specialist homeowner product in the next few weeks, will then open up the transformational opportunity to generate SaaS revenue from the £1.1tn mainstream homeowner market – and that’s just in the UK. 

This is the retail side of lending and banking that we all come across – imagine the complexity in the trading environment.  In the Gresham Technologies (GHT) October Capital Markets Day, the charismatic CTO Neil Vernon explained the transaction path of a rates trade, touching 800 platforms in London alone. In a complex hedging trade, “rates” may trade with “equity”; and then involve NY and HK: the platform interactions multiply.  When something goes wrong, it’s not like Royal Mail – you can’t see where the package is.  But where a $100m trade executes, you wait T+3 and may only know it’s failed until it is supposed to have settled. Try looking in one of the 2,500 systems it touches, an elaborate and nerve-wracking exercise of “where did you last see it”.  More complex transactions and strategies are constantly being invented, and the fingernails of the head of Middle Office can only get more chewed. 

The solution should be a triumph for the logic of the automation of the unglamorous, our perennially favourite investment thesis. Addition of the clients’ regulatory anxiety really excites us now, as this will drive the tragically long banking sales cycles into forced decision making in favour of a solution that can save them millions in fines, and column inches of media criticism.  

Gresham Technologies isn’t the only stock to fulfil our two core criteria of a) the automation of the unglamorous, and b) the certainties in life of death, taxes and regulation – but it’s one of the oldest listed tech businesses (founded 1969, listed 1995), and is one of those that has often been seen as just too difficult to understand what they do, so why bother.  Like a Victorian gentleman whose family only knows he is “something in the City”, Gresham has made it clearer what it can do with the example of a £6.3m contract, announced in May and extending an initial 2020 relationship, where the Clareti Control solution has made it fundamental to a UK bank’s operational controls - and proves it’s worth paying a little more attention. We’ll never know, but I really hope it’s NatWest, then they might even save my custom with them. 

Happy Friday