PwC & Microsoft further cloud-native digital banks with their ecosystem offering

The Situation: Banks want to be digital. However, corralling all the myriad tech, people, and process components leads to multi-year projects or, even worse, piecemeal whack-a-mole strategies that spiral out of control. Banks, whether new or established, need to make rapid progress through transformation in today’s challenging environment. 2022 heralds the rise of the ecosystem orchestrator and a path forward to cloud-native digital banks. PwC and Microsoft are tapping into this.

We could forgive you for missing PwC’s UK-issued announcement back in November about its expanded partnership with Microsoft offering a “global digital banking solution.” Heck, even if you saw it, you likely were not excited in the least, as it looked like a regional offering consisting mostly of leadership quotes from PwC and Microsoft, seemingly created by a random word generator of innovation buzz words. However, upon further investigation, there is actual meat on this digital bone. As HFS has written, public cloud continues to gain traction in banking and financial services, but it’s workload driven. This offering thinks bigger.

PwC productizes an ecosystem-led, cloud-native digital bank offering with Microsoft and its new Cloud for Financial Services

The November announcement was actually for a cloud-native, front-to-back digital bank offering. Microsoft, fresh off its Cloud for Financial Services capabilities hitting general availability in November 2021, was looking for a service partner to help bring a comprehensive digital bank proposition to life. PwC, a longtime Microsoft partner, has supported successful digital banks such as Starling Bank and has taken preliminary steps to productize an integration and orchestration platform (originally launched as TYSL in 2020) powered by fintechs as a means to rapidly launch and iterate digital banks. The yet-unnamed offering brings PwC’s digital banking expertise and TYSL integration platform to Microsoft’s public Cloud for Financial Services, leveraging a curated set of fintech ecosystem partners, the full breadth of Microsoft’s product portfolio, and its industry-specific data model.

An undisclosed anchor client with a need-for-speed brought the whole thing to life quickly, yielding an offering designed to rapidly build a complete front-to-back digital bank in months, not years, using public cloud and cloud-native fintech partners.

The rise of the financial services ecosystem orchestrator

The offering provides a single-source, one-throat-to-choke digital bank. PwC is the prime contractor, which we should promptly re-christen as “ecosystem orchestrator,” bringing its digital banking expertise to design, build, integrate, and ultimately run the digital bank. All fees can be run through PwC as well, thus the ultimate substantiation of the one-throat-to-choke approach. This orchestration role is the unquestionable heavy lifting, making it all work together in a flexible combination that yields a digital bank with in-demand financial service offerings. Microsoft is bringing its vetted and trusted array of partners (all are part of the Microsoft partner network), its full product suite optimized in various solutions for banks, and, of course, its Cloud for Financial Services.

PwC and Microsoft have curated a set of trusted fintech partners in several categories that collectively comprise the necessary elements for a digital bank. The ecosystem is meant to offer modularity and flexibility based on client preference, jurisdiction, and need. Exhibit 1 highlights the must-have digital bank components and representative ecosystem partners.

Exhibit 1: The representative components for a cloud-native digital bank

Source: HFS, PwC, Microsoft, 2022

All offering participants are cloud-native SaaS offerings that can be consumed as a service and integrated via APIs as needed. The ecosystem is orchestrated by PwC, leveraging its industry and business advisory capabilities plus its integration and orchestration engine.

This matters because digital is now

As HFS recently articulated, digital is not a future state. Digital is now – and the critical foundation to be effective in a OneEcosystem model, as our Innovation Framework illustrates (Exhibit 2).

Exhibit 2: Enterprises have to progress through digital-first, then OneOffice horizons, all the while enabling OneEcosystem

Source: HFS Research, 2022

All of the hundreds of established financial services firms HFS has interacted with during the pandemic have voiced some variation of the theme that they are not as digitally transformed as they thought they were pre-pandemic, and they need to rapidly innovate to compete. All the cool customer-facing digital skins in the front office that were not connected to the back office have just built more technical debt and created more manual processes.

The current and in-progress digital banks we interact with persist in launching and expanding because the nimbleness afforded by often updated and easily configurable cloud-native technologies allows them to take market share from the established firms. Launching new products and services rapidly is a massive differentiator and something that remains a challenge for established firms grappling with legacy innards.

The Bottom Line: This bold offering from PwC and Microsoft heralds the rise of the ecosystem orchestrator role, curating the elements and expertise required to rapidly build a digital bank.

This digital bank offering from PwC and Microsoft is designed to drive massive improvement in time to value and the extensibility of digital banking growth and expansion. The orchestrated ecosystem approach holds huge de-risking potential for firms willing to roll the dice and embrace the curated approach. Although, PwC and Microsoft could do their future customers a favor and figure out how to describe it better. We had to do primary research to figure out if this was more than vaporware.

While the offering applies to any established or future bank, it is not for everyone. Many established firms will balk at a big bang approach—even if it’s designed to take months, not years—because it requires massive change. HFS expects to see most of the uptake continue with new challenger banks and (as Mambu calls them) “speedboat” projects where a digital bank is created outside of an established bank. Established banks afraid of change should start planning farewell parties for their market share if they continue to ignore the power and applicability of public cloud and cloud-native technologies.