Case study: Allica Bank is using APIs to transform finance

How tech is making finance more accessible than ever

Finance. To many, it's an opaque world that you need to be a mathemagician to understand. If you happen to be an accountant, that's great news. If you're a small business owner, not so much.

Before 2008, the UK's ageing banking regulations didn't help; setting up a new bank was expensive and time-consuming, and just four - Barclays, HSBC, Lloyds and NatWest - dominated.

Following the financial crisis, new challenger banks began to appear. The process of gaining a banking license was massively simplified, with Metro Bank becoming the first new licensed bank in the UK in a century in 2010. Since then, firms like Monzo, Starling and Atom Bank have changed the face of consumer banking - with the Big Four playing a belated catchup.

Business owners have been left behind. The conveniences we get through app-based banking as consumers aren't necessarily available in business banking - despite several financial institutions, including the Big Four, doing their best to make it so.

The problem - as ever - comes down to technology.

"The services that we expect and we have come to expect as a retail consumer weren't on offer to SMEs," says Simon Bateman, CIO of new challenger Allica Bank. "But there was no reason why they shouldn't be, other than the technology team being unable to provide that."

Allica - which achieved its own banking license in September 2019 - aims to serve "the heart of the SME space": companies with 5-100 employees. Bateman, who has more than 20 years' experience in the banking sector, says, "We strongly feel that SMEs have been underserved from a financial services perspective for many, many years."

Speed and flexibility are at the centre of SME banking, and legacy core banking platforms have struggled to accommodate those requirements. Instead of ‘What does this banking suite do?', Allica focuses on ‘How do we integrate solutions?' and ‘How do we bring products to market that our customers are going to need?'

The answer is an integration layer built around APIs, which sits at the centre of everything Allica does internally - from internal KYC [Know Your Customer] and KYB [Know Your Business] operations to authenticating and identifying external customers.

"We made a conscious decision…to select the right API integration platform, to ensure that, if we had a third-party service that we wanted to expose out to our customers through our own internally built web portal and app, [we would be able to do that]. If we could build the right architectural stack, we could take on board [anything]: be it an expense management solution, be it Companies House data, be it offering them access to multiple core backend platforms - depending on what service we were looking to offer.

"For example, we have a single platform that runs our lending and savings; and we'll soon be launching an asset finance capability to the market, which is on a different technology stack. By having that API stack within the centre of our architecture, the customer doesn't need to worry about [it], and the business, to a certain extent...doesn't need to worry about what technology stack we choose to offer those services through, because we can seamlessly provide that through the integration layer, which is why that became the key to what we were focusing on."

Allica uses Mulesoft as the API management platform, which has been essential in integrating all the different services the bank uses. "As part of the project delivery we on-boarded about 20 different vendors in order to mobilise the organisation, to build the technology stack," says Bateman. When it came to the integration layer, the choice of vendors was narrowed down to Mulesoft or TIBCO.

"We looked at their capability, their scalability, what was the right fit for the organisation, what experience they had, and what their breadth of coverage was from an API perspective. Through various discussions and negotiations, and internal validations and due diligence, we made the choice of Mulesoft."

Negotiating away from the ‘standard' price list

Even after making the choice, there were negotiations to be done - especially around pricing.

"I think one of the biggest challenges I've faced…going in to look at some of the industry leaders in their market sector - so put Mulesoft in that category - the biggest challenge that I faced is, they didn't have a licencing model or a cost model that supported challengers [and] small growing scale-up organisations.

"A lot of them have a standard price list, and that is [applied] whether or not you are a company that is making a loss, as we were when we were building, or whether you're making £100 million profit a year: there is a licence. There's an entry point into that purchase cycle, so to speak, and I had a number of meetings with some fairly senior people at Mulesoft to explain that we just couldn't afford to do it, because we were building out; and, unfortunately, with the SaaS solutions that exist today, you have an entry level into that platform.

"Let's just say, for argument's sake, that [the entry level] is £10,000 a month, and you pay that from the moment you switch it on. In essence, we were going to spend a load of money for the first six months while we built out the capability - before we even went live. And one of the big challenges that I pushed back on the senior management team and Mulesoft is: there has to be a way in which you have a scale-up pricing model. Pay as you grow, basically. So, as we grow and scale up our organisation, there is a licencing model that grows with us."

