Driving the Digital Transformation of the Banking Industry: Our Investment in Tuum

Core banking software has evolved significantly since it replaced paper-based processes four decades ago. But banks’ systems have become legacy, hindering innovation and requiring substantial budgets for maintenance and upgrades. What’s more, the intensifying competition from fintechs, such as Revolut or Monzo, has prompted banks to rethink their core infrastructure and become more agile in a fast-changing environment.

These fintechs are now posing an existential threat to established banks, who are now spending billions each year for software, in-house development, and IT services in order to remain competitive. Yet the lion’s share of these investments are directed to maintaining systems doomed to fail. Why is that? Their tech stack has become too complex, piling up hundreds of siloed systems written in different programming languages, each with a separate database, and running on the banks’ own servers. Launching a new product can take years of development versus a few months for the next-gen banks. Even a single update can take months and cost millions.

Despite the many risks that come with an IT migration, we are convinced that shifting towards a modular architecture in the cloud can be done seamlessly and unlock massive benefits. A prime example of this is Tuum's cloud-native platform. The Estonia-based startup is poised to disrupt the core banking software market, offering financial institutions the agility and innovation they need to thrive in an ever-changing industry.

To better understand why Tuum's solution is both revolutionary and exciting, let's dive deeper into the evolution of core banking software.

‍The Evolution of the Core Banking Software Market

Core banking software emerged in the 1970s when banks got rid of their ledgers and paper-based processes and started to develop their own systems on mainframe computers to facilitate operations, such as processing and recording of transactions as well as managing customer data. These systems were developed in legacy programming language (COBOL) and on a product by product basis, which resulted in siloed architectures often referred to as spaghetti code. 

A first generation of packaged software solutions  developed by third-party vendors (e.g. Fiserv, Finastra) appeared in the 1980-90s, using a single code base and easing maintenance, but without fundamentally changing the mainframe architecture.

During the 1990s, a second generation of core banking systems emerged, pioneered by Temenos. These were based on a client-server architecture, significantly improving cost and flexibility. However, as on-premise installations, with typically substantial local developments, maintenance costs remained high and upgrading was a challenge.

In the early 2010s, cloud-native solutions, such as Thought Machine and Mambu, came to market. Cloud computing, which developed from the early 2000s, overcomes a lot of historical  systems’ limitations through automated scalability, quicker software development, and improved flexibility. Yet banking is still lagging way behind other industries, especially when it comes to core banking systems. The risk of a failed IT migration has been –– and is still –– preventing many banks from making the leap. Consequences can be massive, as experienced by TSB or more recently Deutsche Bank when integrating Postbank. Still, the urgency to modernize has not disappeared.. 

We are in the early stages of this significant shift in the banking industry. Core banking software is massive, with a global market size of approximately $25 billion still largely dominated by incumbents, according to research from Temenos. Tuum stands to disrupt this legacy ecosystem with an intuitive platform suitable for most banks. Customers have praised the platform with Julie Chatterjee, CEO of SweepBank, calling Tuum “a Netflix-like experience” for their customers.

Suffice it to say, this more than validated our conviction in the product and the team.

Tuum’s Modular Cloud-Native Solution

Tuum's value proposition shines brightest in the tier 2-5 banking segment, which represents banks with assets less than $250 billion — constituting approximately 65 percent of the total market opportunity. In contrast to this market segment, tier 1 banks prefer a rather bespoke software setup with heavy customisation. 

We have been impressed by Tuum’s platform comprehensiveness. It was built with the aim to cover all of the essential banking functions from managing accounts and lending to providing payment solutions and processing transactions. As a cloud-native and highly configurable product, it can be implemented in a matter of months without involving massive resources and budgets. Moreover, the breadth of features shows a strong understanding of business needs in this customer segment (Tuum is one of the few products that includes off-the-shelf collateralized loans capabilities). Finally, the flexibility of Tuum's universal deployment model, whether on the cloud or on-premise, aligns with the diverse needs of tier 2-5 financial institutions. 

Another key selling point is the ease with which Tuum can be implemented. Tuum’s modularity empowers institutions to go piece by piece by selecting the components they need and seamlessly integrate them with their existing technology stack, including third-party softwares. This allows for an efficient IT migration process. Tuum has also demonstrated its migration capabilities by successfully transitioning millions of accounts from incumbent and challenger competitors, with an average implementation time of seven months.

Finally, the founding team with Rivo Uibo, Ove Kreison, Jan Lakspere, and Jüri Kirme boasts incredible experience in the banking software space, with a track record of smoothly launching large-scale projects in the past, and having successfully exited their previous venture to Checkout.com. Their deep industry knowledge is complemented by strong tech and product leadership, while the CEO Myles Bertrand, Chief Revenue Officer (CRO) Edgardo Torres-Caballero and Dorota Nosal-Butler, Head of Customer Enablement, bring relevant experience from Mambu, providing a well-rounded and experienced leadership team.

Given the team's impressive achievements over the years, we're excited to embark on this journey together and witness the transformation Tuum will bring to banking software, positioning itself as a leader in the new era of cloud-banking.

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