Happily, Bateman notes that Mulesoft was "very open" to conversations around licensing and made an effort to understand Allica's specific issues. However, finding a licensing model that works for SMEs and scale-ups can be tremendously difficult, because vendors have a vested interest in locking customers into a contract at a fixed price.

"In a start-up or scale-up, you don't want that. You want the lowest cost possible in the early years, and then you scale up as you increase the number of customers you've got. And I found that was a massive problem across a lot of software vendors. Some of the larger ones that we've worked with over the last two years have acknowledged it and changed their licencing models to support us; and some of the contracts that we're currently negotiating with a number of vendors are also taking that on board."

Vendors are very used to working with customers who have an existing legacy environment and "a million customers" that need to be migrated; but "when you start with no customers, and you've got no line of sight of any customers for probably the first two or three months of launch, the technology team becomes a massive cost on the operational expenses. That was one of the key challenges I found."

APIs speed service delivery

Application programme interfaces, or APIs, are the backbone of modern business. Many applications rely on APIs to talk to each other, allowing them to share information for peak efficiency.

Click here to read the Delta report on APIs

Bateman and his team launched Allica Bank in 12 months, which wouldn't have been possible without using APIs to integrate third-party services into the core platform. "The speed at which we could service different financial systems or financial products, or external agencies or bureaus, would have been a lot slower if we hadn't had the API stack in place," he says.

"For example, we work with a company called Sphonic...whereby they act as a reg tech bureau. We have a single API callout to Sphonic via the Mulesoft platform, which enables us to request information from various credit and agency bureaus in order to validate…the customer. If we hadn't had the API stack in place and been an API-centric ecosystem, we would have had to do an individual callout to each of those, and we would have had to actually write the code in order to extract the information - probably writing into a datastore somewhere in order to extract it out - and then present it up to the front end. Because we focused our attention on the Mulesoft stack, from an integration point of view, we were able to expose those APIs internally and externally to our front-end users."

Using APIs has also simplified Allica's services for some of its less tech-savvy customers - especially brokers.

"Brokers, from a commercial lending perspective, are not used to a fully technical solution, I think is probably the best way to put it. We think SMEs have been left behind in the banking space - brokers are one step behind them.

"So, we set out to build a web portal, which is the application process for different lending applications, using APIs. Through pre-populating information, through extracting information from Dun & Bradstreet or Companies House, through doing simple things like address lookups…[we've simplified the process]. In fact, the brokers that we've interviewed over the last three or four months consider the Allica portal as the best-in-market. That's only been achievable by the fact we used APIs to deliver that capability; otherwise, it would have been a very manual form…

"It would have taken us considerably longer in my opinion, to have built it without APIs."

Click here to read our analysis of Mulesoft vs Apigee

There was "no point" building an internal development team, considering the investment constraints Allica faced as a startup, Bateman added. Instead, the company worked with trusted third parties to build out its capabilities. The bank chose these partners carefully to ensure they provide an interface into the Mulesoft solution and their tools would work with Allica's tech stack.

"One piece of advice would be: do proof of concepts. Don't always believe the sales talk, make sure that what you're being told will work, will work. Get a proof of concept, do some testing in your environment, make sure it's actually going to work with the core architectural components that you've got… If it doesn't, you end up reengineering, and I can't afford for such a young organisation as Allica to introduce any legacy…

"We need to be able to switch out technology as we choose, as new technology becomes available. [No matter] what is fit for purpose today, there might be a new product that comes along later [that is better,] and having that API stack at the core of our environment enables us to look at replacing those."

Onward to 2021

While Bateman admits that building the bank would have taken longer had it been launched today, the pandemic hasn't significantly impacted growth; Allica has added more than 90 full-time employees since the first UK lockdown in March last year, and done more than £100 million in committed commercial mortgage loan offers since June.

Going forward, APIs will continue to play a major part at Allica. The company will use them to add new features and functionality to its platform as it scales out to new customers. Essential to Bateman, though, is making sure that everything complements the platform. Just because the team can use APIs to add and remove products easily is no reason to do so without the demand being there.

"I don't want to be in the situation where I'm deploying technology that has no value to the SME. We need to find ways…to ensure that the solutions we're delivering are very simple and very focused on their needs - not just because somebody came up with a great idea over in the operations team. What we've got to do is make sure we're delivering technology that really does have that benefit."

The world of finance is still tricky for to navigate; but, using technology like APIs, it is more accessible than ever.